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European card processing: the decline of the old order

9th August 2005
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First Data has signed an agreement to acquire APSS.

Continuing its aggressive European expansion, First Data has agreed to acquire Austria's local interbank processor Austrian Payment Systems Services (APSS). This is unlikely to be the last such transaction in the current round of M&A activity sweeping the European card processing market, as regulation and cross-border banking consolidation push banks to abandon the interbank processors.

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The deal, which is expected to close by the end of 2005, will see First Data [FDC] take full ownership of APSS. APSS is a leading card processor in Austria, providing a range of services for issuers and acquirers. Yet, despite its intentions to become a leading processor for central and eastern Europe (a necessary strategy given the low transaction volumes available in Austria itself) APSS has struggled and, in recent months, its future has come under increasing speculation.

That First Data has emerged as the one to take on APSS is no surprise, as the US third party processor has made a number of acquisitions in Europe over the last year. The shopping spree began in June 2004 with the acquisition of Delta Singular Outsourcing Services, and continued in 2005 with the purchase of the card processing unit of FinecoBank followed by a deal to buy EuroProcessing International.

Of all First Data's acquisitions, APSS is probably one of the weaker deals; not least because the future processing strategies of two major stakeholders are seemingly increasingly unlikely to involve APSS: firstly, Bank Austria-Credit Anstalt is part of HVB, which is being acquired by UniCredito, which uses SiNSYS as a processor. The question of who will win the processing business for this enlarged group is keenly awaited. Secondly, Erste Bank is set to outsource its card operations across eastern Europe to one, as-yet-unknown, player.

While the APSS acquisition may not be the strongest deal First Data has made or will make, it is unlikely to be the last such purchase, either for First Data in the European card sector overall, given the current consolidation craze among card processors. The regulatory burden, pan-European banking consolidation and the pressure to drive down processing costs are all factors causing banks to rethink their card processing strategies. As a result, many of the traditional interbank processors are crumbling, with third-party processors waiting to pick up the pieces.
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