Dive Brief:

• Payment processor Fiserv has applied to obtain a merchant acquirer limited purpose bank charter in Georgia, enabling the company to authorize, settle and clear payment transactions for merchants, according to a company spokesperson.
• “We are 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,” the Fiserv spokesperson said in a Thursday email.
• There’s no official approval timeline, but the Brookfield, Wisconsin-based company expects the process to be complete sometime during the first half of the year, the spokesperson said.

Dive Insight:

Historically, Fiserv has used a bank partner to handle the end-of-day transaction settling for merchants. The special purpose charter would allow Fiserv to own the transaction end-to-end, eliminating third-party risk, said Tony DeSanctis, a senior director at Cornerstone Advisors. It’s also a more profitable endeavor for Fiserv, because the company doesn’t have to pay a bank to handle those transactions, he said.

Fiserv, led by CEO Frank Bisignano, is likely “looking to vertically integrate a little bit more,” DeSanctis said in an interview. “I think Frank and the folks at Fiserv are all about making things efficient, and controlling as much as possible where it makes sense.”

Additionally, it’s probably been challenging to find bank partners, because it doesn’t offer much benefit for financial institutions, he said. “It’s not a core business for anybody, and in a world where expenses are continuing to be challenged, [banks] don’t necessarily want to do that.”

First Data, which Fiserv acquired in 2019, previously was part of a joint venture with Bank of America, but that partnership was terminated months after the acquisition was announced.

In the merchant arena, “the margins are so thin and getting thinner,” DeSanctis said. “If you don’t have scale, you can’t compete.” The more scale a company has and the more cost they can “suck out of the process, the better chance you have to compete,” he said. 

Fiserv was the largest non-bank merchant acquirer in 2022, beating rival Fidelity National Information Services’ Worldpay unit, according to a ranking last year by the Nilson Report. JPMorgan Chase, the largest U.S. bank, occupies the No. 1 spot in merchant acquiring.

Fiserv is most likely “trying to figure out how to get up the chain a little bit,” DeSanctis said. 

The Fiserv spokesperson emphasized the move does not mean Fiserv plans to become a full-fledged bank. 

“Fiserv has no intention to become a traditional financial institution or regional bank,” the spokesperson said. “Fiserv also will continue to partner with financial institutions that want to remain active in the market as acquiring sponsors.”

Currently, no entity has a MALPB charter, said Bo Fears, senior deputy commissioner at the Georgia Department of Banking and Finance. The designation, created in 2012, applies nationwide, he said.

Fears isn’t aware of any other state offering such a charter. The sole purpose of the charter: acquirers don’t have to run bank identification numbers and have direct access to card networks, he said.

Fears declined to comment on Fiserv’s application, saying information is only public once an application has been accepted.