Payment-processing giant First Data holds a leadership position in US merchant acquiring, moving a staggering $1.9 trillion in 2016 US transaction volume. The company has traditionally relied heavily on its vast network of reseller partners, known as independent sales organizations, to reach, service and expand the more than six million global merchant locations it does business with.
Increasing price competition in merchant acquiring against the backdrop of emerging payment innovations fueled by mobile and cloud have challenged First Data in recent years. These challenges have demanded that the company not only double down on its technology investments, but also reassess the way in which it goes to market. While purchases of companies like Clover and Perka have helped in addressing the former, First Data has more recently made a commitment to re-architecting its channel strategy. In late 2016, the company launched its Integrated Solutions Group (ISG) to more effectively embrace high-growth distribution partners such as developers, ISVs and VARs. ISG is tasked with the not-so-small challenge of converting First Data into a more technology-centric, partner-led organization.
The formation of the Integrated Solutions Group speaks to First Data's growing emphasis on and commitment to the integrated channel. In many ways, ISG is designed to take some of the best practices and learnings from Clover and apply them to the broader organization. The strategy is sound, and if executed on successfully, will help make the company not only a better partner, but also an early component of new, high-growth commerce experiences.
On the surface, ISG can be viewed as an evolution of First Data's channel strategy. It's a way for the company to increasingly reach the market as a component – be it the technology or processing layer – of its partners' products. The group is about more than just embracing a new channel, however. At its core, ISG is ultimately tasked with the lofty and more complex challenge of driving digital transformation within First Data. This means guiding the decades-old payments provider to think, operate and build products more like a technology firm. While it's early into what will be a multiyear evolution, the company has indicated a promising early trajectory, showing a combination of deep management commitment and partner results.
Increasing price competition in merchant acquiring against the backdrop of emerging payment innovations fueled by mobile and cloud have challenged First Data in recent years. These challenges have demanded that the company not only double down on its technology investments, but also reassess the way in which it goes to market. While purchases of companies like Clover and Perka have helped in addressing the former, First Data has more recently made a commitment to re-architecting its channel strategy. In late 2016, the company launched its Integrated Solutions Group (ISG) to more effectively embrace high-growth distribution partners such as developers, ISVs and VARs. ISG is tasked with the not-so-small challenge of converting First Data into a more technology-centric, partner-led organization.
The formation of the Integrated Solutions Group speaks to First Data's growing emphasis on and commitment to the integrated channel. In many ways, ISG is designed to take some of the best practices and learnings from Clover and apply them to the broader organization. The strategy is sound, and if executed on successfully, will help make the company not only a better partner, but also an early component of new, high-growth commerce experiences.
On the surface, ISG can be viewed as an evolution of First Data's channel strategy. It's a way for the company to increasingly reach the market as a component – be it the technology or processing layer – of its partners' products. The group is about more than just embracing a new channel, however. At its core, ISG is ultimately tasked with the lofty and more complex challenge of driving digital transformation within First Data. This means guiding the decades-old payments provider to think, operate and build products more like a technology firm. While it's early into what will be a multiyear evolution, the company has indicated a promising early trajectory, showing a combination of deep management commitment and partner results.
Context
Founded in 1971, Atlanta-based First Data reemerged from KKR ownership in October 2015 with a $2.56bn IPO. In the full year following its debut, the company reported $11.6bn in revenue, up about 1%, with net income of $420m (a change of nearly $2bn from 2015). As of December 31, headcount sat at 24,000 globally.
Its Global Business Solutions division, the largest of three operating segments within the company, is responsible for providing payment services and merchant acquiring to both SMB- and enterprise-sized merchants. In this group sit some of First Data's most strategic technology assets, including Clover and the newly launched Integrated Solutions Group. Led by Dan Charron, Global Business Solutions was responsible for acquiring $2.1 trillion in global payments volume across 88 billion transactions last year.
Products
At a granular level, the Integrated Solutions Group is responsible for improving software partners' ease of integrating and certifying with First Data. To accomplish this, the group is working to help unify and streamline the way in which partners interface with the company to access its payments technology and related services. This includes the launch of a developer portal for partners to better manage their relationship with First Data, as well as an enhanced focus on self-service and automation throughout the integration process. ISG also aims to reaffirm the company's commitment to partners via enhanced service, support and training.
One of the major focal areas for the group is testing and certification. Since its launch, ISG has helped bridge gaps that have existed between First Data's Rapid Connect service and its front-end systems by adding more than 30 enhancements and building out a product roadmap. The group now allows partners to see what items are mandatory and discretionary during a test, helping to truncate certification times. The ISG team says approaches such as this have helped the company reduce cycle times by 30% on the average project.
ISG is also responsible for improving access to First Data's products and services. An initial area of focus for the group has been the Payeezy gateway. It has made strides in improving Payeezy's APIs and eliminating manual processes in an effort to bring it to parity with rivals like Stripe.
As with most things at First Data, Clover plays a significant role within ISG. While partners have been able to build apps for Clover's App Market for some time, they can now engage with Clover in a variety of different ways. Clover's new PaaS model enables developers to launch point-of-sale (POS) applications that run on Clover's OS. ShopKeep is an early example of a POS developer that has partnered with First Data in this manner.
Longer term, it's worth considering the role that CardConnect, which First Data acquired for $750m in May in a deal set to close in the third quarter, will play within ISG. CardConnect processed $22.3bn last year and was an attractive target for First Data thanks to its heavy investments in the ISV channel in recent years. The transaction should help catalyze First Data's efforts in the integrated channel.
Strategy
Underscoring the Integrated Solutions Group's importance – and the weight of its challenge – First Data cited 'establishing and driving an integrated payments strategy' as one of five go-forward 'strategic growth initiatives' in its 2016 annual report. The primary task before ISG is to strengthen the company's ability to collaborate with high-growth channel and technology partners. This includes improving relationships with its established middleware and gateway partners while fostering integrations with emerging POS and card-not-present (CNP) payment providers across geographies, with a noted focus on the US.
For ISG to improve First Data's attractiveness as a technology partner, the tail in some ways must wag the dog. To make it quicker and easier for partners to leverage its technology, the soon-to-be 100-employee group will be required to drive a company of 24,000 to reengineer both its culture and longstanding product development protocols. This means directing an at times cumbersome, nearly 50-year-old payments provider to improve its commitment to product roadmaps and reduce cycle times while simultaneously modernizing to more agile and microservices-oriented development processes. In doing so, the goal is to compel the organization to think and operate more like a technology vendor. Tellingly, First Data announced in January that it had hired technology industry veteran E.J. Jackson to run ISG. Jackson joins First Data from SAP, where he ran the company's Anywhere SaaS product.
First Data will be measuring ISG's success by directly indexing it to its partner ecosystem. The group will chiefly be tasked with recruitment and growing the company' base of several hundred partners. Momentum in this area has been already apparent, with First Data noting that its partner base has grown by 40% in the first two quarters of 2017. Tactics such as hackathons, YouTube videos and launching its own Slack channel for developers have aided in the growth. ISG is also responsible for increasing partner activations. It aims to ensure that First Data's partnerships make it past paper and into execution. ISG has helped increase partner activations 300-400% since launch, according to the company.
Competition
The formation of the Integrated Solutions Group was in part galvanized by strengthening and emerging competitive forces. Of First Data's traditional rivals, 451 Research views Vantiv as its biggest challenger in integrated payments. Vantiv's integrated strategy received a shot in the arm with the $1.65bn acquisition of Mercury Payment Systems in 2014. The company augmented its position further with the launch of its formal developer outreach initiative, Vantiv O.N.E, about a year ago and reach for Paymetric in April. More traditional competitors also include other large processors such as TSYS, WorldPay and Global Payments.
High-growth payment facilitators are moving up on First Data's competitive radar. Square was among the first to prove the value of integrated payments for SMBs, and while generally focused further downstream, it is seeing increasing momentum with merchants processing north of $500,000 in annual gross payments volume. CNP players such as Stripe and Braintree (purchased by PayPal in 2013 for $800m) are also challengers, having enjoyed considerable success among emerging Silicon Valley startups thanks to their developer-friendly, API-led payment-processing services. Further upmarket, Adyen has demonstrated growth among large e-commerce firms thanks to its easy-to-deploy global processing stack. The company is now starting to gain traction among high-end luxury retailers for omni-channel deals.
Founded in 1971, Atlanta-based First Data reemerged from KKR ownership in October 2015 with a $2.56bn IPO. In the full year following its debut, the company reported $11.6bn in revenue, up about 1%, with net income of $420m (a change of nearly $2bn from 2015). As of December 31, headcount sat at 24,000 globally.
Its Global Business Solutions division, the largest of three operating segments within the company, is responsible for providing payment services and merchant acquiring to both SMB- and enterprise-sized merchants. In this group sit some of First Data's most strategic technology assets, including Clover and the newly launched Integrated Solutions Group. Led by Dan Charron, Global Business Solutions was responsible for acquiring $2.1 trillion in global payments volume across 88 billion transactions last year.
Products
At a granular level, the Integrated Solutions Group is responsible for improving software partners' ease of integrating and certifying with First Data. To accomplish this, the group is working to help unify and streamline the way in which partners interface with the company to access its payments technology and related services. This includes the launch of a developer portal for partners to better manage their relationship with First Data, as well as an enhanced focus on self-service and automation throughout the integration process. ISG also aims to reaffirm the company's commitment to partners via enhanced service, support and training.
One of the major focal areas for the group is testing and certification. Since its launch, ISG has helped bridge gaps that have existed between First Data's Rapid Connect service and its front-end systems by adding more than 30 enhancements and building out a product roadmap. The group now allows partners to see what items are mandatory and discretionary during a test, helping to truncate certification times. The ISG team says approaches such as this have helped the company reduce cycle times by 30% on the average project.
ISG is also responsible for improving access to First Data's products and services. An initial area of focus for the group has been the Payeezy gateway. It has made strides in improving Payeezy's APIs and eliminating manual processes in an effort to bring it to parity with rivals like Stripe.
As with most things at First Data, Clover plays a significant role within ISG. While partners have been able to build apps for Clover's App Market for some time, they can now engage with Clover in a variety of different ways. Clover's new PaaS model enables developers to launch point-of-sale (POS) applications that run on Clover's OS. ShopKeep is an early example of a POS developer that has partnered with First Data in this manner.
Longer term, it's worth considering the role that CardConnect, which First Data acquired for $750m in May in a deal set to close in the third quarter, will play within ISG. CardConnect processed $22.3bn last year and was an attractive target for First Data thanks to its heavy investments in the ISV channel in recent years. The transaction should help catalyze First Data's efforts in the integrated channel.
Strategy
Underscoring the Integrated Solutions Group's importance – and the weight of its challenge – First Data cited 'establishing and driving an integrated payments strategy' as one of five go-forward 'strategic growth initiatives' in its 2016 annual report. The primary task before ISG is to strengthen the company's ability to collaborate with high-growth channel and technology partners. This includes improving relationships with its established middleware and gateway partners while fostering integrations with emerging POS and card-not-present (CNP) payment providers across geographies, with a noted focus on the US.
For ISG to improve First Data's attractiveness as a technology partner, the tail in some ways must wag the dog. To make it quicker and easier for partners to leverage its technology, the soon-to-be 100-employee group will be required to drive a company of 24,000 to reengineer both its culture and longstanding product development protocols. This means directing an at times cumbersome, nearly 50-year-old payments provider to improve its commitment to product roadmaps and reduce cycle times while simultaneously modernizing to more agile and microservices-oriented development processes. In doing so, the goal is to compel the organization to think and operate more like a technology vendor. Tellingly, First Data announced in January that it had hired technology industry veteran E.J. Jackson to run ISG. Jackson joins First Data from SAP, where he ran the company's Anywhere SaaS product.
First Data will be measuring ISG's success by directly indexing it to its partner ecosystem. The group will chiefly be tasked with recruitment and growing the company' base of several hundred partners. Momentum in this area has been already apparent, with First Data noting that its partner base has grown by 40% in the first two quarters of 2017. Tactics such as hackathons, YouTube videos and launching its own Slack channel for developers have aided in the growth. ISG is also responsible for increasing partner activations. It aims to ensure that First Data's partnerships make it past paper and into execution. ISG has helped increase partner activations 300-400% since launch, according to the company.
Competition
The formation of the Integrated Solutions Group was in part galvanized by strengthening and emerging competitive forces. Of First Data's traditional rivals, 451 Research views Vantiv as its biggest challenger in integrated payments. Vantiv's integrated strategy received a shot in the arm with the $1.65bn acquisition of Mercury Payment Systems in 2014. The company augmented its position further with the launch of its formal developer outreach initiative, Vantiv O.N.E, about a year ago and reach for Paymetric in April. More traditional competitors also include other large processors such as TSYS, WorldPay and Global Payments.
High-growth payment facilitators are moving up on First Data's competitive radar. Square was among the first to prove the value of integrated payments for SMBs, and while generally focused further downstream, it is seeing increasing momentum with merchants processing north of $500,000 in annual gross payments volume. CNP players such as Stripe and Braintree (purchased by PayPal in 2013 for $800m) are also challengers, having enjoyed considerable success among emerging Silicon Valley startups thanks to their developer-friendly, API-led payment-processing services. Further upmarket, Adyen has demonstrated growth among large e-commerce firms thanks to its easy-to-deploy global processing stack. The company is now starting to gain traction among high-end luxury retailers for omni-channel deals.
Strengths
ISG helps reinforce and strengthen First Data's commitment to the integrated channel. The group is gaining early traction driving both partners and activations.
Weaknesses
The sheer size of First Data combined with the age of its internal technology systems will create challenges in increasing the company's nimbleness. Technological and cultural change will demand a challenging, concerted business and IT-aligned effort.
Opportunities
First Data has latent growth opportunities in both card-not-present channels and international payments. Clover has already helped broaden the company's exposure to developers and serves as a platform for expansion.
Threats
Emerging rivals have benefited from building a partner-led strategy in a mobile-first technology environment. First Data must vie for human resources in a competitive talent pool being tapped by both payment and technology vendors.
Jordan McKee
Principal Analyst, Payments
Jordan McKee is a Principal Analyst leading 451 Research’s coverage of the payments ecosystem. He focuses on digital transformation across the commerce value chain, with an emphasis on the major trends impacting payment networks, issuing and acquiring banks, payment processors and point-of-sale providers. His research helps vendors and enterprises assess the key implications of emerging technologies driving the digitization of the end-to-end shopping journey.
Sheryl Kingstone
Research Director, Customer Experience & Commerce
Research Director Sheryl Kingstone focuses on improving the customer experience across all interaction channels for customer acquisition and loyalty. She helps operator and enterprise clients make decisions regarding the use of technology, business processes and data to boost revenue and optimize business performance. She also assists vendors with custom research projects, messaging and positioning, as well as product road map evaluations. Kingstone researches and writes on the top trends in mobile marketing and commerce along with cross-channel customer experience technologies.
Keith Dawson
Principal Analyst
Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.