KKR’s First Data moves on big banks’ payment services

First Data Corporation, a global payments company owned by private equity house KKR, is seeking to muscle in on the payments business dominated by the big banks by targeting the move to PIN-only transactions from August 1.

First Data, which conducts payments processing in 70 countries with around $US11 billion ($11.7 billion) in annual revenue, launched on Thursday a new mobile eftpos terminal along with applications, which it says will help Australian restaurants cope with the move from signatures to PINs only by facilitating split-billing and tipping at the table. First Data said it thought the market for the device was around 80,000 businesses.

Commonwealth Bank of Australia’s new payments terminal, the Albert, which is currently being tested ahead of a national roll-out, also provides applications for merchants and CBA has already developed a “split the bill” app.

Rapid advancements in technology are set to revolutionise the interaction between businesses and customers at the point of sale over the coming years.

Tablet-based payments system

First Data is separately planning to launch a tablet-based payments system for small businesses to compete against the Albert, called Clover Station. The all-in-one system replaces the cash register, terminal and payments system, as well as managing data and business operations. First Data managing director in Australia John Tait said the Clover would be launched in Australia before the end of the calendar year.

First Data has a low profile in Australia, where it has been operating for 30 years. It is used by second-tier banks, credit unions and various credit card providers to process around 1.3 billion transactions a year. It also owns the network of 5300 Cashcard ATMs and has a retail payments terminals business, with 15,000 terminals around the country. It competes with the major banks by attempting to undercut them on price, and provide better quality of service and innovation.

First Data, which maintains high levels of debt after KKR acquired it six years ago and is expected to be floated, operates 6 million merchant terminals around the world. Mr Tait said the new mobile eftpos terminal was sourced from a global partner while the application layer was developed locally.

Global capabilities for local solutions

“Payments is definitely moving to be more global. We are able to leverage our global capabilities to find a local solution. We need to be disruptive in terms of innovation in order to compete with the major banks,” Mr Tait said. 

Competition in this area could reduce income streams the major banks earn from business customers, given they rent out payments terminals. It also challenges banks’ desire to control customer data.

Deloitte partner Ric Simes said while banks’ core business remain protected, threats of digital disruption exist in niche parts of banking.

“The areas where it’s easier to disrupt are the ones that are not as reliant upon the balance sheet, in payments or in provision of services. I think that overall the banks are in a very strong position to perform very well in a digital disrupted world. But there will be elements of how that will change profoundly over the next couple of years, with more niche parts of the market taken by new players,” he said.

Ripe for disruption

The beefing-up of First Data’s offering in Australia comes after Paul ­Bassat, the co-founder of SEEK and chief executive of venture firm Square Peg Capital, said at The Australian Financial Review and Macquarie Future Forum that traditional banks will be challenged by start-ups that work out new ways to solve old ­problems. He singled out the payments business as an area ripe for disruption.

In Australia, eBay’s payments subsidiary PayPal asked the financial system inquiry being chaired by David Murray to overhaul laws which it says are holding back financial innovation in Australia. It also suggested Australia push for an “ePayments subgroup” in APEC to devise common regional rules covering payments.

In February, Mr Murray said the inquiry was interested in examining new companies in the payments area, including whether “they have the ability to reduce confidence in the payments system itself.”

Source:  AFR - 19th June 2014