As the sun sets on a joint merchant-acquiring venture between First Data Corp. and JPMorgan Chase & Co., the two companies likely will duke it out for merchant clients if the past is any indication.
"Chase relies mainly on their bank branches as a chief channel for gaining merchant accounts, but they've always been aggressive on that front compared to other banks," says David Fish, senior analyst for Waltham, Mass.-based Mercator Advisory Group Inc. "They're out there recruiting and doing everything a nonbank acquirer is known for."
First Data and Chase last week announced they have agreed to end their joint venture, Chase Paymentech Solutions LLC, by the end of the year. Chase and First Data formed Chase Paymentech in 2005 with Chase holding 51% of the company and First Data 49%.
"This entity had other lives within the last 15 years," says Mia Schernoff, Chase Paymentech executive vice president of marketing. "There was a series of other joint ventures that ultimately became Chase Paymentech as a result of the 2005 merger between Bank One and JPMorgan Chase."
New York-based Chase will retain 51% of Chase Paymentech's assets, including most of its employees, its Canadian and European operations, and the company's Dallas-based headquarters, according to the companies.
First Data and ISO
Greenwood Village, Colo.-based payments processor First Data will assume management of the ISO and Agent Bank division of Chase Paymentech and will integrate 49% of the assets, including a portion of the staff, into its established merchant acquiring business. A First Data spokesperson says First Data will assume the ISO relationships and contracts.
Calculation of the contributing assets at the time of the joint venture's formation determined the 51/49 ownership split, according Schernoff.
"We don't have all the answers yet in terms of how the employees will be allocated to the two different owners," Schernoff tells ISO&Agent Weekly.
The September buyout of First Data by Kohlberg Kravis Roberts & Co. triggered a clause in the joint-venture contract that enabled Chase to end the alliance.
Expect fierce competition between Chase and First Data when they operate as separate entities, says Adil Moussa, an analyst with Boston-based Aite Group LLC.
Chase "used to compete quite openly with First Data. There's no secret about that," Moussa says. "They would go after the same accounts and really outbid each other. Now it's going to be even more so."
chase not sitting back
Banks and ISOs typically use differing strategies to acquire merchants, with ISOs usually acting more assertively, Moussa says, adding that First Data has no such advantage in this case. Chase "has proven it's not that type of bank. [Chase is] not going to sit back and wait for merchants to show up. They will go after them aggressively."
Moussa expects Chase and First Data to experience some separation anxiety.
"By ending their working agreement, both First Data and Chase will face challenges to continue to grow," he says, adding that Chase will rely on its banking arm to leverage other types of banking relationships that retailers are seeking, such as treasury services.
First Data can offer some of those services, Moussa says, but it will be through the payments processor's alliance banks—Wells Fargo Bank N.A., Citigroup Inc., SunTrust Banks Inc. and PNC Bank.
"First Data's retention of the ISOs and agent-bank relationships marks a clear indication as to where First Data is looking to grow, and it clearly sees ISOs as a factor in its success," Moussa says. "Therefore, Chase will quite conceivably grow faster than First Data in large-merchant acquisition."
Might the breakup create opportunity for other processors to pick up discontented merchants and ISOs? If it does, Mercator's Fish says it would not be anything out of the ordinary for the industry.
"On the one hand, a shake-up does present an opportunity," he says. "On the other hand that type of competition is ever-present. That's how that market works. The population of merchants isn't necessarily growing, so basic merchant acquisition is to convert from another acquirer."