In a tightly competitive payments market in a cost-conscious economy, Fiserv is trying to expand the amount of processing work it can do for merchants.
The bank technology seller has applied for a merchant acquirer limited purpose bank charter in Georgia. That would allow Fiserv to control the entire payment process, including authorizing, settling and clearing debit and credit card transactions. Fiserv normally uses bank partners as part of payment processing.
In an email on Friday night, Fiserv's public relations office said the company is "taking this step in response to recent market changes, as third-party financial institutions that have traditionally provided access to the card networks as sponsor banks increasingly focus on other areas of their business." Fiserv's public relations office added that the company has no intention to become a traditional financial institution or regional bank, saying Fiserv will continue to partner with financial institutions that want to remain active in the market as acquiring sponsors.
The decision could make a strong bank technology company even stronger.
"Fiserv dominates the non-bank acquiring space, and with the move to build out a special-purpose bank, they can orchestrate payments and drive down costs," said Brian Riley, co-head of payments at Javelin Strategy & Research. Payments orchestration refers to processing and routing transactions based on the fastest, most efficient and cost effective option, and has become a major
Fiserv faces numerous competitors, including traditional rivals such as FIS, global rivals seeking a foothold in the U.S. like
The merchant acquiring market in the U.S. is top heavy. JPMorgan Chase is the largest merchant acquirer in the U.S. in terms of number of transactions, with about 36 billion in 2022, according to
"With [Fiserv CEO Frank Bisignano's] depth in payments, there's a more considerable downfield advantage," Riley said.
Fiserv has recently expanded its merchant services beyond payment processing. In late 2023 it began selling
"One thing for sure is that there is more to the story than Fiserv wanting to reduce costs in the low-margin merchant acquiring business," Riley said.
Fiserv, which traditionally specialized in selling core banking systems, got a major boost in payments when it
The economics of payment processing have become more challenging, with
The factors that are challenging processing revenue include inflation, a slowing economy and the proliferation of other options, such as Stripe, Block, PayPal and smaller niche fintechs, according to BCG. An acquirer that is the bank and the processor owns the merchant relationship takes on more but also owns the origination channel and delivery of internal and third-party services, according to Eric Grover, a principal at Intrepid Ventures. "[That firm] controls the value chain and will capture the lion's share of economics providing payment acceptance and bundled services," Grover said. "There's a cost of owning and running a bank and a regulatory burden, but it provides greater control."