The announcement of a joint venture between the
electronic payments processing giant and the banking network is a
reflection of the changing European payments market in light of
SEPA. Truong Mellor reports on how this deal will alter
the playing field.
Electronic payments processing giant First Data
has announced a joint undertaking with pan-European banking network
EUFISERV. Based in Brussels, EUFISERV is comprised of fifteen
shareholders, including twelve European banks and banking
organisations, and provides interbank switching of point of sale
(POS) and ATM transactions, including authorisation, clearing,
settlement and value-added services to payment card issuers,
acquirers and payment schemes.
“First Data has been very active as a processor
for both issuers and acquirers of a wide variety of card and
consumer finance products,” said David Yates, president of First
Data’s international operations. “The European payments market is
changing rapidly and, with SEPA, we are now seeing a redefinition
of national and international transactions as European domestic
transactions. This provides us with the opportunity to switch
transactions, on an integrated basis, between our clients and other
issuers or acquirers, to the benefit of all parties.”
The agreement with First Data will see the two
companies work to further develop these services in order to meet
SEPA requirements, and both expand and develop the European
interbank processing network that is managed by the organisation in
order to meet the legal framework requirements of SEPA and better
serve a new class of ‘payment institutions’ that was created by the
European Commission’s Payment Services Directive (PSD). First Data
will also acquire a 50 percent equity stake in EUFISERV’s interbank
processing business, which will subsequently be renamed.
“The joint venture really should be seen as
more related to the broader market changes resulting from SEPA
rather than just the PSD,” explains Nadeem Shaikh, president of
First Data’s Western Europe, Middle East and Africa
operations.
“As a processor, First Data’s business will see
less of the impact of the PSD than what the banks will experience.
What it allows us to do is provide the technology around a
potential third scheme, within that realm of equal footing,” he
continued.

Pan-European reach

The connecting of EUFISERV and First Data’s existing payment
networks will create the opportunity for customers to access more
than 74,000 ATMs, 1.5 million POS merchants and to reach more than
165 million debit and credit card accounts in Europe. EUFISERV had
previously operated an ATM card scheme that provides cardholders
from member banks with access to cash at more than 60,000 ATMs in
nine European countries. This new agreement will see First Data
acquire a 50 percent equity stake in EUFISERV’s interbank
processing business, and the company will also promote EUFISERV
products and services through its own sales force across the
continent.

An important part of the joint venture is that
it brings a great deal of connectivity to the existing clients of
both companies, creating a comprehensive network that is waiting to
be harnessed.
First Data brings a wealth of commercial
expertise to the venture, according to Shaikh. “We know how to
sell, we know how to bring parties together,” he says. “We have a
comprehensive European footprint in our own right and a lot of
operational expertise around that, and obviously we bring the scale
of the world’s largest processing organisation.”
He adds that EUFISERV has brought a lot of
systems and IT expertise to the table. “They also have committed
European shareholders in terms of the savings banks, and they have
a comprehensive knowledge around interbank processing,” explains
Shaikh.

Interbank processing

It is the interbank processing part of this agreement that Shaikh
feels is the crucial element. Historically, First Data’s business
has been strong on both the issuing and acquiring sides. The
missing link in the chain was the interbank processing that sits in
the middle.

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By GlobalData
“This was mostly done in countries either by a
local processor or by the international schemes,” explains Shaikh.
“What this really does is allow us to offer a one stop shop for our
customers across the entire value chain – all the way from ATMs and
POS front-end acquiring all the way to the issuing back end whether
it is in-country or cross-border. Any business can really do
end-to-end with us.”
Petter Johansen, managing director of EUFISERV,
similarly believes that the joint venture will greatly boost the
“interbank switching service currently operated by EUFISERV for
bank card issuers and acquirers in multiple European markets, thus
strengthening one of the processing alternatives which are being
sought by banks and authorities for SEPA. EUFISERV brings the
interbank switching capability, complementing the issuer and
acquirer processing capabilities of First Data.”
Considering the membership of EUFISERV and its
European footprint, First Data at once has the ability to connect a
large number of banks in ways that were previously
unavailable.
Additionally, customers of First Data are now
able to connect to these institutions. The essence of SEPA within
the cards payment world was focused on separating the scheme from
the processing and enabling people anywhere within the Eurozone to
be able to process a transaction.
“We have separated the scheme, which is sitting
with EUFISERV,” says Shaikh. “The joint venture is more of a
processing company and we have now already connected a number of
the banks together, fulfilling a number of SEPA
requirements.”
What this agreement does is apply a
considerable amount of pressure on other European processors. While
there are still some opportunities for organic growth within the
market, the sheer volume of transactions that the joint venture
will be handling means that they will struggle to further
expand.
For Visa and MasterCard, the deal between
EUFISERV and First Data will have potentially challenging
ramifications. Until now, EUFISERV was involved in switching
through the two schemes as opposed to developing large ‘on us’
markets, where the entire transaction process would stay within one
organisation.
First Data has prior experience of these types
of transactions through First Data Net, a closed-loop network it
was offering to process ‘on us’ transactions that Visa filed suit
against back in 2002 in order to make sure that all Visa
transactions were put through its own VisaNet transaction network.
First Data swiftly filed a countersuit against Visa, claiming that
the network was acting anti-competitively and limiting choice
within the payments industry.
The two companies eventually came to an
agreement in 2006, whereby First Data moved the transactions from
the particular banks in question onto VisaNet. Given the sheer
scale as well as the volume of transactions involved, it will be
interesting to see how the two global networks react.
However, the situation in Europe is quite
different to that in the US. Under SEPA legislation, it is no
longer possible for a payment scheme to mandate the use of its own
network for cross-border payments.

SEPA

The approach of many corporate businesses towards SEPA has been one
of near ambivalence. Until such a point that a clear business case
has become apparent and the legal harmonisation of payment
regulations has been achieved, most are unwilling to act beyond the
minimum requirements.

According to a recent report published by
global financial consultancy firm Celent, many of these businesses
feel that the decommissioning of domestic payment schemes will lead
to them losing the benefits of tried and tested processes. For
many, this issue is further compounded by the absence of a clear
deadline for SEPA.
While the agreement between First Data and
EUFISERV may not in itself be able to change the minds of those
adopting a ‘wait and see’ approach, Shaikh believes that it may
help convince some of these players about the end game of
SEPA.
“In our minds it is a significant milestone,”
he says. “It is not like we have announced a joint venture that we
hope to get off the ground in the near future. This is up and
running. A lot of corporates are only convinced when they see
something real and can see the benefits going through, so hopefully
this will start to make that happen.”
Conversely, the joint venture also puts First
Data in a strong position within the European payments market
regardless of the SEPA timeline or its eventual outcome, as it
brings together a lot of the essential pieces such as domestic and
cross-border interbank processing as well as critical mass in
relation to ATMs that the company’s clients are looking for.

A third way?

In light of the changes currently taking place within the European
financial services industry, both companies believe that banks are
looking for new options and they expect the services they will be
providing together to prove attractive and relevant in this new
environment. EUFISERV’s history and experience within interbank
processing will be complemented by the vast European reach of First
Data.

EUFISERV had already taken steps to position
itself ahead of the changes happening in Europe – in April 2007, it
signed an agreement with German banking group ZKA to allow EUFISERV
scheme members to provide ATM cash withdrawals to German debit
cardholders and vice versa, significantly expanding the reach of
both card schemes under SEPA.
This marked an additional service for the
cardholders of those 20 percent of German debit cards which do not
at present bear the co-branding logo of an international card
scheme.
In November of that year, EUFISERV was one of
six European card payment schemes that joined together to establish
the
Euro Alliance of Payment Schemes
(EAPS). Based in Brussels,
EAPS will facilitate pan-European transactions, effectively
creating a new European card scheme.
Other joining members were Italy’s COGEBAN,
Germany’s EPCS, EURO 6000 of Spain, Link Interchange Network of the
UK and SIBS of Spain. The founders are already key market
participants in Europe with more than 222 million issued payment
cards and operate over 2.1 million POS terminals as well as more
than 189,000 ATMs in their networks.
“With the founding of EAPS, we’ve achieved a
milestone for a single European card payment area. The EAPS will
develop into a new pan-European card payment scheme based on the
efficient national schemes and their infrastructures,” said Oliver
Hommel, co-ordinator of EAPS, announcing the group’s
formation.
Whether this new EUFISERV/First Data joint
venture makes the likelihood of a third network scheme more viable
is debatable. The issue has always been equally one of politics as
well as the mechanics behind the day-to-day operation of such a
system, something that Shaikh confirms.
“What this venture allows us to do is offer a
fully functioning network to any potential new schemes,” he said.
“There have been a lot of conversations going on in the marketplace
around different schemes, and what was always missing from them was
a comprehensive network that sits in the background and connects a
whole bunch of countries and networks together.”
Likewise, Johansen feels that the agreement is
all about providing credible and competitive alternatives to banks
in light of SEPA. “In particular, the joint venture with its
extended European reach will be able to offer better solutions to
new SEPA entrants such as the Euro Alliance of Payment Schemes and
any other scheme – existing or new – looking for processing support
to realise its SEPA ambitions,” Johansen adds.
“Any of these things also require substantial
upfront capital to build the scheme, get the technology right and
get the connectivity in place,” concludes Shaikh. “All of these
things are in place for us, out of the box, so from our point of
view we are never going to be a scheme, we are in the processing
business, but for folks that want to set up a scheme we now have
the technology in place to offer to enable them to do that.”

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