A New Giant Stalks The Back Office

At first glance, it looks like a field day for antitrust lawyers. On

June 13, First Data Corp. agreed to merge with archrival First Financial Management Corp. The two companies are major players in the enormous but little-watched market for transaction services--the authentication, transfer, and recording of electronic payments for merchants and credit-card-issuing banks. The merged entity, which will be known as First Data and will have revenues of more than $4 billion, will dwarf other independent transaction processors (table). "The combination is going to be phenomenal," says Richard K. Weingarten, an analyst at Montgomery Securities. Among independent transaction processors, "there is no one positioned like them. I'm pumped."

The Justice Dept. is likely to scrutinize the deal, especially since both companies own large money-transfer operations. First Financial bought Western Union Financial Services Inc. last September--by outbidding First Data and other contenders. And First Data could control more than 30% of the market for processing Visa and MasterCard transactions, according to David Robertson, president of credit-card newsletter The Nilson Report.

CROWDED FIELD. In fact, the market for electronic transaction processing is becoming more competitive each day. In the past two years, MCI Communications, AT&T, and IBM have all joined the fray. MCI in April announced the launch of MCI TransAction, a service to handle every piece of business involved in processing an electronic payment, from the moment a customer's card touches an electronic reader to the closing of the sale. And on June 6, AT&T cut a deal with Checkfree Corp. to handle electronic bill payments over AT&T distribution channels.

The flurry of interest in transaction services isn't hard to understand. With the exponential growth of the Internet and the acceptance of credit and debit cards everywhere, from ballparks to gas stations, electronic commerce is expanding at a rapid clip, says First Data Chairman and CEO Henry C. (Ric) Duques.

SHOPPING TIPS. While electronic payments account for just 14% of the $5.5 trillion in total payments today, he sees that proportion expanding, even as total payments reach $8.5 trillion by 2000. Duques says the combined company will have only 16% or so of the electronic-payments market, adding that the deal will give him the scale to compete effectively.

First Data is already on track to offer some nifty new electronic-commerce services. It will take over a First Financial deal to provide transaction-processing services for Microsoft Corp.'s new online service, Microsoft Network. First Data has also launched U$ave, a program to give merchants proprietary data on their customers' buying habits so they can market to them more effectively. And it is striving to shift the market from cash to plastic. "We're going to win by making cash [into] roadkill on the Information Superhighway," Duques says.

Sounds good. But he had better watch out for all the traffic.

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