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Sticky core processor relationships This would routinize and automate the sale of bankcard
services to the banks' merchant clients and, equally
To put things in perspective, the St. Louis branch of the important, would generate a reporting capability to bank
Federal Reserve publishes statistics on the industry under management that would enable them to see progress being
the rubric "FRED," and the current listing shows that there made. A bank with $200 million in assets might then need
are 4,652 commercial banks in the country (a fairly steep only one or two salespeople to handle merchant bankcard
drop from 10 years ago). When you look at the listing by relationships because the core would handle everything
asset size (in descending order, largest at the top) you get else.
down to a $2 billion total asset size by bank number 340,
which by inference, means there are 4,312 community The appeal of long-term profits
banks with less than $2 billion in assets.
You may be thinking that the three cores don't do merchant
These banks are too small to have their own IT/ processing, and you would be right, that is, up until a
data processing departments and their own product couple of months ago. Now, they have acquired the major
management staffs. Over time, three large "core processors" card processors outright. You could say they bought their
have come to dominate the business of providing the entire way into the merchant bankcard business. This means, for
spectrum of general ledger processing and products, example, that if you are using Fiserv now, Fiserv will soon
including loans, deposits, savings, investments, etc. Local be integrating First Data into its platform.
banks make a fairly permanent decision as to which of
these three core processors to use, and it would not be Small banks will now be able to enter the merchant
much of an exaggeration to say that from that point on, transaction processing business in an arrangement
they are joined at the hip. similar to the First Data affiliate program that existed for
large banks. But not so fast. It is not certain the Fiserv/
My favorite comment about this is from Scott Hanson, First Data integration will be fully realized anytime soon.
who said that changing your core processor is akin to A report from The Strawhecker Group states it could
having open heart surgery with your eyes open and no take a decade to integrate these two firms. Even before
anesthesia. this event, First Data had struggled to consolidate all its
existing platforms, according to Jim Daly, senior director
The three large core processors are Fiserv, FIS and Jack of business intelligence at Strawhecker.
Henry. The core processor software handles all deposits,
payments, loans, banking transactions, customer data Regarding the Fiserv side, he stated, "[M]any community
and reporting. It has been stated that the core processor banks that use Fiserv's core systems already complain
knows the business of banking better than the banks, that they are held back and don't receive the service/
and they have a tool bag of technology products to make functionality they desire. The lack of timely response and
everything happen seamlessly. While Global Payments support from Fiserv has hindered financial institutions
is not a core processor, I deemed its purchase of TSYS a from adopting emerging technology."
"climate change" force because of its size.
Remember, to make a merger like this work, you are not just
Routinized, automated sales integrating different computer systems and technology;
you are also combining executive, sales, marketing and
You can probably see where I am going with this. A large administrative systems.
number of community banks have SMB clients who need
and use merchant bankcard services. Currently, these In the end, there is one important point the processors
banks are involved in just about every aspect of their know: bank-sourced merchant accounts tend to last longer
clients' businesses except merchant bankcard processing. than merchant accounts generated by nonbank processors,
They leave it to local ISOs to call on their clients and so in the long-run, the bank sales channel is more profitable.
deliver these services. These three huge acquisitions of merchant acquirers by
core processors are the very definition of climate change
But what if the core processors offered bankcard services in the payment processing world. ISOs and MLSs should
to merchants in a seamless, easy-to-use fashion much pay close attention to this space.
like they do with Treasury products? The core processors
would have access to all the balance and transaction detail Brandes Elitch, director of partner acquisition for CrossCheck Inc., has
of every merchant client and would be able to quickly been a cash management practitioner for several Fortune 500 compa-
profile which merchants to call on to discuss bankcard nies, sold cash management services for major banks and served as a
processing, and even make it easy to generate a proposal consultant to bankcard acquirers. A certified cash manager and accred-
and statement. ited ACH professional, Brandes has a Master's in Business Administration
from New York University and a Juris Doctor from Santa Clara University.
He can be reached at brandese@cross-check.com.

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