Merchant Acquiring

Profit or Loss

Paul Campbell
28 February 2006
Bucharest

© 2005 First Data Corporation. All Rights Reserved.

Agenda

Merchant Acquiring within Banks

Customer Expectations
Cost Management
Revenue Opportunities
Back to Basics
How First Data Can Help
Questions and Discussion
 Merchant Acquiring within Banks
Merchant acquirers – the “poor relation” of the card industry
 Most acquiring businesses fall under card issuing divisions
 Being generally less profitable than card issuing, acquiring
businesses are often overlooked
 Our experience is that acquiring businesses are sometimes
starved of:
 investment
 senior management attention
 long term planning
 adequate controls
 Occasionallyacquiring businesses lose sight of their real purpose and they become distracted and
concerned with less important matters than service and profit maximisation. Hence:
 Profits stagnate or fall
 Errors occur
 Customer service slips
 Staff morale suffers
Merchant Acquiring within Banks cont’d

Successful acquirers who notice these trends typically ask

themselves some or all of these questions
 What do our customers want (internal & external)?
 Are we organised to meet the challenge?
 Do we have the support and resources to meet demands (customers
and shareholders)?
 What else do we need?
 Can we do this ourselves or do we need help?
Customer Expectations
 Generallymerchants have low expectations of acquirers. They want a
service that always works or if it fails they want it corrected quickly
 They also want:
 a fair price
 price transparency
 speed of payment
 accurate, clear and timely information
 helpful service agents
 early notification of any change
 Customers generally do not understand chargebacks or transaction
disputes and they do not understand the risks they take in accepting
credit cards. Therefore, the clearer you make your guidelines and
instructions, the better. If in any doubt exaggerate the risks and repeat
them over and over again
Customer Expectations cont’d

Customers generally don’t want…..

 High tech solutions
 Time-consuming processes
 Queues at the POS
 Bank reconciliation difficulties
 Lengthy troubleshooting calls
 Poor logistical service
Cost Management
Do you understand your merchant acquiring costs?
Hardware/Software
TMS
Deployment
New fees
Refurbishment
Fines System
Estate Management Developments
Assessment Fees
Testing
Currency losses Terminals Interchange
Chargebacks Schemes Reclassification
checking

Unit pricing

?
Hardware
Upgrades
Upgrades
IT Processing
Licences New services

Project Extended hours

Management

Compliance PCI
Credit & Risk
Cost of Sale Government
Fraud
Competition
Investigations authorities
Sales people
Bad Debt International laws
Incentives
Collections
Travel costs
Set up costs
Revenue Opportunities
Traditional drivers of acquirer’s revenues are:

-New sales
-MSC/discount/disagio
-Terminal fees Is this what
-Interest income drives your
-Commission income revenue?
-Attrition management
-Interchange management
-Value added products
-Top Ups
-Bill payment
-Gift Card
-Loyalty
Back to Basics
What makes a merchant acquiring business a success?
 Develop a clear business strategy and find leaders to execute. Create an
acquiring business P + L and manage the business through dedication to
your financial plan
 Be clear about what drives your business and make people accountable
for delivery, especially in the biggest revenue driving activities (normally
new sales and terminals)
 Aim to be operationally excellent – a lost customer is expensive to replace
 Make your proposition simple to understand
 Developa management dashboard to measure financial and non-financial
business indicators AND ACT ON IT
 Focus on the bottom line : take a microscope to every cost and revenue
line and target year on year efficiency gains
Back to Basics cont’d

 Don’tbe distracted from managing your business : be selective about

the new projects you take on, and test thoroughly
 Communicate your business plans clearly and regularly, especially to
staff who want to be part of a success story
 Reward success
 Behonest. Don’t take on high volume, high profile merchants if they
don’t add something.
 Don’t compromise on your risk policies
 Don’t be arrogant and assume you know best
Can You Use Help?
For years First Data has partnered with leading banks
around the world and we use our knowledge and
experience in every new venture we start.
 Our processing platforms are efficient and functionally rich
 Our scale means we can absorb large Scheme mandated
developments at modest or even zero cost to clients
 Our information systems and experienced business analysts mean we
can identify and capture many tiny interchange opportunities
 We know how to launch sales initiatives
 We have superior risk management systems to manage customer risk
 We can introduce a wide range of new products to cross-sell to
merchants
Can You Use Help?

Above all we let bank partners do what they do best – focus

on their customers and let us worry about providing the card
acquiring service for them.
We operate essentially with three different models.
 We are a processor
 We partner or joint venture with banks
 We buy portfolios and operate them as revenue share alliances
Strong Alliance Partnerships have been the key to First
Data’s Growth

Bank
Strong brand
Payment Scheme licenses

and connectivity Alliance benefits

Branch network
 Improved Merchant proposition
 Improved business profitability
First Data
 Improved retention and goodwill
Market expertise
Scale

Sales Engine
Premier products and services
How Can First Data Help
Revenue CAGR Since Inception
33%
35%

27%
30%

25%
20%

20% 17% 17%

15% 13%
11%
10%

5%

0%
Alliance A Alliance B Alliance C Alliance D Alliance E Alliance F Average

On average, our joint

ventures grow profit (EBIT)
by over 15% each year
Overview of Existing Businesses

 Cardnet Merchant Services

 HBOS Merchant Services
 European Merchant Services
 BNL POSitivity
 Telecash
 First Data Iberica
 First Data Austria
 First Data Slovakia
 First Data Lithuania
 First Data Latvia
Summary
Can Merchant Acquiring be profitable? YES IT CAN
You need to:
Focus on costs and revenue lines
Organise your business to reflect your goals
Concentrate on the winning strategies and tactics
Develop repeatable processes and keep refining them
Don’t get distracted

Any Questions?