Fiserv's New Bank Charter Set for Competitive Pricing Advantage in Payments

This month, payments processing giant Fiserv took a notable step forward, securing a limited purpose bank charter in Georgia. By doing so, Fiserv now has the option to process credit and debit card transactions without needing a partner bank, an opportunity that could help it undercut competitors on transaction fees, say industry consultants.

Based in Milwaukee, Fiserv has long partnered with banks to manage payment processing for merchants. However, the Georgia Department of Banking and Finance granted the firm a merchant acquirer limited purpose bank charter on October 4, which will allow Fiserv to "own the entire transaction," according to Tony DeSanctis, senior director of payments at Cornerstone Advisors. This independence means Fiserv can bypass the bank fees typically associated with transaction processing.

Implications of the Charter for Competitive Pricing

DeSanctis explained that Fiserv’s charter enables it to offer pricing advantages over major competitors like Worldpay and Adyen, who often offer flexible pricing. Smaller processors like Square and Stripe, which generally maintain standard rates, may find it harder to match Fiserv’s cost savings for high-volume clients. "If you’re competing for Walmart’s or Amazon’s business and can offer even a small discount on processing fees, Fiserv could win more business," DeSanctis noted.

Fiserv’s extensive customer base also provides economies of scale that could further reduce costs. With the savings achieved by eliminating partner bank fees, Fiserv may opt to pass these reductions on to clients, creating an incentive for large merchants to switch providers.

A Balancing Act: Potential Savings vs. Charter Costs

While the charter offers Fiserv new financial flexibility, it also comes with its own fees. The Georgia Department of Banking and Finance imposes an initial application fee of $50,000 and annual fees of $15,000, as confirmed by department spokesperson Bo Fears. Michele Alt, a partner at financial advisory firm Klaros Group, suggested that Fiserv’s cost savings will need to outweigh these expenses for the company to afford reduced pricing.

James Stevens of Troutman Pepper law firm notes that while Fiserv’s charter offers an edge in bypassing banks, banks provide other valuable services that affect pricing. Whether Fiserv’s pricing can truly be lower in practice, therefore, remains to be seen.

A Strategic Play with the Card Networks’ Buy-In

Fiserv’s approval for this charter is significant as it reflects possible support from major credit card networks, which previously were cautious. Michele Alt highlighted that Fiserv’s established reputation might help sway networks, noting that Mastercard has signaled it is reviewing the charter’s implications.

For Fiserv, the new charter unlocks two strategies: it can either capitalize on the savings from bypassing partner banks or pass those savings to clients, gaining an edge in pricing. In any case, this development signifies Fiserv's intent to expand its reach while reshaping the competitive landscape in payment processing.

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