First Data Restores Confidence with New Deals

Article excerpt

By JENNIFER KINGSON BLOOM^CHARLES KEENAN For much of 1998, the giant of credit card processing seemed in danger of taking a hard fall.

Managers at First Data Corp. were being hired and fired, lines of business were sold left and right, and the stock price tumbled as Wall Street threw up its collective hands in frustration.

Even as First Data kept winning accounts while maintaining its top position in transaction processing, it was perceived as a company in trouble.

With a new year and new structures in place, "We feel more and more like the First Data of four years ago than the First Data of last year," said Charles T. Fote, 50, who became president and chief operating officer in September.

When he took over, the 24-year First Data veteran was called upon to realize the benefits from the dominance First Data thought it had bought in 1996. That was the year First Data Merchant Services was created through the mergers of Card Establishment Services and Nabanco, which was a division of a larger company First Data purchased, First Financial Management Corp.

First Data already was tops in handling cardholder accounts for banks, and that deal made it No. 1 on the merchant side of the business as well. Some credit card executives sounded warnings about First Data's market power and ability to create a "closed loop" for payments within its network, bypassing the MasterCard and Visa utilities.

But the alarms faded as First Data faced problems of its own, including the loss of some banks in its merchant-alliance program and ensuing management disarray.

A few recent wins have helped to restore confidence.

Bank One Corp.-whose merger with First Chicago NBD Corp. cast doubt on its commitment to First Data-has signed comprehensive card processing relationships. Last week Bank One said it would convert accounts in First Chicago's First Card portfolio, long processed in-house, to First Data.

Four months earlier, First Data's Western Union division, formerly also part of First Financial Management Corp., signed a five-year deal with Kmart Corp. to provide money order and transfer services in its 2,115 stores.

First Data's travails were reflected in its 1998 earnings report. Revenues were down 2%, to $5.1 billion, but net income rose 6%, to $213 million.

First Data, which now has its headquarters in Atlanta, is at a "turning point," said Richard K. Weingarten, a director at Salomon Smith Barney. "The company is moving in the right direction, and there are a lot of things to be excited about."

He credits Mr. Fote with stabilizing the merchant business, which was run until last year by Roger Peirce, a former Visa International technology executive.

Mr. Peirce joined First Data in 1994 and brought several trusted Visa colleagues with him. He built up the merchant bank alliance program. In about a dozen of these joint ventures, the bank owns and manages the merchant relationship while relying on First Data for processing support.

Mr. Fote's next step, Mr. Weingarten said, will be to focus more on the card-issuing part of the business, which saw profits decline 4% in 1998, to $264 million. Revenue increased 6%, to $1.43 billion.

According to First Data, the division that processes for card issuers has more than 40 million new accounts signed and scheduled for conversion in 1999.

Three of the major additions-GE Capital, Peoples Bank of Bridgeport, Conn., and Spiegel-previously used the second-largest company in the field, Total System Services Inc., said David P. Bailis, executive vice president of First Data's Card Services Group in Omaha.

Total System, a Columbus, Ga., subsidiary of Synovus Financial Corp., beat First Data for a coveted contract last year with Sears, Roebuck and Co.

Mr. Fote described 1998 "a year of assessing our strengths and weaknesses."

Business lines deemed peripheral to payment services were sold or folded. …