Paymentech Joins JP Morgan/Chase Manhattan Fold - 2001-01-15
<B>Paymentech Joins JP Morgan/Chase Manhattan Fold</B>
<I>BTN executive editor Jay Campbell earlier this month spoke with James Baumgartner, president of the JP Morgan/Chase commercial card business, following Chase Manhattan Corp.'s recent acquisition of the commercial credit card-issuing subsidiary of Paymentech from Bank One and First USA. Expected to close this quarter, the deal includes a commercial card portfolio totaling approximately 230,000 cards. Terms of the transaction were not disclosed.</I>
<B>BTN:</B> How did the transaction come about?
<B>James Baumgartner:</B> Well, there are about five or six entities that are in the commercial card business fairly seriously, where they've got a service area, a credit area, a technology area--everything you need to deliver the end solution to the customer. Then there's a handful of other banks that have done it for partially defensive reasons, because they don't want to lose those customers to the five or six banks that are doing it on a more industrial basis. Then there is another set of banks that either are smaller, or have chosen not to invest in the infrastructure to build the business and deliver the kind of service that we deliver to our clients.
They've chosen to outsource that product to entities like us, and so we have more than 100 agent banks that we work with on that basis, where we issue the card under their name. We do all the servicing under their name in a lot of cases, the technology platform looks like they're delivering it and so they're satisfying the need of their client in a way that also allows them to earn some extra income.
The Chase folks, prior to Chase and JP Morgan merging, were looking to possibly outsource their purchasing card business to somebody else. They looked at us and the other leading purchasing card issuers, and decided we were the best solution for their clients.
We were proceeding down the path of an agent bank alliance and then the discussions got more involved, and they decided that they would just as soon own us.
<B>BTN:</B> Will Paymentech be given latitude to work independently?
<B>Baumgartner:</B> JP Morgan/Chase has recognized that the success that we've had has been a result of a couple things, and one is agility. Then there's also a focus on technology and service.
In recognizing that, what they've agreed to do is fold their existing businesses, which are currently split into a purchasing card business and a corporate card business, into this business and make it one.
The agility that we've enjoyed has been a key driver in our success, and they have given us every assurance that will continue.
<B>BTN:</B> What's going to happen with the salesforce: Are you going to use the Chase Manhattan salesforce or will they be combined?
<B>Baumgartner:</B> Yes, the Chase sales infrastructure that they currently have for purchasing and corporate cards will be reporting to senior vice president David Cramer. The account managers, program consultants and servicing folks will be part of our division.
<B>BTN:</B> How many commercial card clients does Chase have?
<B>Baumgartner:</B> They were about a fifth the size that we were.
<B>BTN:</B> What will be your strategy in terms of talking to clients of theirs that you haven't before contacted?
<B>Baumgartner:</B> We've already had some discussions with some of their key clients and they're anxious to migrate over to our technology platform, so we're scheduling them to migrate on to the Paymentnet platform. They're pretty excited by the possibility of being able to do that and take advantage of some of the tools that they'll now have access to.
<B>BTN:</B> Did Chase have something similar to Paymentnet?
<B>Baumgartner:</B> They offered a couple of other products that were more basic, that a lot of other banks are offering, so they really didn't have the robust Internet platform that allowed their customers to review, allocate, approve, integrate transactions into their general ledger system, dispute things, pay online, schedule payments, make real-time maintenance changes and the like. They really were in need of a more leading-edge solution, and that's why they came to us.
<B>BTN:</B> What kind of usage have you seen most recently?
<B>Baumgartner:</B> We offer four different packages, and probably 99 percent of our clients now are choosing Paymentnet and the products that revolve around it. It's an overwhelming response and, in some ways, it's because we let the clients help to determine what we do with it next.
We're always trying to improve and add value to Paymentnet and we use the clients as our number-one source for recommendations and prioritization of improvements, so they feel they're very much a part of an evolving technology.
<B>BTN:</B> Paymentnet was the first of its kind, but other card companies are coming up with their own Internet-based services. Has anyone caught up?
<B>Baumgartner:</B> We don't believe so. We have at least an 18-month lead on what we're doing today and plan to continue that lead. There are other modules that we can see adding on to it in the relatively near future.
<B>BTN:</B> Will the status of Chase's relationship with ProCard change at all?
<B>Baumgartner:</B> We offer ProCard today to some of our customers and a vast majority of them are choosing to use Paymentnet, but we will continue to offer ProCard.
We don't see any immediate need to change that relationship. From a near-term perspective, this is a matter of offering a more robust payment platform to the Chase customers, and then taking advantage of the JP Morgan/Chase relationships, and starting to get out in a more focused mode against those opportunities where JP Morgan/Chase has relationships at the corporate level with most of the companies that we would like to be doing business with.
<B>BTN:</B> Wouldn't there be some cost efficiencies in whittling down to one platform?
<B>Baumgartner:</B> We are migrating the cards over to our platform. We will be doing the servicing out of Salt Lake City with the folks who we have here, so we do envision some cost efficiencies as a result of the integration. But the model from Chase's perspective was really not so much one of, "Hey, how do we squeeze every nickel that we can out of this transaction." It was more, "How can we offer our customers a complete and industry-leading product suite that makes our entire value proposition to them more appealing?"
We expect probably that 95 percent of their customers will want to migrate over to Paymentnet, and on to the platform. We will do all of the servicing, regardless of which platform they choose, out of Salt Lake City, so we will gain some efficiencies just in doing that because you're adding more cards to the bottomline.
<B>BTN:</B> Things have been difficult for First USA on the consumer side. What constraints or issues might there have been for you, as far as being under that umbrella, and what might you be free to do now?
<B>Baumgartner:</B> The fact that Bank One owned First USA and owned half of Paymentech really hasn't hindered us from a growth perspective or from a focus-on-the-client perspective. You get the occasional call into customer service for what may have been a consumer card issue or challenge, but those were definitely the exception and not the rule.
<B>BTN:</B> How does the theme of globalization play into this?
<B>Baumgartner:</B> It's actually one of the more exciting dynamics. One of the challenges that you could say we face in some ways is migrating out our Internet platform to other banks and developing relationships with some other, larger banks.
JP Morgan/Chase is a leading global bank and has a number of correspondent relationships with some of the banks that we'd kind of like to push along in terms of evolving the industry into more of a true global solution. So, we view that as a strength of the deal versus being a part of a niche merchant processing entity.
<B>BTN:</B> What other trends are you watching?
<B>Baumgartner:</B> We see the industry continuing to consolidate into a few players, and JP Morgan/Chase fully intends to be one of those players. What they're adding from our perspective is stability and continuity, with an emphasis on continuing to improve our technology, retaining our agility and focusing on the customer. It sounds trite, but it really is a win-win solution.
<B>BTN:</B> A number of travel buyers have been discussing how exactly they can pass back agency transaction fees to the travelers, and some are concerned about the way certain corporate card companies are charging for that. Do you have any clients who want to charge individual cardholders for things like agency services, and how would that all be paid for?
<B>Baumgartner:</B> I've heard the same thing, and if they wanted to do that, we could accommodate them in a fairly easy way where we report back in through the Paymentnet infrastructure. But we haven't had any customers come to us and say, 'We'd really like to get this down to the individual traveler.' Still, it is a topic that we have scheduled for discussion at our next users' conference.