US banking group JPMorgan Chase and global
payment processor First Data have announced that they will be
ending their merchant acquisition and payments joint venture Chase
Paymentech Solutions (CPS) by the end of 2008, two years earlier
than previously planned. Both companies have stated that they will
be bringing their payment operations back in-house.
Upon review, the two companies have decided
that the payments and merchant acquiring businesses were integral
to their individual core strategies, and felt that these services
should be operated independently by each company.
First Data’s sale last fall to private equity
firm Kohlberg Kravis Roberts (KKR) led to a provision giving
JPMorgan Chase the right to end the joint venture, which the bank
chose to act upon.
“With emerging opportunities in the global
payments business, it makes good sense to bring our stake in Chase
Paymentech business fully in-house. Merchants are moving beyond
traditional payment vehicles and we expect to be at the forefront
of the industry, developing and investing in new forms of payments
and related transactions that bring value to merchants,” said
Gordon Smith, chief executive of JPMorgan Chase’s Card Services
“Throughout this transition, we are committed
to ensuring that there is no disruption to our allocated merchant
partners. First Data will continue to focus on our core business of
providing data-driven solutions and insight for our customers while
delivering market-leading services and technologies that advance
global commerce,” said Brian Mooney, president of First Data’s
Merchant Services group. “In addition, we remain committed to the
bank alliance model and value the successful relationships we have
with our financial institution partners. We look forward to working
with JPMorgan Chase in other areas of business.”
Mike Duffy, president and CEO of Chase
Paymentech, added: “During this transition, we will ensure that our
customers continue to receive the high-quality support they expect
from us. Our focus will continue to be on the delivery of the most
secure and reliable global payments via our state-of-the-art,
multi-channel proprietary payment platform.”
JPMorgan Chase will maintain 51 percent of
assets from the joint venture, including the majority of its
employees as well as its Canadian and European operations.
Meanwhile, First Data will assume management of the full-service
independent services organisation (ISO) and agent bank unit of the
joint venture, and will integrate 49 percent of the company’s
assets as well as a portion of its employees into its active
merchant acquiring business.
While neither company has confirmed it, First
Data seems to have retained CPS’ biggest customer, retail giant
Wal-Mart. However, on the surface this does not seem to be much of
a parting gift for the processor, considering that the bank has
retained the lion’s share of the joint venture’s employees as well
as the processing platform.
Interestingly, First Data will also be provided
with a copy of the processing technology that CPS uses to process
card-not-present transactions, which will help the company in
building its own online payment service that will be competing with
As a large majority of CPS’ clients will be
locked into multi-year contracts, there will not be a widespread
migration right away, but in time competition between the companies
may become fierce.
It remains to be seen whether the Wal-Mart
business will be enough for First Data. Chase will already have a
head start within the payments market in terms of branding, while
the copy of the processing platform may be moot if First Data were
to build a new one that was scalable from scratch.
CPS was formed in 2005 from First Data’s
Paymentech merchant business and the Merchant Services division of
the bank. However, it had previously existed as an enterprise run
by First Data and a variety of bank partners for over a decade. The
joint venture processed almost 20 billion separate transactions in
2007, totalling more than $719 billion in annual bank card and
debit volume. The company’s client base accounts for 70 percent of
leading e-commerce businesses and more than 600,000 merchants in
nearly one million locations acr0oss the globe.