It's Concrete at Concord

As one of the industry's leading vertically integrated electronic transaction processors, Concord EFS, Inc. is a prominent solutions provider, offering transaction authorization, data capture, settlement and fund-transfer services to financial institutions, supermarkets, petroleum retailers, convenience stores, restaurants and other independent retailers. Concord evolved to its major-player status from a more humble initial position.

In 1982, five employees of Union Planters Bank in Memphis, Tenn., came together under the creative vision of Dan Palmer and formed a separate division focused on a credit card product for the trucking industry that was electronically authorized and settled. The company was named EFS, Inc., and one year later it expanded its offerings to include electronic authorization and settlement of Visa, MasterCard and other credit cards in the retail space.

Guiding his company forward, Palmer attracted not only strong customers but qualified industry professionals such as Edward A. Labry III, who joined EFS in 1984 and is currently President and CEO-elect of Concord. In 1985, EFS merged with Concord Computing Corp., a 15-year-old check authorization and POS terminal manufacturer. The newly formed company was renamed Concord EFS, and Palmer was named CEO in 1990. A year later, Palmer assumed the additional title of Chairman. "Dan and I have been together for 18 years," says Labry. "There are a few more zeros on the revenue line, but we've always had a philosophy of serving customers, making money and growing the company at a conservative rate. We've created a great currency in stock with strategic acquisitions, but we never wanted our successes to be highly visible. We are real close with our employees. It is employees as well as customers who make the company." In 1992, under Palmer's leadership, EFS was converted into a national bank, which produced operating efficiencies through direct connections and memberships in credit card associations and regional networks. This strategic move paved the way for debit card and ATM processing, which were important catalysts for Concord's growth - a growth that was keenly observed by the business community. In 1996, Concord was named by the Wall Street Journal as the highest-performing company for the 10-year period 1986 to 1996, based on average annual returns of 60.6%. In 2001, Concord was again listed on the Journal's Shareholder Scoreboard "50 Best Performers," based on 10-year average annual returns of 47.2% for the 1991-2001 period. "We built a self-sufficient company, concentrating on our own authorization systems and direct connections to networks," says Labry. "We didn't want to use any third party whatsoever, so we formed our own bank. You control your destiny by keeping everything in house, and we are a complete vertically integrated in-house shop." According to Labry, for the first 15 years of Concord's existence it specialized in payment services for the independent retail markets, supermarkets, oil and gas. Over the last three years, it has been concentrating on networks and PIN-based operations. "We've become a service provider to over 6,200 banks and every third-party processor in the U.S.," says Labry. "Our core now is both processing directly to the merchant community as well as providing services for third-party processors and financial institutions." Concord provides those services in a highly competitive market. On the one side, it vies for business alongside such other industry leaders as First Data and NPC. On the merchant side, it competes with every other independent sales organization. Neither seems to threaten Concord's resolve. "If you look at our primary market, which is highly concentrated in processing, the faster-growing segments are supermarkets and oil and gas," says Labry. "We are the leader in integrated systems for pay-at-the-pump and supermarket services. Our connectivity and technology keep us in the forefront." Labry sees that connectivity and technology as the biggest differentiator in the retail space. "What's driving the differentiation between processors and ISOs is PIN-based debit," he says. "Major retailers like Wal-Mart are rolling out PIN-based programs while the ISO community traditionally focuses on credit because they received their highest revenue from those transactions. As transactions migrate to electronic payments, the differentiation can be great. Look at us. We had over 67,000 merchants join our network during the first nine months of 2002." While Labry admits the buzzwords around the industry may be gift card and loyalty, he believes some of the smaller retailers still have a wait-and-see attitude. Because of that, Concord wisely already has included those services in all its terminals and stands at the ready to capture those value-added services for both the ISO community and its bank merchants. Check truncation is also an important item on its solutions menu. Concord's suite of products is not only comprehensive but also custom capable. Programs can be bundled together or incorporated separately. Either way, merchants from every area of the retail marketplace can pick and choose. Concord's target market is across the board in size and volume. "We are dedicated in every category, from the smallest mom-and-pop to the very large and very successful ISOs," says Labry. "There are over 1 million locations that touch Concord systems. We processed over 9.5 billion transaction in 2001 and are looking to do 10.6 billion transactions this year. It's big." While Concord relies on an in-house sales force that services the top retailers in the U.S., it is intimately joined with the ISO community ... and very committed to that channel. "Our program for the ISO community is strong," says Labry. "We have a great buy rate. ISOs enjoy great profitability with Concord. We have the most front-end applications for any type of terminal. All generations are available. We offer any kind of combination of our products. We'll let ISOs sell under their own name and brand statements under their own name as well. Because we are a vertically integrated processor, all the ISO has to do is sell." Another appealing aspect to Concord's solutions is a sophisticated system called Client Line. From the merchant's PC, all account data can be fed automatically into Concord's system, and within a two-hour turnaround time the merchant is up and running. "We're loading about 4,000 merchant apps each month," says Labry. "We're rolling this system out now to the ISO community. It's the most sophisticated and strongest in the market." Hand in hand with Concord's focus on technology is its commitment to customer support. A 24/7 call center that boasts two separate departments - tech support and customer support - is standard operating procedure at Concord. This center is manned by specialists from all areas of retail. As for its ISO partners, Concord has a dedicated group based out of New York whose sole responsibility is keeping Concord's ISO channel running smoothly and efficiently. What does Concord strive for in an ISO relationship? "Since we are ultimately responsible for the relationship, we ally with ISOs who are good businesspeople and want to process ABC type of paper," says Labry. "We want ISOs who are interested in growing their business. The end game shouldn't be that they put all their business with us, get our package and then turn around and shop for someone else. We look for long-term relationships." Long-term relationships also are a primary component of Concord's alliances with its other partners. In addition to its longstanding pairing with EFS National Bank (a subsidiary since 1992), Concord has established alliances with many major players in the payment-processing space, such as Hypercom, VeriFone, Ingenico and most recently Certegy. "From a business standpoint, the number one thing a partner has to do is add value," says Labry. "It's one thing to just take a portfolio and process it. It's more important to expand that relationship with sales and marketing that's good for both sides." With the recent market trend toward megamergers and acquisitions, choosing the right alliance might not be as easy as it has been in the past for Concord. Labry sees the gobbling as good - sometimes. "We're seeing a resurfacing of mergers and acquisitions," says Labry. "There probably is a place for it, but I think it involves a little bit more now. This time around, there's a tremendous amount of discipline regarding acquisition prices and ISOs and sub-ISOs going forward. In the past, it got a little wild with the prices paid for premiums. It's toned down now. I think it is better for our industry to have fewer quality players than too many players." Concord measures its quality not in one single accomplishment but in a culmination of events and acquisitions. "Making the decision to become a big player in the supermarket industry in the early '90s was key to our success," says Labry. "We would get thrown out by supermarkets saying they'd never accept credit cards, but we were frontrunners and look at the industry now. It's all about location, being at the right place at the right time." Labry says the next event was taking advantage of ATM-driven business with a platform put in place before anyone else. The third major event was Concord's decision to become a large player in the oil and gas arena with pay at the pump. "At first, locations felt they made the highest margins with people coming into the store and were worried about customers not walking in," says Labry. "Our advice to those merchants - don't worry about them coming into your store, worry about them driving out of your parking lot because you don't have pay at the pump."

However, according to Labry, from Concord's perceptive, the most respected accomplishment to date was Concord's consolidation of PIN-based networks with the acquistions of the MAC, Cash Station and STAR ATM networks. "We saw the importance of PIN-based debit and really focused on it in the '90s," says Labry. "It surprised the industry when we rolled it out." With all of its accomplishments, has Concord experienced any failures? "I think this company has created a culture that hates to lose," says Labry. "From the standpoint of implementing our plans and systems; we have been very successful. There has not been any one failure that has slowed us down. I think we can always do a better job. Any company can always do a better job with its customers and employees. We are always striving to do better." In addition to the challenge of always trying to do better, Concord is faced with the challenge of finding the balance between the retail and the financial community, Labry says. "As we rolled up the debit networks and established relationships with banks, the challenges came in the network side of the business," says Labry. "There has to be a balance between financial institutions and the retail community. We strive to create this balance of acceptance and issuance. We look at it from the standpoint of a company who's not going to be successful if retailers don't accept a STAR card and banks don't issue them." In regard to the industry in general, Labry sees the economy as being a major obstacle. "We are in an industry that has recurring revenue and a competitive landscape, and the big players are fighting for transactions," says Labry. "With price compression and the current economic environment, we've got to look for new distribution channels. We've got to find new areas of revenues and promote the development of emerging payment types out there." Labry sees convergence as key to the future of the industry. "I see traditional cash and check payments moving to some type of electronic format," says Labry. "As I mentioned before, stored value and gift cards are huge buzzwords in the industry, and they've done well in big box retailer environments. As it filters down to the independent retail community, it may not be as successful there. "There needs to be an education process for acceptance. Controlling the destiny of these transactions as they move from cash to check to electronics requires education. Merchants need to be educated on how to control their costs at the point-of-sale with these programs." Concord is planning on doing just that. "There is always ongoing training associated with Concord, whether it be ISO community- or vendor-related, partner or agent bank," says Labry. "We will continue to educate them. We also will continue to provide technology, connectivity and the products our partners need." Another important part of Concord's future plan lies in its leadership. It recently was announced that Labry will succeed Palmer as CEO of Concord in May 2003. Palmer will continue as a member of the Executive Management Group, Chairman of Concord's Board of Directors and Chairman of EFS National Bank, Concord's wholly owned bank subsidiary. Why make the announcement now and delay the actual transition until 2003? "People like successful plans, most times," says Labry. "We are a little different in that we do announcements of plans in advance. We see it as the polite thing to do. It's not all that different. Dan and I are going to continue to work together as we have for so many years in the past."

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