Wednesday, June 17, 2009

First Data leads race for ICICI unit

First Data Corporation is understood to have emerged as the successful bidder for ICICI Bank’s point of sale (PoS) terminals. The deal is likely to be valued at around Rs 350 crore and may be signed within a couple of weeks.

Sources close to the deal said that First Data was successful despite nearest rival Visa having put in a higher bid. What appears to have gone against Visa is that the US payment solutions company has not undertaken such a business elsewhere in the world. Also, ownership of a PoS network could have resulted in a potential conflict of interest for Visa, which is also a payment service provider. When contacted, an ICICI Bank spokesperson said: “No final decision has been taken yet.”

Prior to the sale, ICICI Bank will hive off its PoS terminals into a new company, which will then be bought out by First Data. The new entity will earn fees from each credit or debit card transaction processed through the PoS. A PoS is an electronic swipe device connected to the banking network.

The bank currently has the largest network of nearly 1.8 lakh terminals of a country-wide total of around 3.5 lakh PoS terminals. The other big players in the industry are Axis Bank with 1.2 lakh terminals and HDFC Bank with over 70,000 terminals.

An ICICI Bank source said that besides unlocking value for ICICI Bank, the deal would bring down the cost of transactions and simultaneously help grow the network more efficiently.

This is the first transaction by an Indian bank to farm out its PoS terminals. So far, only a few foreign banks here had hived off their PoS networks as part of a pan-Asia deal. However, their terminal numbers are negligible compared with ICICI Bank’s.

An official from a rival bank said ICICI bank recently hiked commissions charged to a merchant establishment for credit card transactions. Typically, a credit card transaction involves a commission of 1-1.5%, which has come under pressure following competition between banks. This commission is split between the card issuing bank, the bank owning the PoS terminal (acquiring bank) and the payment company — Mastercard or Visa.

In ICICI Bank’s case, given its large card and PoS network, it usually gets the commission of both the acquiring and the issuing bank. The bank has around seven million credit cards and 14 million debit cards in circulation. Currently, there are 24.4 million credit cards in the country and 140 million debit cards.

Other bidders for ICICI Bank’s PoS terminals included FSS, Total Systems Services, Blackstone-CMS joint venture and Venture Infotek apart from a few private equity investors. PE firm KKR-owned First Data Corp was created by US banks farming out their back office IT processing systems. The company today services over five million merchant locations, 1,900 card issuers and their customers. First Data’s portfolio of services and solutions include merchant transaction processing services — credit, debit, private-label, gift, payroll and other prepaid card offerings. First Data was acquired by KKR in 2007.

ICICI Bank could also look at hiving off its ATM network, once the sale of PoS terminals goes through. However, there could also be regulatory issues that will have to be considered, as ATMs may be considered a core banking asset.

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