Private investment firm Comvest Partners acquires the financially troubled e-retailer, which filed for Chapter 11 bankruptcy protection in March.
The result could be more competition as First Data Corp., the biggest U.S. card processor and one of the partners in Paymentech, is freed to develop its own online payment processing service.
Major e-commerce payment processor Chase Paymentech Solutions LLC announced today it will be divided in two by the end of the year, which could result in more competition for the payments business of online retailers.
“This is likely to be very good news for e-retailers as Paymentech makes pretty fat margins on their business currently, due mainly to their legacy reputation for being a leader and innovator,” says Steve Mott of consulting firm BetterBuyDesign.
Chase Paymentech is a joint venture that First Data Corp. and various bank partners have operated for 12 years. J.P. Morgan Chase & Co. assumed a 51% stake in the company following its acquisition of Bank One in 2004. First Data’s sale last fall to a private equity firm triggered a provision giving Chase the right to end the joint venture, and the bank exercised that option.
Chase, which owns 51% of the joint venture, will walk away with the Chase Paymentech name and the Salem, NH, processing platform that handles card-not-present purchases made via the web, phone and mail. While the Salem facility is well-known as a processor of Paymentech’s card-not-present transactions, “there’s a healthy chunk that goes through First Data as well,” says Mia Shernoff, executive vice president of marketing at Chase Paymentech. Chase will also retain the joint venture’s Dallas headquarters, the bulk of the employees and most of the company’s Canadian and European assets.
First Data will be provided with a copy of the technology used by the Salem processing center to handle card-not-present transactions, Shernoff says. That will help First Data build its own payment service for online retailers and catalogers, which could soon be competing for Chase Paymentech’s customers. “Many of them will have multi-year contracts, so there will not be a mass exodus right away,” Mott says. “But in time there should be a very vigorous competition for these customers.”
Chase Paymentech estimates it handles two-thirds of U.S. online purchases. The company processes payments for 108 of the retailers in the Internet Retailer Top 500 Guide, including No. 14 Wal-Mart, No. 18 Costco, No. 25 HSN, No. 27 Zappos.com and No. 30 Overstock.com. In all, Paymentech has almost 600,000 merchant clients in over 1 million locations worldwide, and last year processed 19.7 billion payments worth $719 billion.
First Data will leave the joint venture with 49% of the assets of Chase Paymentech, including the independent sales organization unit that mainly serves smaller retailers.
“With emerging opportunities in the global payments business, it makes good sense to bring our stake in Chase Paymentech business fully in-house,” says Gordon Smith, chief executive of JPMorgan Chase’s Card Services group. “Merchants are moving beyond traditional payment vehicles and we expect to be at the forefront of the industry, developing and investing in new forms of payments and related transactions that bring value to merchants.”
“Throughout this transition, we are committed to ensuring that there is no disruption to our allocated merchant partners,” says Brian Mooney, president of First Data`s Merchant Services group. “First Data will continue to focus on our core business of providing data-driven solutions and insight for our customers while delivering market-leading services and technologies that advance global commerce.”