1. Merchant Acquiring Profit or Loss
Paul Campbell
28 February 2006
Bucharest

2. Agenda Merchant Acquiring within Banks Customer Expectations
Cost Management
Revenue Opportunities
Back to Basics
How First Data Can Help
Questions and Discussion

3. 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
Occasionally acquiring 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

4. 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?

5. Customer Expectations
Generally merchants 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

6. 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

7. ? Cost Management Do you understand your merchant acquiring costs?
Hardware/Software
TMS
Deployment
Refurbishment
Estate Management
New fees
System Developments
Testing
Reclassification checking
Fines
Assessment Fees
Currency losses
Chargebacks
Terminals
Schemes
Interchange ?
Unit pricing
Upgrades
New services
Extended hours
Hardware Upgrades
Licences
Project Management IT
Processing
Compliance
Credit & Risk
PCI
Government
Competition authorities
International laws
Cost of Sale
Fraud
Investigations
Bad Debt
Collections
Sales people
Incentives
Travel costs
Set up costs

8. Revenue Opportunities
Traditional drivers of acquirer’s revenues are:
-New sales
MSC/discount/disagio
Terminal fees
Interest income
Commission income
Attrition management
Interchange management
Value added products
Top Ups
Bill payment
Gift Card
Loyalty
Is this what drives your revenue?

9. 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
Develop a 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

10. Back to Basics cont’d
Don’t be 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
Be honest. 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

11. 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

12. 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

13. Strong Alliance Partnerships have been the key to First Data’s Growth
Bank
Strong brand
Payment Scheme licenses
and connectivity
Branch network
Alliance benefits
Improved Merchant proposition
Improved business profitability
Improved retention and goodwill
First Data
Market expertise
Scale
Sales Engine
Premier products and services

14. How Can First Data Help
On average, our joint ventures grow profit (EBIT) by over 15% each year

15. 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

16. Summary YES IT CAN Any Questions?
Can Merchant Acquiring be profitable?
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?