JACKSONVILLE, Fla. -- Fidelity National is continuing to purchase its way to becoming the largest company in the center of the credit union card industry, announcing on June 27 that it has inked a deal to purchase eFunds, one of the largest processors of EFT transactions.

The cash deal will be valued at roughly $1.8 billion, the firms said. Under the terms of the agreement, eFunds shareholders will receive $36.50 in cash for each share of common stock.

"The acquisition of eFunds provides FIS with greater scale, extends our presence in the U.S. and international banking markets, and expands the distribution channel for our core processing and risk analytic services," said FIS Executive Chairman William P. Foley II.

"We believe this is a very attractive transaction for our shareholders," stated Paul F. Walsh, eFunds chairman and CEO. "We have been very impressed by FIS' success in assimilating a number of acquisitions in a relatively short period of time, and believe that our customers will benefit from the extensive product set and industry expertise that the combined companies have to offer."

The transaction is expected to be completed by the end of the third quarter of 2007, subject to certain regulatory approvals, approval by eFunds shareholders and customary closing conditions, the firms said in a prepared statement.

The announcement swiftly rippled through the credit union card processing industry. FIS only recently confirmed that it had purchased Asset Exchange, a leading broker of credit union credit card portfolios.

"This announcement was not unexpected," Stan Hollen, CEO of CO-OP Financial Services, said in a prepared statement. "I have called executives at both eFunds and FIS congratulating them on this new relationship and expressing the support of CO-OP Financial Services. In turn they expressed their support for CO-OP Financial Services and a commitment to our initiatives."

CO-OP has long processed its EFT transactions with eFunds and has recently announced an intention to get into credit card processing as well. At the time of that announcement the presumption was that it would do so with another processor since, at that time, eFunds did not process credit card transactions.

Hollen said that CO-OP has worked with FIS since October 2006 when FIS agreed to market and promote access to CO-OP Network as their primary source of access to surcharge-free ATMs. FIS has had a long involvement with credit unions and is a supporter of many credit union causes, Hollen noted.

"CO-OP looks forward to building relationships with technology partners, such as eFunds and Fidelity, to provide best in class payments services to credit unions," he added.

But CO-OP sources said the ATM and EFT CUSO will be looking closely at the FIS/eFunds deal and seeking to discern what it will mean going forward with its own plans to keep shifting the firm away from being solely the parent of its well known fee-free ATM network.

CO-OP has clauses in its contract with eFunds that cover things like ability to leave if ownership of the firm changes and has control over the database of its members and their transactions, sources said.

If federal regulators and company stockholders approve the purchase, Fidelity National Information Services' purchase of eFunds will leave FIS as the biggest overall card processor serving credit unions.

The firm's acquisition of Certegy in early 2006 left it the major credit union credit card processor and now the purchase of eFunds will make sure it will have the same role in the market for debit card transactions that are validated by both cardholder signatures and personal identification numbers.

But while some might suppose such market dominance might trigger a review of the purchase by the U.S. Justice Department, industry sources downplayed any anti-trust concerns. They noted that the overall credit union market is small enough, when compared to the overall market for financial institution card transactions, that market dominance among credit unions will not translate to market dominance overall.

"It's true that the company will become the largest card processor for credit unions," one industry analyst noted, "but there is still enough competition in the overall market for transactions that I don't expect the Justice Department will get involved."

Of course that being said the deal will still leave FIS as the dominant player in the credit union card processing space. Essentially, if the deal goes through, FIS will be able to offer credit unions the ability to process all their card transactions, credit debit and ATM/EFT, through one processor, potentially make a strong case for some sort of processing switch on the grounds of increased efficiency or improved pricing.

For its part, FIS has remained silent on the topic except for its official statement. Some of its executives were on vacation when the news broke and the company may not be able to add much because of federal regulations on communication in advance of any shareholder voting. Other processors in the market also generally declined to comment on the purchase except to note that they were watching it and that they welcomed the competition.

--dmorrison@cutimes.com

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FIS to Buy eFunds; Firm Will Dominate CU Card Processing

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