Fiserv's application for a special banking charter in the state of Georgia has been approved, the Georgia Department of Banking and Finance said in a financial bulletin released Friday morning.

The Brookfield, Wisconsin-based payments company will now have direct access to card networks, and will no longer need to partner with banks to process credit card transactions. The state's bulletin said it approved the charter on Sept. 27.

The payments processor, which offers payment processing services to merchants, asked the Georgia department for a merchant acquirer limited purpose bank charter, which gives the firm the right to authorize, settle and clear payment transactions for merchants. Fiserv disclosed that it had applied for the charter in January.  

Fiserv said in a statement late Friday that it had been notified by the Georgia department that it was granted "conditional approval" for its application, allowing it to directly acquire credit and debit card payments for merchant clients. The company can now apply for "direct acceptance into the card networks and complete other administrative tasks required to establish” the charter, the company said in the statement. It expects to be using the new charter by 2025.

“Fiserv has no intention to become a traditional financial institution or regional bank and will continue to partner with financial institutions that want to serve as acquiring sponsors," the company said in the statement.

Fiserv promised to meet certain conditions before it is granted the full charter, said Bo Fears, senior deputy commissioner for the Georgia department, although he declined to comment on what those conditions are.

Card network behemoth Visa didn’t immediately respond to a question about its willingness to work with Fiserv in its new capacity.

Mastercard appears open to the idea. “We are currently reviewing the proposed charter and its implications,” a spokesperson for Mastercard said in an email. “We have not yet made a decision regarding the potential approval of such entities within our network.”

A Fiserv spokesperson did not immediately respond to a request for comment. The company is seeking the permission in a state where it has a significant presence, given its major office in Alpharetta, Georgia.

An Israeli company was the only other business that has applied for the special Georgia charter since it was first offered in 2012. That company was formerly known as Credorax, but changed its name to Finaro and has since been acquired by the digital payments firm Shift4.

The state’s banking and finance department approved the Credorax application, but card networks refused to work with that company, said James Stevens, co-leader of the financial services industry group at the law firm Troutman Pepper.

Any company that wants to operate as a bank needs approval from state and federal regulators, Stevens explained in an interview on Thursday. Card networks like Visa and Mastercard rely on banks to manage risk, and they trust companies that have been through those government approvals, he said. 

In February, Fiserv CEO Frank Bisignano said the payments processor did not intend to use the special bank charter compete with its financial institution partners.

“This ultimately supports our smaller banks who do not have sponsorship,” Bisignano asserted in his February comments during an earnings call with analysts. After Fiserv’s acquisition of First Data in 2019, as the company sought to cross-sell services to its community bank clients, it became clear “that our ability to sponsor them ourselves would be very valuable,” he said.

The special Georgia charter was created after lobbying from payments processors, Stevens said. The special designation removes a major hurdle for merchant acquirers, he explained.

Prior to the charter, "people in the merchant acquiring business had to partner with a bank to enable them to interface with the card networks," Stevens said. Very few payments companies have opted to put themselves through the regulatory hurdles to achieve that status, he said.

Fiserv winning the Georgia state charter may lead more payments players to seek the same privilege. "This may open the flood gates from an application standpoint," Stevens said.

By Patrick Cooley on Oct 4, 2024
Original link