Fiserv will have more wherewithal to undercut competitors on price after the payments processing giant obtained a special bank charter in Georgia earlier this month, consultants who follow the payments industry say.

Milwaukee-based Fiserv currently partners with banks to process credit and debit card transactions for merchants. The Georgia Department of Banking and Finance announced on Oct. 4 that it was giving the payments company a merchant acquirer limited purpose bank (MALPB) charter on a conditional basis, allowing it to process those transactions without a partner bank.

Fiserv now “owns the entire transaction,” said Tony DeSanctis, a senior director of payments for the consulting firm Cornerstone Advisors.

Fiserv disclosed that it had applied for the charter in January.

While company executives have pledged to continue to work with banks, consultants like DeSanctis think the payments processor will go it alone with some of its new customers.

Banks charge fees when processing transactions for firms like Fiserv, which means the charter will save the processor money, DeSanctis said.

“This gives them a competitive advantage [over other payment processing companies] from a pricing perspective,” he said.

Specifically, the charter will help Fiserv compete with large payment companies like Worldpay and Adyen that offer discounted or negotiable prices, DeSanctis said. “Square, Stripe and the small merchant processors tend to charge rack rates and are less likely to compete on price.”

Payments companies lobbied for the creation of Georgia’s banking charter, hoping to simplify credit and debit card transactions, said James Stevens, co-leader of the financial services industry group at the law firm Troutman Pepper.

However, Fiserv is only the second company to receive such a charter since it was first offered in 2012. The first, an Israeli business once known as Credorax and later called Finaro before being acquired by Shift4 in 2023, was unable to use it because credit card networks refused to work with the firm, Stevens said.

An established company like Fiserv applying for Georgia’s banking charter may signal that the card networks have come around, said Michele Alt, a partner at the financial advisory firm the Klaros Group.

“Seeing that Fiserv has applied made me think they have been able to overcome reservations from the card networks,” she said.

Spokespeople for Visa, Discover and American Express did not respond to requests for comment, but Mastercard may be open to the idea. “We are currently reviewing the proposed charter and its implications,” a spokesperson for Mastercard said in an Oct. 3 email. “We have not yet made a decision regarding the potential approval of such entities within our network.”

Fiserv has two options: It can keep the money it saves by working with new clients without a partner bank, or use those savings to lower prices and attract more customers, DeSanctis said.

“If you’re trying to compete for Walmart’s business, or Amazon’s business, and you can give [those merchants] another penny off processing costs, then [Fiserv] could win more business as a result,” he said.

Fiserv already has the capacity to offer lower prices than competing payment processors because it has so many customers and can lean on economies of scale, DeSanctis said.The special charter will help the company grow even bigger, he said.

“Fiserv may be able to pass the savings achieved through its MALPB charter to its customers,” Alt said.

Although she noted that the firm must pay fees to the Georgia Department of Banking and Finance for the charter. Those fees include a $50,000 application fee, plus $15,000 in annual supervisory and registration fees, according to the department’s spokesperson, Bo Fears.

Fiserv’s savings will need to surpass those annual costs before it can afford to lower its prices, Alt said.

Fiserv can lower prices “in theory, because there is one less party in the value chain,” he said. However, the reality is a bit more complicated, he stressed.

“A lot goes into pricing and banks offering these services provide valuable related products and services so it is hard to say whether this pricing really can be less,” Stevens said.

A Fiserv spokesperson did not respond to a message seeking comment.

Fiserv’s CEO said the company did not plan on using the charter to compete with big bank partners, but would pitch it to the company’s smaller bank clients.

“This ultimately supports our smaller banks who do not have sponsorship,” Fiserv CEO Frank Bisignano asserted during a February earnings call with analysts.

By Patrick Cooley on Oct 21, 2024
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