Barry McCarthy has a number of new jobs First Data, giving him a wide view of the pressures facing payment processors in a world where massive volumes of plastic card swipes are no longer enough to ward off the competition.
"The payments landscape is moving rapidly, and if you're a processor you have to evolve from moving dollars from point A to point B to a solutions provider that's focused on supporting the growth of businesses," said McCarthy, the president of financial services for First Data. McCarthy's a longtime First Data employee who, along with a number of other executives at the company, recently assumed new roles as the processor adjusts to the growth of mobile commerce, new payment forms, and the rapid ascent of nimble competitors.
The company also faced financial challenges in the recent past, and got some help this year in the form of a Kohlberg Kravis Roberts & Co.-led debt restructuring (KKR, a private-equity firm, bought First Data in 2007). First Data hired former JPMorgan Chase COO Frank Bisignano to be its CEO in 2013 and named chairman in March of this year. Bisignano will oversee the business diversification that's part of First Data's recovery strategy, which McCarthy and the other new and recently promoted executives will execute.
"We have advantages that we can use. We have a large card-issuing base, large prepaid card base, a large number of merchants and a debit network that we can combine to develop new products," McCarthy said. "And we see [a lot] of data through processing. That can build risk models and other products to help our clients run their businesses."
After his promotion, McCarthy now leads First Data's Star Network, the company's PIN debit network. He's also in charge of other Frist Data programs such as TeleCheck, Money Network and Prepaid Solutions. He plans to use these programs as launch pads for a variety of merchant services.
First Data is busy planning the rollout of new security and business management tools that surround the actual transaction. While accepting and moving payments are still part of the company's plans, First Data hopes to shore up merchant relationships by acting as a more diverse and flexible partner.
"For example, we'll soon have a solution that gives consumers more control over their cards, such as turning it on and off based on time of day or zip code, etc.," McCarthy said. "What you'll see is a transition from having transactions going on in the background to also providing innovation and forward-looking solutions."
First Data has been laying the ground work for this diversification strategy for about a year. The company's Clover Station tablet point of sale system, which First Data acquired last year, offers a number of other services, such as data-driven security and marketing, consumer feedback and a venue for merchants to sell digital gift cards.
Clover Station's technology is driven by open architecture, a developer-friendly and interoperable programming model which McCarthy said creates many opportunities to add features that can reside on the tablet along with payments.
"It's far more than just a credit card terminal," he said. "Because it has an open app environment, it allows Clover to operate like an app store."
First Data is also using its credentialing capabilities to gain a favorable position with emerging mobile wallet schemes. It provides tokenization for Apple Pay, which launches Oct. 20; and handles provisioning for Google Wallet.
First Data is also pursuing in-app payments via its e-commerce product, Payeezy, which lets merchants and their app developers build iOS apps accepting Apple Pay for physical goods and service purchases. Developers the Payeezy software development kit (SDK) and supporting documentation needed to build the app. This SDK also provides the tools to be able to accept Apple Pay in their iOS apps.
"We were an early collaborator with Apple on Apple Pay," McCarthy said. The role positions First Data to quickly provide merchants with services tied to Apple Pay, he said. "There were a lot of folks in the ecosystem that participated after the fact, but we were in early."
As a merchant service provider, First Data has no shortage of competitors. These include other established processors such as Vantiv and newer companies such as Square, Heartland's Leaf and Ingenico's Roam. These rivals are also diversifying by adding merchant services.
First Data can compete by leveraging its scale, McCarthy said, adding the company processes payments for more than 750 million debit card accounts and has more than 4 million merchant clients.
First Data is also not alone in seeking to avoid "dumb pipe" status, or being seen as just a way to move money from one party to another. MasterCard, for example, is also branching out, offering myriad value-added services and dabbling in wearables.
"For the longest time, payments hadnt changed and it was easy to get lulled into a product set that was standard and evolved at a relatively slow pace," said Andy Schmidt, a research director at CEB TowerGroup. "But the last few years have been an explosion in new ways to accept payments. Apple Pay alone has strapped rockets onto payments."
That's forced First Data to play the role of "trusted service manager" in addition to processor, Schmidt said. "They've had to find a new point of view in the payments space."