First Data is growing its segment revenue with North American gains

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Major US payment processor First Data announced $2.08 billion in segment revenue in Q1 2018, marking a 5% annual increase on a constant currency basis.

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That’s a meaningful acceleration from the 1% growth the firm posted in the prior Q1, which is likely due to improved performance in a key segment.

First Data’s improvements in its North American global business solutions (GBS) segment helped drive growth. For context, the firm’s GBS segment is its largest and houses many of its core functions, like processing services.

First Data’s North American GBS has been facing headwinds. The segment was facing slight revenue declines or flat performance, at best, through 2016 and into early 2017. That was initially attributed to problems with small business clients and attrition, according to CEO Frank Bisignano. As those issues improved, though, the problem shifted into what First Data called “softness” in its joint ventures (JVs), largely with banks, which brought performance down further. North American GBS comprises just under half of First Data’s total segment revenue, so its performance can make or break First Data’s overall success

But performance is starting to turn around. North American GBS posted $1.01 billion in revenue this quarter, up 4% on a constant currency basis — improvement that First Data calls “notable” compared with prior quarters. That’s largely because JVs performed “in line” with Q4 2017, rather than falling further, which indicates that efforts to improve performance are starting to work. And the firm expects a “gradual recovery,” according to the earnings press release, which, combined with transaction growth and gains in other aspects of the segment, should position First Data for increasingly solid performance in the coming quarters.

These gains in North American GBS, combined with the improved results and other initiatives, could set the firm up for success. The processing ecosystem is complex right now; it’s seeing rapid consolidation as firms try to grow and lobby for volume and market share in a digitizing and shifting space.

First Data has been working toward growth by making various partnerships, improving its positioning within the independent software vendor (ISV) market, and expanding the reach and services of Clover, its mobile point-of-sale (mPOS) segment.

As First Data continues to take steps to evolve and keep pace with the space, these initiatives, combined with its improved performance in a key area, should set it up to maintain, if not improve, its competitive positioning through the year.