Will Cinderella Story for Western Union Also Have a Happy Ending for Core First Data Card Businesses

First Data Corp.’s Jan. 26 decision to spin off Western Union, its 155-year-old money-transfer unit, is a signal that the $10 billion processor has abandoned its effort to transform itself into full-service payments processor — narrowing its focus to core card issuing and acquiring businesses, with a major thrust in international markets. This significant strategic change of direction signals a realignment in the global payments business.

In 2005, TowerGroup identified First Data as a prime example of a new breed of nonbank providers of a wide array of payment processing services — a “payments mega-vendor.” At that time, the company’s business strategy focused on providing a one-stop shop for any kind of consumer payment, from credit cards to debit cards and from checks to money transfer. The retreat from this vision, perhaps surprisingly, retains a focus on issuer-side credit card processing, whether by choice or as a matter of necessity.

Western Union was a significant source of cash for First Data, but it undeniably played the part of stepchild to the “real” sons and daughters — the cards business lines. This sudden spin-off will create a Cinderella story for Western Union, building incremental shareholder value while enabling new investment to recoup its leadership position in the face of widening competition. However the position of its siblings, left within “The New First Data,” is more in question. Splitting Western Union out from the whole will make it easier for the market to track and value these two distinct types of businesses. Yet with clear declines in its card issuing business and without the capital boost from Western Union, “The New First Data” faces significant challenges.

The move also puts in high relief the firm’s commitment to the global payments business, with its core First Data-branded businesses in Western Europe and east Asia attaining new prominence in the company’s array of services.