There is almost nothing in life worse than having to publicly deliver on high expectations. A situation that the good people at First Data (FDC) learned rather directly last week. Before the opening bell was rung, some speculated that First Data’s IPO would attract enough investor enthusiasm to catapult the value of the firm to $40 billion, with an initial share price in the $18–$20 range.
At the opening bell, shares were priced at $16, $2 lower than the lower bound of what analysts expected. By the end of the day, FDC’s stock was trading at $15.76 a share, lower than the initial IPO share price, raising some $2.6 billion in cash and giving the firm a $14 billion valuation. Today, the stock price hovers in about the same range.
Yet, despite being the biggest IPO that the NYSE has experienced in 2015 so far (and we’re ten and a half months in), the FDC IPO was described by just about every analyst and investor as a “disappointment.”
While dashed expectations make for amusing apocalyptic headlines from the outside, the view from the inside at First Data is quite different — and a good deal less doom-tinted. MPD CEO Karen Webster got a peek into that inside vision last week as the “Busted IPO” headlines started to make the rounds in a conversation she had with First Data Head of Global Business Solutions Dan Charron.
“You can listen to all the markets where there is a lot of turbulence,” Charron told Webster, “but from our perspective, we couldn’t be more excited about what’s next and our investors and we feel really good about it.”
We love knowing “what’s next” — we are after all, “what’s next in payments and commerce.” So, we wanted to find out — straight from the source — what the analysts and investors missed.
Charron emphasized there are two important views to take of First Data. The first is the historical picture of the decades-old and well-established player in all aspects of the payments ecosystem.
“As you look at First Data, what you see is 6 million merchants, 4,000 financial institutions, 70-plus billion transactions and $2 trillion in volume,” Charron noted. “We operate in a number of countries, and we are the No. 1 merchant acquirer. Everyone knows that stuff.”
But being something of a known commodity is both a blessing and a curse.
It’s a blessing because First Data has distribution and scale on its side, in a way that is almost unmatched in the industry. It isn’t involved in a “getting to know you game” with merchants nationwide, schlepping to merchant after merchant getting them to sign on. That’s pretty important; just ask any one of the thousands of startups that have wrecked on the shores of getting up to scale. It’s easier, much easier, said than done.
But then there’s that curse part. FDC isn’t the shiny, new, venture-backed tech company out of Silicon Valley. And many tech IPOs are a whole lot of sizzle, not a lot of steak in an IPO restaurant where the diners prefer sizzle. That, says Charron, can lead people to jump to the wrong conclusions — sort of the familiarity-breeds-contempt curse.
“With lots of IPOs, people are learning about a company. For this IPO, people know us. We’ve been out there for 40 or 50 years. First Data’s not a new name. People remember when we were public [the first time], and they think that it’s just like we were when it was 2007. People are extrapolating from what we were then, which is not offering them a true picture.”
Which, Charron says, is one where payments really isn’t the central actor in the story.
“You’re seeing a fundamental transformation of the business, and really to be honest, we don’t even call ourselves a payment processor,” Charron told Webster.
Which isn’t to say it isn’t still processing payments — it is — and, in fact, it is processing more everyday.
“We call ourselves a technology solutions company,” Charron noted. “We do process more transactions and have more scale and distribution than anyone in the industry. But what we’ve seen is more innovation in the past few years than has been possible in the previous decade, and we are evolving our business to tap into that innovation and offer it to our customers.”
Those upgrades can be see throughout the business, with its focus on helping businesses navigate the EMV transition and leveraging that change into bigger, better and more innovative things.
“The conversation we are having about getting EMV-capable isn’t about hardware and certification. It revolves around us working with merchants and saying, ‘Hey, if you’re making the change, why don’t you fundamentally change how your business operates?’ That would have never happened in the ‘old’ First Data,” Charron offered.
Those conversations, according to Charron, often go in a variety of directions. Some are about security and tokenization, some are about mobile and better integration — particularly with rewards and discount — and some are about tapping into the type of insights that First Data is uniquely able to offer.
Payments, in all of its glorious parts, is an intriguing and enticing part of the service package, Charron said, but it is not really where the magic happens, so to speak.
“We are an information company, a business solutions company, a technology enabler for our merchants,” Charron told Webster. “You start doing all of these things for a company — helping them manage inventory, payroll, making choices about what they are selling when. That is more than a meeting on the street; that is a full-blown marriage.”
That was Webster’s concluding question: If First Data is so focused on its “three-legged stool” of distribution, scale and (now) innovation, why isn’t the market seeing the same glorious road ahead?
Charron noted that he is not a market-watcher by trade, but that many investors like the mystery of newness more than they appreciate the merits of complex legacy systems. And, in fact, perhaps have a tendency to think where there are legacy systems, there can be no innovation.
Charron says that’s dead wrong.
“We’re creating a place where innovation can happen on our legacy platforms and systems, our acquiring platforms and systems, to create an operating environment that others can innovate upon. That’s the new First Data,” Charron said.
But that change is new and just getting underway. And though growth is now back on the table, Charron did note that perhaps investors aren’t really seeing it just yet.
But he remained confident they will, because innovation at First Data isn’t a marketing ploy, it’s a new driving force at the firm.
“If this was just about being the biggest payments processor, I wouldn’t be here,” he noted.
And, ultimately, he believes that it is a vision that the world will share, because the most important vote still comes from the merchants the company serves and they’re satisfied.
“I think the customers are getting it, and I think that’s the thing I’m most interested in. The markets are going to do what the markets are going to do.”
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