Stories from the First Data S1: Wells Fargo Merchant Services

Navigator Edition: August 2015
By: Marc Abbey

Public offerings are in the wind. PayPal, Worldpay, Square, and of course, First Data have all filed or reportedly filed for a public offering, and as a consequence, have provided or are in the process of providing information to investors describing their companies.

Deep in the recesses of the First Data S-1 are the audited financials of Wells Fargo Merchant Services, the joint venture between First Data and the namesake bank, a version of which is shown in Figure 1. The financials tell a remarkable tale.

Figure 1: Wells Fargo Merchant Services
($ in Millions)

Fig-1_Wells-Fargo-Merchant-ServicesNote: Dollar volumes and transactions are bankcard volumes.
Source: First Data S-1 and The Nilson Report.

Wells Fargo Merchant Services (“WFMS”) is a noteworthy player in that it was the first joint venture in the U.S. acquiring industry, formed in 1993. In the early 1990s, the merchant business at Wells Fargo processed just under $5 billion in volume and generated $40 million in revenue, in round numbers. Not too many years before, the business had been loss-making.

Wells Fargo had the key insight that a combination of the strengths of a non-bank specialized acquirer and the franchise of a premiere bank would be highly competitive, and it has been. In 1993, Wells Fargo established a joint venture with the equally innovative CES, a private company carved out of Citibank by Welsh Carson and formerly known as Citibank Establishment Services. In late 1994, First Data acquired CES from Welsh Carson, inheriting the Wells Fargo JV. This acquisition was the event through which First Data entered the acquiring business, having been strictly a third-party processor up to that time. Within four years, First Data would be the largest acquirer in the world.

Since then, the joint venture between Wells Fargo and First Data has prospered, as the “before and after” graphic in Figure 2 illustrates. WFMS has grown from a marginal, regional acquirer to an engine of earnings by most standards and certainly by acquiring standards.

Figure 2: Changes in Key WFMS Performance Indicators, 1992 – 2014

Fig-2_-Changes-in-Key-WFMS-Performance-IndicatorsSource: First Data S-1 and company financial statements.

No doubt, this progression was not all sunshine and smiles, and Wells Fargo and First Data made key adjustments to the joint venture over time, with major modifications to the sales organization, the ownership structure, and governance along the way. Debra Rossi, the key architect on the Wells Fargo side of the arrangement, commented on the evolution of the alliance in a Navigator interview in 2010: “The bank alliance story is a remarkable story, but not an easy one. [We have had] a shared vision and shared effort. We have clarity on roles and responsibilities—mutual input but separate responsibility and accountability. We have an active Board of Directors with great continuity—all but one of the bank directors has been on the board since 1993.”

For their part, First Data replicated the joint venture structure 13 times over the following four years, cementing the role of bank/non-bank alliances in the U.S. acquiring industry and along with the acquisition of NaBANCO in 1995, making First Data the largest acquirer in the U.S. and the world.

For more information, please contact Marc Abbey, Managing Partner,, specializing in Merchant Acquiring.

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