Fiserv's rise illustrates how the old order in debit card transaction processing is changing. Now that it has absorbed EDS' debit business, what will Fiserv do?
  Two of the nation's largest electronic funds transfer network competitors, Visa U.S.A and Memphis, Tenn.-based Concord EFS Inc.'s Star network, both face being bypassed for some card authorizations that they currently switch.
  Visa is locked in a legal battle with transaction processor First Data Corp., which is trying to use its First Data Net connection between Visa card issuers and merchant acquirers to bypass the VisaNet network for authorizing some signature-based transactions. That fight involves Visa offline debit (signature-based) and credit card transactions in which a First Data processing client is both issuer and merchant acquirer ("The Closed-Loop Battle of Giants," December, 2002).
  A parallel is occurring in the world of personal identification number-based debit card transactions, where Brookfield, Wis.-based Fiserv Inc. is becoming a major force. Fiserv is a bank transaction processor that, say analysts, could bypass Star to authorize PIN-based transactions on behalf of Fiserv's financial-institution clients.
  Fiserv is acquiring Plano, Texas-based Electronic Data Systems Corp.'s Consumer Network Services unit, which drives 13,170 automated teller machines. The $320 million purchase will more than double Fiserv's annual EFT processing volume to about four billion transactions.
  Add in the 5,000 ATMs Fiserv already drives mainly for financial institutions, and the EDS deal will make Fiserv the nation's fourth-leading third-party ATM driver with more than 18,000 ATMs under contract.
  Even with EDS' debit-processing division, Fiserv does not come close to Concord's more than 94,000 ATMs under driving contracts. But the deal is expected to place Fiserv in a better strategic position to compete with Concord across a full range of debit services, including network switching, say analysts.
  As part of the deal, Fiserv will take control of several EFT networks now owned by EDS. The largest is the Bellevue, Wash.-based Accel/Exchange network, the eighth- largest EFT network in the U.S., according to CCM sister publication ATM&Debit News' EFT Data Book 2003. Fiserv also will own the smaller Mpact and TX networks.
  Fiserv already manages the demand-deposit account databases for thousands of small to medium-sized financial institutions to provide internal transaction processing, such as mortgage payments, notes Richard K. Crone, vice president of Boston-based Dove Consulting Inc.
  The Star network also connects to millions of DDAs among its 6,200 financial-institution participants to authorize PIN-based ATM and point-of-sale debit transactions. However, millions of Fiserv-managed DDAs are the original source of account information used for many of Star's authorizations, notes Crone. That means Fiserv potentially could bypass Star and authorize PIN-based transactions for its own clients, much like First Data is trying to bypass VisaNet to authorize offline debit transactions for some merchant clients, says Crone. Visa is suing First Data to quash First Data Net and First Data has countersued. The disputes are being litigated in U.S. District Court in San Francisco.
  "I compare the Fiserv deal with what First Data is doing to clear their own transactions using their own network," Crone says.
  Initially, Fiserv intends to offer better pricing to its clients by gaining economies of scale from higher transaction volumes, says Paul Frank, president of the ePayments division of Fiserv. The EDS deal also will allow Fiserv to consolidate and expand its new EFT network services.
  "The issue is developing a strategy with the brand, and that is one of the first things we are going to look at," says Frank of expanding Accel. Franks says the EDS acquisition also will allow Fiserv to cross-sell a much broader array of services.
  George Albright, chairman of the Atlanta-based Speer & Associates consultancy, agrees that Fiserv's move to acquire EDS' ATM and network services could give Fiserv some unique advantages, including offering a direct debit authorization service to clients, many of which currently use Star as a network and parent company Concord to drive their ATMs.
  "Fiserv didn't have the network switch before," says Albright. He adds, however, that Fiserv has a long way to go to approach Concord either on the ATM driving and processing or network services sides of the business.
  Some of the largest debit players bid for EDS' ATM and network services division, including Genpass Inc., Fifth Third Bancorp's Processing Solutions subsidiary, First Data and Total System Services Inc. (TSYS), says Albright.
  One industry insider familiar with the bidding process says the other processing companies concluded that the asking price was far too much for the size and revenue of the services.
  The source also notes that Fiserv's lack of a presence in PIN-based POS debit, the fastest-growing segment of debit transactions, will be a major handicap in supplanting Star or any other major networks for network authorizations even for Fiserv's own banking clients.
  "If it was just ATMs, you could create your own network," says the source. "But these days you don't have the wherewithal to build your own POS mark."
  Barbara Span, a vice president of Star, says that despite Fiserv's DDA connections, most financial institutions do not want to mess around with the ability of their debit card holders to conduct EFT transactions. "We all know how important access is to consumers," says Span.
  The Star brand is on at least 127 million debit cards. By comparison, the Accel/Exchange network currently is found on only about eight million cards, according to the EFT Data Book.
  But some EFT industry observers see Fiserv as a rising, formidable competitor to Concord and other companies trying to carve out outsourcing businesses for financial institutions. Fiserv's deepening interest in debit processing dovetails nicely with the company's back-end processing services, says Crone.
  Crone says Concord and other large EFT service providers do not have similar back-end transaction processing connections among financial institutions, adding that ATM transaction authorizations are based on access to DDAs, of which Fiserv has millions under management contracts.
  "This marks a major turning point in the EFT industry," he says. "Fiserv is at the beginning of the processing food chain and at the end of the processing food chain."
 

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