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The Green SheetGreen Sheet

Wednesday, May 28, 2008

Processing giants go separate ways

Chase Paymentech Solutions LLC, the behemoth acquirer built from a joint venture between First Data Corp. and JPMorgan Chase & Co. 12 years ago, will cease operations in its current capacity by the end of 2008. The two companies will continue normal operations in the interim. Following the transition, First Data and JPMC will operate as separate payment businesses.

In 2007, Chase Paymentech processed approximately 19.7 billion payment transactions and generated an average of more than $700 billion in annual bank and debit card volume. The company's customer base includes almost 70 percent of e-commerce businesses and more than 600,000 merchants (some with multiple outlets) in nearly 1 million locations worldwide.

Core business, strategic importance

JPMC and First Data concluded that payment processing and merchant acquiring are core businesses, are taking on an increasingly strategic importance that is complex and full of opportunities and, as such, needed more focused, in-house attention. As part of the agreement, JPMC will retain 51 percent of Chase Paymentech's assets, the majority of its employees, and its Canadian and European operations.

First Data will assimilate 49 percent of Chase Paymentech's assets and a portion of the joint venture's employees into its existing merchant acquiring business. It will also assume management of the full-service ISO and agent bank unit. Along with JPMC, First Data is committed to ensuring no disruption in service and continued high quality merchant support during the transition.

KKR acquisition triggered review

"What happened during those 12 years is that the bank realized that payments are vital core business operations," said Mia Shernoff, Executive Vice President of Marketing for Chase Paymentech. "Additionally, Kohlberg Kravis Roberts & Co.'s acquisition of First Data last year triggered JPMorgan and its ownership to review whether it wanted to keep the joint venture or break up the company and assume its 51 percent assets.

"They looked at this hard for the last nine months and decided it was time [for JPMC] to take those assets and invest in them solely as a bank to enhance their strategy in the global payments arena. Likewise, this was a huge core business for First Data, and they saw a similar opportunity."

JPMC will continue operating its 51 percent as a worldwide payments and merchant acquiring business and will shorten the name to Chase Paymentech (dropping Solutions LLC). The ISO business in total will become part of First Data.

According to Shernoff, JPMC and First Data decided it made strategic sense to keep the ISO businesses intact, and that keeping merchants a top priority in determining how to split the business created a win-win situation for both firms.

Committed, ready and bullish

"Our guiding principle, if you will, is to eliminate any disruption among our clients, our customers, our merchants and our partners, so we made decisions based on what represents no change in operations for merchants," Shernoff said. "We have a lot of different customers and configurations on platforms, which is why ending this relationship will take so long."

Shernoff said both "owners do want to continue to invest in the business" as the deal goes forward. "I think you'll even see some new products on both sides to support their respective merchant acquiring businesses," she said. "And JPMorgan will be able to concentrate on the remaining payments sector aggressively. We have the right tools and the right environment to focus on what we're really good at." end of article

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