Incorporated: 1971 as First Financial Management Corporation
NAIC: 522320 Financial Transactions Processing (Except Central
SIC: 6019 Central Reserve Depository Nec; 6099 Functions Related to Deposit Banking
In 1995 two of the world's largest financial data processing businesses--First Financial Management Corporation and First Data Resources--merged to form First Data Corporation. This new entity operates in three primary lines of business: payment instruments, merchant processing, and card issuing. First Data is the leading provider of official checks and money orders for banks and savings institutions. Through its subsidiary Western Union, the company also offers money transfer services at 55,000 locations in 168 countries. In the realm of merchant processing, First Data annually processes and settles more than five billion credit, debit, and stored-value card transactions from over two million merchant locations. First Data's TeleCheck subsidiary authorizes more than 2.7 billion check transactions valued at $114 billion each year as well. In its third area of operation, First Data works with more than 1,400 card issuers. The company embosses and issues plastic cards, activates the cards, corresponds with cardholders, and produces and mails billing statements. In addition, First Data has entered the burgeoning field of Internet commerce through partnerships with large online merchants.
First Data Resources was incorporated in 1971 and by 1976 had become the data processor for both Visa and MasterCard bank-issued credit cards. American Express, which was itself attempting to build a financial services operation, bought First Data Resources in 1980 to perform processing functions. First Data Resources flourished in this new environment and became the largest bank-processing company in the United States. However, it proved to be an awkward fit with its parent company, and in 1992 American Express spun off the profitable division.
First Financial Management, which was also founded in 1971 and which merged with First Data Resources in 1995, was created as the data processing unit of the First Railroad and Banking Company of Georgia. First Financial was established to process checks by electronically following them through the banking system. By 1983 the operation was reaping $24 million in revenues and had become the largest banking data processor in the Southeast. When First Financial was spun off from its corporate parent in 1983, the company's president promised investors that he would raise First Financial's revenues to $100 million a year within four years. To achieve this stunning rate of growth, First Financial would have to acquire companies rather than develop new ventures from scratch. Thus in 1984 First Financial embarked on a decade-long buying streak.
In March 1984, First Financial paid $2 million for Marion, Illinois-based United Computer Services, Inc., and one month later purchased Financial Systems, Inc. First Financial offered $200,000 for certain assets of First American National Bank-Eastern in May 1984, and in August the company rounded out its first year of acquisitions with the purchase of Financial Computer Services, Inc., for $750,000.
The impetus fueling First Financial's string of acquisitions was the company's agenda to become a major player in the commercial transaction industry. First Financial believed that the future of banking and commerce would be driven by electronic and computerized information, not by cumbersome paper slips and forms. The company's goal was to become the middleman for a wide variety of exchanges in which electronic data was manipulated, acting as a support system for the financial industry of the future.
To attain this status, First Financial continued its rapid pace of acquisitions in 1985, buying four computer data services during the year. In February it paid $135,000 for the assets of the Data One Corporation and in June acquired an interest in Financial Data Services, Inc. for $2.75 million. In the following month Decimus Data Services joined the First Financial family, and in December the company paid $229,000 for Bob White Computing Services.
In making acquisitions, First Financial sought out relatively small entrepreneurial firms that were important because they would help the company increase its list of clients. Because it was cumbersome and time-consuming to win new customers in the financial services field, First Financial found it more economical simply to buy a small company than to individually recruit each of its customers. When First Financial purchased a small firm, the company did not, however, insist that the smaller company's operations be broken down and merged with those of First Financial. Instead, the company left them intact in the same location and with the same management, culture, and individual style. First Financial had a decentralized management philosophy, and although there was ample overlap in its operations, the company did not attempt to institute central marketing or sales operations. Former owners of properties that had been bought were encouraged through stock deals to stay and to work for First Financial, because their ownership in First Financial could be liquidated only over time.
After a brief pause First Financial resumed its acquisitions at the end of 1986, buying the customer base of American Information Services, Inc. for $2.5 million in August. In the following month the company bought American Data Technology, Inc. for $2.2 million, and in October 1986 it acquired Mid-Continent Computer Services for $23 million. These purchases were designed to strengthen First Financial by building up its revenues. In March of the following year First Financial bought Tel-A-Data Limited for $8.2 million and the Confidata Corporation for $500,000. Four months later First Financial also purchased American Automated and its On-Line Terminal Services for $4.3 million.
In the last four months of 1987, First Financial made three purchases that moved it strongly into a new field and nearly tripled the size of its operations. In October 1987 the company bought the National Bancard Corporation (NaBanco) of Fort Lauderdale, Florida, for $48 million. With the acquisition of this company, First Financial moved aggressively into the market for credit card transaction processing. Later that month First Financial added to its holdings in this area when it purchased Endata, Inc., of Nashville, Tennessee. With these moves First Financial became one of the three largest merchant credit card processors in the United States. The company decided to enter this field after its examination of why banks were unable to make money on their credit card operations. First Financial found that banks lost money when they had to collect and manipulate paper credit card receipts from merchants. By installing electronic terminals at cash registers, the company was able to eliminate this step and make credit card transaction processing much more lucrative.
In addition to its credit card operations, First Financial also purchased the First Data Management Company of Oklahoma City at the end of 1987 and Midwest Com of Indiana, Inc., for which it paid $400,000. At the end of the year First Financial reported revenues of $175 million, which yielded profits of $11.6 million. The president had met and nearly doubled his goal of three years earlier.
First Financial built on these strong returns by embarking on further acquisitions in 1988. In February the company continued its expansion into the credit card business by purchasing the processing contracts between retail merchants and Manufacturers Hanover Trust Company. In December First Financial enhanced its computer operations when it bought Appalachian Computer Services, a company based in Kentucky, for $46.5 million. "We're continuing on our path to be a significant financial-transaction company, and this rounds out one of our services," First Financial's chief financial officer told the Atlanta Business Chronicle.
By this time First Financial had accumulated more than 25,000 customers, including over 1,500 financial institutions. The total had been achieved through the company's 27 acquisitions, which came, on average, once every three months. First Financial ended 1988 with revenues of $423.7 million, an increase of more than 100 percent over the previous year. Profits reached $29.3 million. Nearly half, by far the largest part, of this income was contributed by First Financial's credit card processing operations.
Early in 1989 First Financial announced that it would branch out beyond its core transaction processing businesses to acquire a Georgia savings and loan association, despite the fact that this industry had been in a severe and protracted slump. The company took the step in order to protect its lucrative credit card processing operations. Concerned that the major credit card companies might one day issue rules that would prevent third-party companies such as First Financial from processing transactions, it decided to buy into the credit card industry in order to gain some say over how the accounts were handled. In order to become a credit card issuer, it was necessary to own a financial institution. By buying Georgia Federal Bank in May 1989 for $234 million, First Financial became the issuer of more than 100,000 credit cards. In addition, Georgia Federal had 11 percent of its deposits in the Atlanta market, where it was the largest thrift institution. Despite its size and strategic importance, Georgia Federal's acquisition by First Financial left the financial community worried about the company's prospects, and First Financial's stock price began to fall.
At the beginning of 1990 First Financial announced that it would switch its stock listing from the over-the-counter market to the New York Stock Exchange. In this way the company hoped to shore up its financial reputation and increase its attractiveness to foreign investors. Just a few days later First Financial also announced that it had reorganized its Financial Services Group into a subsidiary and changed its name to BASIS Information Technologies, Inc. This new entity comprised First Financial's original business operations, which provided check-clearing services to independent local banks, as well as 16 acquisitions that the company had made. With this restructuring along functional lines, the company hoped that BASIS would be better equipped to compete for the business of small financial institutions through its 24 data processing centers around the United States. By the end of its first quarter in business as a separate entity, however, BASIS was reporting only a ten percent profit margin, half of what First Financial executives had predicted.
This news--combined with an announcement that the federal government would investigate the real estate holdings of First Financial's thrift institution and with general jitteriness about the savings and loan industry--forced First Financial's stock price into a steep decline in the spring of 1990. Because the company used its stock to finance acquisitions, the drop in the value of its stock curtailed the number of purchases it could make.
By the start of the summer First Financial's stock price had begun to recover, and the company announced in August that it had finalized its purchase of two Atlanta businesses, Nationwide Credit and Online Financial Communication Systems, which meshed with the company's Microbilt subsidiary. With its purchase of the first company, First Financial entered the debt collection business. With the purchase of the Zytron Corporation in the same month, First Financial enhanced its Endata operations. The company also bought the Electro Data Corporation of Denver and the Bank of Boston's credit card contracts. In December 1990 First Financial announced that it had also acquired the credit card contracts of the Southeast Bank of Florida, which had one of the ten largest merchant contract portfolios. Shortly before this the company had completed its acquisition of the same operations from the Bank of New York, bringing a total of 12,000 new merchant customers to the company's credit card subsidiary. NaBanco, First Financial's credit card subsidiary, had become the nation's largest credit card processing company, with an annual growth rate of 40 percent.
Although First Financial's pace of acquisitions slowed in 1991, its revenues climbed to $1.2 billion. In the following year First Financial made a number of key purchases. In July 1992 the company augmented its credit verification operations by buying TeleCheck Services, Inc., and its subsidiary, the Payment Services Company, for $156 million. Shortly afterward First Financial expanded its ownership of TeleCheck franchises to 97 percent.
As part of this shift in corporate direction, First Financial divested itself of its savings and loan subsidiary, selling the Georgia Federal Bank and its subsidiary, First Family Financial Services. After a planned sale of this property in the summer of 1992 fell through, First Financial petitioned the Georgia state banking regulators for permission to form a credit card bank, called the First Financial Bank. After transferring Georgia Federal's data processing business to the new subsidiary, the sale of the thrift was completed when First Union Corporation paid $153 million for the property. The move, long urged by the financial community, was expected to lift the price of First Financial's stock.
At the end of 1992 First Financial also announced that it would sell its BASIS Information Technologies subsidiary, the company's original business, which now contributed only ten percent of First Financial's revenues. The move came on the heels of a $150 million lawsuit filed in October 1992 against International Business Machines Corporation (IBM), alleging that IBM had failed to properly implement a new computer system, which had damaged the company's operations. After receiving a cash settlement from IBM, First Financial completed the sale of BASIS to FIServe, Inc. for $96 million in February 1993.
In July 1993 First Financial activated the First Financial Bank as a credit card issuer, making it the sponsoring bank on customer contracts for the NaBanco processing operation. In addition, the company moved more aggressively into the healthcare field, purchasing Hospital Cost Consultants and VIPS, which marketed a Medicare claims processing system. First Financial also took a step into a new industry in 1993 when it purchased International Banking Technologies, Inc. for $47 million. This company had helped extend banking operations to supermarkets by negotiating agreements between grocers and financial institutions. With the move First Financial hoped to introduce its own services to a wider market. By the end of 1993 First Financial's revenues had grown to $1.67 billion.
The paths of First Financial and First Data first crossed in 1994, when each attempted to acquire Western Union Financial Services, the world's leading money transfer company. Western Union was an attractive target for both of these financial services powerhouses. First Financial wanted to acquire Western Union in order to branch out into a new market segment. Although the company had not previously ventured into consumer-oriented operations, Western Union's business was not outside the sphere of First Financial's expertise. After all, First Financial was already experienced in conducting money transactions for commercial customers. "Western Union is one of the most recognized trademarks in the world, with decades of experience in providing reliable services to consumers not currently targeted by our existing businesses," First Financial's president told the Atlanta Journal-Constitution on August 30, 1994. First Data, on the other hand, wanted Western Union in order to expand its presence in the consumer transaction market. (First Data had previously entered this market with its MoneyGram business, which it operated in conjunction with American Express.) First Financial ultimately won the rivals' protracted bidding war, paying $1.9 billion to take control of Western Union.
The firms were soon to meet on a less contentious field. In June 1995 they shocked the financial services industry by announcing merger plans, which they intended to accomplish through a stock swap. The information services field was growing more crowded, as computer and telecommunications companies began to offer the same sorts of services First Data and First Financial provided. Merchant processing was "a very concentrated industry and [was] getting even more so," an industry analyst explained to American Banker. "There is a lot of logic in the merger." According to the San Diego Union-Tribune, First Data and First Financial would be "better able to compete" by joining forces against their competitors in the crowded segment. As Ric Duques, the chairman and CEO of First Data stated in a press release, "our merged companies will have the required resources to meet new demands."
Because of antitrust concerns First Data was required to divest itself of its MoneyGram operation before the merger could be completed. The resulting company, which bore the name First Data Corporation, had net revenues of more than $4 billion and maintained a 30 percent share of the diverse credit card processing market. To streamline itself further, the nascent corporation began to rid itself of divisions that operated outside its core of financial support services. First Data Corporation concentrated instead on three key sectors: payment instruments, merchant processing, and card issuing.
The company continued to grow, but it did so less through acquisitions (as First Financial and the old First Data had done in the past) and more through strategic alliances that bolstered First Data Corporation's market position. In 1996 First Data signed an agreement to perform credit card processing for the entity that came out of the merger of Chemical Bank and Chase Manhattan, which was one of the ten largest credit card issuers in the country. That same year, First Data won a ten-year contract from retail behemoth Wal-Mart Stores, Inc. to provide comprehensive payment and electronic commerce services to all of its outlets. As a result of these partnerships, First Data Corporation's 1996 profits topped $898 million.
In 1997 First Data forcefully entered the realm of Internet commerce. Internet purchasing was expected to increase at astronomical rates, with some analysts speculating that as much as $3.2 trillion might be generated in online sales by 2003. First Data Corporation's partnership with Microsoft in 1997 was intended to keep First Data Corporation firmly at the center of this new commercial realm. The company formed a joint venture with Microsoft called MSFDC, which was an electronic bill payment company. At the same time, First Data Corporation also continued to develop its traditional operations. The company joined with Chase Manhattan Bank to create a merchant bank alliance named Chase Merchant Service, L.L.C., which offered data processing and related services to merchants for credit, debit, and stored-value card transactions. First Data Corporation's 1997 sales soared to more than $5 billion.
The company continued to pursue online merchants in 1998 and 1999, forging more alliances with leading web businesses. In November 1998 First Data Corporation announced a ten-year marketing deal with iMall, a designer and host of web sites for retail merchants that was acquired by Excite@Home in 1999. First Data Corporation and iMall encouraged retailers to get connected through their joint operation, MerchantStuff.com, which featured the first-ever automated Internet approval and acquisition system for merchants. First Data Corporation also teamed up with Yahoo! Store's 4,000 merchants, as well as barnesandnoble.com, for which it contracted to perform credit card processing for all transactions. With its considerable resources and numerous subsidiaries, First Data Corporation's future looked promising.
Principal Subsidiaries
TeleCheck Services, Inc.; TeleCheck Recovery Services, Inc; Western Union Financial Services, Inc.; Wells Fargo Merchant Services, L.L.C.; BankBoston Merchant Services, L.L.C.; Chase Merchant Services, L.L.C.; Credit Performance Inc.; Paymenttech (48% with BANK ONE Corporation).
Further Reading
Bean, Ed, "An Empire in the Making," Georgia Trend, October 1989.
"The Bum Rap," Georgia Trend, August 1990.
Fickenscher, Lisa, "First Data, First Financial in Merger to Create $4 Billion Electronic Processor," American Banker, June 14,1995.
"First Union Will Buy Georgia Federal," Atlanta Journal-Constitution, December 21, 1992.
King, Jim, "First Financial Credit Card Bank Ok'd," Atlanta Journal-Constitution, November 26, 1992.
Lee, Shelley, "FFMC Expands at Blistering Pace," Business Atlanta, December 1991.
McNaughton, David, "First Financial Plans Bid for Western Union," Atlanta Journal-Constitution, August 30, 1994.
Morrison, Cindy, "FFMC Expects to Net a Big One Next Month," Atlanta Business Chronicle, November 21, 1988.
Rice, Marc, "First Financial, First Data Agree to Merge," San Diego Union-Tribune, June 14, 1995.
— Elizabeth Rourke; Updated by Rebecca Stanfel
