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Concord EFS, Inc., based in Memphis, Tennessee, provides a full range of electronic payment and deposit services, from authorizing and routing a fund transfer to settlement. The company's Network Services division provides financial institutions with ATM processing, debit card processing, access to a national debit network, and deposit risk management. Concord's Payment Services division processes payments for supermarkets, gas stations, truck stops, convenience stores, and restaurants, as well as major and independent retailers. The company is the leading processor to gas stations and supermarkets, as well as being the United States' largest ATM processor.
Victor Tyler's Establishment of Concord Computing in 1970
The Concord component of Concord EFS dates back to 1970 when Victor M. Tyler established Concord Computing Corporation in the Boston, Massachusetts, area. An electrical engineer who studied at both Yale and MIT, Tyler in 1955 went to work at EG&G Corp., which was primarily involved in the design and testing of weapons systems for the military. In the mid-1960s Tyler was charged with identifying new business ventures for the company, one of which was the new area of electronic credit authorization systems. When EG&G elected not to participate, Tyler, who had been involved in a number of start-ups, decided to take up the idea himself and at age 42 became an entrepreneur, thinking it would be "fun and easy." He enlisted five colleagues from EG&G and started Concord Computing Corporation, primarily funded by $20,000 invested by a friend and the $30,000 he raised by mortgaging his house. Establishing an electronic credit authorization business, however, proved to be anything but easy. At the end of a year the company was barely established, forcing the partners to take stock of the situation. Because most of their seed money was still available, they could easily cash in, find new jobs, and move on with their lives. Instead, they agreed to press ahead, only to find the second year even more arduous than the first. At one point the employees actually drew lots to see who would quit as a cost-cutting measure. Years later Tyler told the Boston Globe, "It was like deciding who is going to get out of the lifeboat because there's not enough food left."
To raise much needed cash to keep the business afloat and operating, Tyler took out another mortgage and borrowed money from his parents. Concord's financial situation then began to stabilize as it landed accounts with major Boston department stores. Although annual revenues grew to $2 million within a few years, the company consistently lost money. "Every month we seemed to lose $20,000 and we couldn't figure out why we couldn't make a profit," Tyler told the Boston Globe. In the mid-1970s Concord recruited a new chief financial officer who succeeded in turning around the company, and in 1977, after some internal discord, was able to oust Tyler as CEO. Instead of continuing to provide information services, Concord now began to focus on the less profitable hardware side of the business. As a result the company was once again losing money. Tyler lobbied the board of directors and secured enough support to once again be named the chief executive. He quickly returned Concord's emphasis to service rather than hardware, and within two months the company began posting profits. After years of learning the ropes as an entrepreneur, Tyler finally settled on a successful business formula: "You have to forecast revenue with extreme accuracy and without any optimism. And then you have to be prepared to ruthlessly cut costs."
The Acquisition of EFS in 1985: A Turning Point for Concord
While Concord developed a reputation as thrifty Yankees in the 1980s, the company also began to move beyond simple profitability as a goal and to formulate a broader vision. In Tyler's words, Concord began to build "payment networks" to take advantage of the new point-of-sale terminals technology and the increasing use of electronic means of funds transfer. The first major step in this direction occurred in 1981 when it acquired a majority interest in Network EFT, a Chicago-based third-party payment processing service for retailers and financial institutions. The Jewel Supermarket chain also owned a major stake in the business. To compete against larger, better financed companies in the industry, Concord sought out niche opportunities, targeting specific customers, then winning their business by offering lower prices and better service. The approach worked so well that in 1984 the company went public to fuel further expansion. A year later Concord used some of those proceeds to acquire EFS, Inc. (Electronic Fleet Systems), a major turning point in the company's history.
EFS, originally involved in the trucking industry, offered fleet management services for trucking companies as well as credit card authorization and settlement services for retailers. It was founded by Dan M. Palmer, who ultimately became Concord's CEO and chair and was responsible for moving the business to Memphis. He graduated from the University of Memphis in 1966 with a degree in business administration. For a number of years he worked as an accountant for Deloitte and Touche in New York, then became the chief financial officer for Bayer Corporation's Arkansas office. Afterward he went to work for Mid Continent, a West Memphis, Arkansas, company that marketed a credit card for truck drivers. Reflecting on how long it took for credit cards with past due accounts to be shut down, Palmer recognized a business opportunity to provide instant verification of credit cards using new point-of-sale technology. He quit his job to start his own business but at first had difficulty convincing banks and investors that the idea was indeed worthwhile. Finally he received help from a former executive of Memphis-based Union Planters Bank, Bill Matthews, who had introduced ATMs to Memphis and was sympathetic to Palmer's vision. In 1982 Palmer created EFS as a subsidiary of Union Planters. EFS fared poorly during its brief existence with Union Planters; the unit was never profitable and unable to establish itself in the marketplace. As part of a restructuring effort, Union Planters decided to unload the business, selling it to Concord at a cut-rate price of $250,000. Palmer stayed on as CEO of EFS and with Concord as a parent corporation he was finally able to make the company prosper, due in large part to actively soliciting mom-and-pop operations, convincing them to start accepting credit cards.
Tyler remained chairman and CEO of Concord through the rest of the 1980s. During that time, the company produced strong results, growing revenues and profits at a steady clip. It exploited numerous niche opportunities, was not overly dependent on any single customer, and was able to leverage superior technology to discount its services and thereby successfully compete against much larger rivals. With EFS accounting for more than 60 percent of all revenues, it was not surprising that Palmer would succeed Tyler as Concord's CEO in 1990. A year later Palmer also became chairman of the board. The company changed its name to Concord Computing and EFS, and moved its headquarters to centrally located Memphis. It also initiated efforts to become involved in bank card processing in supermarkets and grocery stores, a promising vehicle for future growth. More important, Palmer was transforming Concord from a small electronic funds transfer operation into a major, vertically integrated electronic banking operation.
In September 1991 Concord created a subsidiary, Concord Equipment Sales, Inc., to sell point-of-sale terminal products and other communications equipment. Also in 1991 the company took a more significant step in filling out its business when it filed an application to organize a national bank. In preparation, Concord became a holding company and in February 1992 changed its name to Concord EFS, Inc. A new subsidiary assumed the Concord Computing Corporation name and acquired the operational assets and liabilities of the parent company. After final approval for a bank charter was granted by the Federal Reserve in October 1992, the parent company became a one-bank holding company. Simultaneously, on December 1, 1992, EFS National Bank was formed, issued stock, and acquired the EFS, Inc. subsidiary, which was subsequently dissolved.
The result of all of this shuffling of names and stock swaps was that Concord now had its own bank and was better positioned for future growth on a number of levels. No longer did it have to rely on a sponsor bank to provide settlement services and sponsorship into bankcard associations. In addition to saving money Concord was able to offer new services, such as debit cards, to its existing markets. EFS National Bank limited its activities in order to best support Concord and did not engage in traditional banking activities, such as consumer and commercial lending, deposits, and real estate.
On the same day that its bank charter was approved, Concord also announced a major agreement with the National Grocers Association (NGA) to provide its 65,000 independent member grocers with credit and debit processing services. It was a large and virtually untapped market for Concord. NGA would later contract Concord to provide check authorization services as well.
Another emerging service in the early 1990s was electronic benefit transfer (EBT), which government authorities were beginning to use in order to combat misuse of welfare benefits and food stamps. EBT became the subject of litigation for Concord in February 1993 when it sued Deluxe Data Systems Inc., claiming that Deluxe violated antitrust laws by forcing grocers to agree to use its services exclusively in the state of Maryland. Concord feared that, if unchecked, Deluxe would be able to shut down competition in the potentially lucrative EBT field as other states made the transition to EBT. The matter lingered in the courts for more than two years and jeopardized the future of EBT. Finally in July 1995 the two parties reached a settlement, the terms of which were not disclosed, but at the very least Concord was now better positioned to compete against Deluxe in EBT.
Rapid Expansion in the 1990s
Through the rest of the 1990s Concord grew at an impressive pace. For 1993 the company recorded sales of $75.4 million and net income of $9.9 million. In 1995 sales grew to $127.8 million and net income to $18.3 million. In 1997 sales reached $240 million and net income $42.7 million. Two years later sales topped $830 million and net income exceeded $100 million. Most of this growth was accomplished internally through payment services for retailers, but Concord also began to make acquisitions to move into network services for financial institutions to fuel even further expansion, as well as to better compete in an industry that was undergoing consolidation.
In 1999 Concord acquired Electronic Payment Services (EPS) and its well known MAC brand, the third largest regional ATM network. Not only did it obtain a larger processing platform and bolster the credit card processing part of its business, Concord reached another level in the EFT industry, in league with such heavyweights as First Data Corporation and subsidiaries of National City Corp. and Bank One Corp. In 2000 Concord expanded further into network services when it bought Cash Station, which serviced 645 financial institutions primarily located in Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, and Wisconsin.
Clearly, regional EFT networks were consolidating and Concord was determined to become a major player. When it acquired Star Systems in an $850 million deal in 2001 it became an industry powerhouse that combined payment and network services, a move that also vaulted Concord into the ranks of the S&P 500 stock index. Now operating in 31 states, Concord was becoming a true national enterprise. By focusing on either its MAC or Star brand it was now in a position to possibly challenge Visa and MasterCard on debit cards and as a point-of-sale brand at retail locations. In April 2001 Concord announced that it had settled on Star as its brand, which would begin to replace MAC and Cash Station logos on ATMs.
Concord also was preparing for the future of electronic payments. It promoted a preauthorized debit card (referred to as ACH) that could be combined with supermarket club cards. Merchants would be able to save on fees charged by Visa and MasterCard, and consumers would be rewarded with bonuses. The ACH acronym referred to Automated Clearing House, which would be authorized by the consumer to make a bank account transfer. The personal identification number (PIN), however, would be assigned by the supermarket and the card would only be valid at the issuing chain.
Concord also began testing a number of methods to use ATM cards to make Internet purchases, as well as a way to use ATM service to send money to anyone, even people without a bank account. Concord patented a person-to-person service that allowed a sender to visit an ATM and arrange for a specific amount of money to be transferred. A one-time-use PIN would then be assigned. The recipient, informed of the PIN, would then use a special access card to receive the cash from an in-network ATM. Even without such innovations, Concord was looking forward to major growth in its established services. In 2001, for instance, only 20 percent of supermarket payments were made by debit or credit cards. That amount was expected to triple over the next six or seven years.
In 2001 Concord posted revenues of more than $1.7 billion and net income of $216.4 million. After overseeing the company's tremendous growth over the previous decade, Palmer announced in September 2002 that he was stepping down as Concord CEO in May 2003, to be replaced by company President Edward A. Labry III, an executive with Concord since the 1985 merger with EFS. Palmer would, however, remain chairman of both Concord and EFS National Bank.
Principal Subsidiaries: Concord Computing Corporation; EFS National Bank; Star Systems, Inc.
Principal Competitors: First Data Corporation; National City Corp.; Total System Services, Inc.
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