DENVER – First Data Resources, the card processor for a significant number of credit unions, has warned stockholders that clients of its ATM network subsidiaries may face conflicts with VISA and MasterCard if its pending merger with Concord EFS goes through. First Data revealed the possibility those credit unions and other institutions that both issue VISA or MasterCard and which might belong to a First Data/Concord owned ATM network might face a conflict in a preliminary merger proxy that it filed with the Securities and Exchange Commission on July 17. First Data (which owns the NYCE Network) and Concord EFS (which owns the STAR Network) proposed a merger earlier this year. Visa and MasterCard's rules prohibit the coexistence of competing national marks on their credit and branded debit cards, First Data noted in the July 17 SEC filing. If the associations determined that the combined STAR/NYCE network is a competing national network and mark, "they could attempt to prohibit their members from issuing STAR branded cards and/or prohibit the coexistence of the STAR mark with the VISA and/or MasterCard marks on debit and credit cards," First Data wrote. "If this occurred, we cannot predict whether, when forced to choose between STAR and other brands, issuing banks would favor STAR over VISA or MasterCard," the association added. As part of the regulation of a proposed merger, the merging companies have to get approval of the proxy they will send to the shareholders enabling them to vote on the merger. In addition to the possible conflicts among its card issuers, First Data's preliminary proxy warned stockholders of the risk that the combined company might face interchange pressure as a result of VISA and MasterCard's reaction to the merger as well as the uncertain outcome of litigation with the two card giants. Rodney Bell, vice president for merchant services for First Data, stressed that the rules of the merger regulation process prevented him from talking in detail about the proxy or risks. But he added that, as part of the process, the company was obligated to reveal the risks and uncertainties that could impact stockholders' decisions of whether or not to approve the merger. The filing also mentioned that VISA and MasterCard's ability to enforce rules against co-branding with another nationwide network are part of the litigation that is currently ongoing. "The nature of litigation is that the outcome is less than certain," Bell noted. No one from VISA or MasterCard would comment on the risk statement except to confirm that First Data's filing reflected the current state of the association's rules. PSCU Financial Services was available to comment on the First Data filing. PSCU Financial Services is an association of more than 500 credit unions that process their card transactions with First Data. But David John, a banking and anti-trust analyst with the Heritage Foundation, a predominantly conservative think-tank based in Washington D.C., noted that there was a precedent already for some credit unions issuing more than one type of card. Some credit unions already issue both VISA and MasterCard and are allowed to do so under the association's rules, he noted, so VISA and MasterCard could conceivably carve an exception out of their rules for the newly merged Concord/First Data network, he explained. The bigger challenge would come if the merged First Data/Concord company were to try to launch a truly nationwide PIN-based debit platform to compete with VISA and MasterCard by offering merchants lower interchange rates, John speculated. "A percentage of merchants would have to purchase the technology to let them take PIN-based cards," John said, but in that circumstance it's possible credit union and other financial institutions would have to make a choice between VISA and MasterCard and the merged company. Anti-trust regulators with the U.S. Justice Department are currently examining the proposed First Data/Concord deal for possible anti-trust problems. If the merger goes through, the combined company's network would control, according to some estimates, 75% of the market for debit transactions that authenticate with a personal identification number. [email protected]

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