First Data Corporation merges with First Financial Management Corporation

The Federal Trade Commission today announced an action designed to ensure that the kind of competition that has resulted in lower prices, frequent-user discounts and other promotional incentives in the consumer money wire transfer services industry will continue after First Data Corporation merges with First Financial Management Corporation. Absent the FTC action, the $6.7 billion merger probably would lead to higher prices for these services because First Data and First Financial are the only two companies that offer them in the United States, the agency said. Under a settlement First Data has signed with the FTC, the merged company would divest either the Western Union or the MoneyGram business to an entity that will operate it in competition with the merged company, thus restoring the lost competition.

"Nearly a quarter of the consumer money wire transfers in this country involve consumers who don't have any banking relationship and who have no other way to transfer money quickly and securely from one person to another, so competition to keep prices down is critical," said William J. Baer, Director of the FTC's Bureau of Competition. "Others use these services in emergency situations, perhaps to send money to a relative whose purse or wallet was stolen. Because other methods of sending money are often too slow or otherwise unworkable, consumers who use money wire transfer services have no alternatives. Absent the FTC's settlement, First Data would have a monopoly over money wire transfers and consumers inevitably would pay more. This settlement preserves meaningful price competition."

First Data is based in Hackensack, New Jersey, and First Financial is based in Atlanta, Georgia. The companies announced the proposed merger in June. In August 1994, the FTC challenged First Data's bid to acquire Western Union Financial Services on the same grounds that it is challenging this merger: as owner of the MoneyGram business, First Data's proposed acquisition of the owner of its only competitor in that business could substantially reduce competition and lead to higher prices. Ultimately, First Financial won the bid for Western Union, so the settlement First Data had signed with the FTC to settle the earlier allegations became moot. The settlement announced today contains similar provisions.

According to the FTC complaint detailing the alleged antitrust law violations associated with the First Data/First Financial merger, it is unlikely that a new firm would begin competing in the market quickly enough to defeat any attempted price increases for consumer money wire transfers. Among other reasons, the complaint states, it is difficult to gain brand name recognition among consumers and to establish a nationwide network of retail outlets to provide the service. Thus, by eliminating competition in the market, the merger could force consumers to pay higher fees, compel consumer money wire transfer agents to accept lower commissions and guarantees, and reduce service and innovation, the FTC alleged.

The proposed consent agreement First Data has signed to settle these allegations is being announced today for public comment before the Commission determines whether to make it final. The settlement would permit the merger to go through but require First Data to divest to an FTC-approved acquirer either the MoneyGram business or the Western Union business within 12 months after the FTC approves the settlement as final. First Data also would be required to provide the acquirer with any personnel, assistance and training it reasonably needs for up to six months, and to maintain the marketability and viability of the business to be divested and operate it separately from the competing business, pending sale. If the divestiture were not completed on time, the settlement would permit the FTC to appoint a trustee to divest the Western Union business.

First Data also has agreed under the settlement that, should it determine to divest the MoneyGram business, it would not enter into a contract with any selling agent that, at the time of the divestiture, is under contract to provide MoneyGram service, until that contract expires. In addition, should First Data supply data processing services to the acquirer, it will shield employees involved in its consumer money wire transfer services business from any nonpublic information it gains from that entity in order to provide such services. (This provision would allow the competing firm to use First Data's data processing service without risking that its proprietary information would be revealed to a direct competitor.)

Finally, the settlement contains various reporting provisions that would assist the FTC in monitoring First Data's compliance.

The Commission vote to announce the proposed settlement for public comment was 5-0. Commissioner Christine A. Varney issued a separate concurring statement in which she said:

"The First Financial/First Data merger represents another milestone in the fast-paced development of electronic payment systems. While combinations such as this may have efficiency driven, pro-competitive effects, I remain concerned about increased concentration in the merchant acquirer services industry. This market is growing dramatically, and is increasingly central to back-end processing of credit card purchases. I expect that we will soon see additional acquisitions in the merchant acquirer services industry and, in that light, I have asked the Staff of the Commission to continue to monitor the competitive situation in this evolving market."

The merchant acquirer services industry includes the authorization, processing and settlement services of credit card transactions.

The proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.

Copies of the complaint, proposed consent agreement and an analysis of them to assist the public in commenting are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov

(FTC File No. 951 0107)