At the recent Fortune Brainstorm conference I interviewed Michael Capellas, CEO of First Data, a giant financial services company that processes one-half of all the 22 billion yearly credit card transactions in the US. This company is sitting on an enormous amount of valuable financial data about nearly every credit card holder in the US, and also many others in other countries.

First Data is not taking advantage of that asset - 90 percent of its revenues come from processing credit card and other payment transactions.

I asked Mr Capellas if First Data had plans to expand into financial data services and reports on credit card users. He said yes.

"We handle half the credit card transactions in the US. That's a tremendous amount of data. I probably know more about what you are likely to do next than you do."

He said that the financial data business was currently just 10 percent of company revenues, or about $800 million. But he would like to increase this by 500 per cent over the next two years so that financial data services account for 50 per cent of total revenues, which were $8 billion in 2007.

I asked Mr Capellas if First Data would move into the credit rating service. I pointed out that it seems that nearly every credit report is full of errors and there is a considerable barrier to correcting the data, so the quality of the report is poor.

User generated credit reports

Mr Capellas agreed, and said that First Data is looking into a system that would allow people to create their own credit reports. "We would allow people to report their financial data as long as they allow us to verify that information."

I asked if First Data had an automated way of quickly verifying people's financial data."If they give me permission, yes, I can verify their data."

He said that First Data was treading carefully into this area because of the privacy issues and that might delay the company's plans to aggressively expand its financial data services business.

First Data was a public company until it was taken private in September 2007 in a massive $29 billion deal that just squeezed ahead of the credit bust. The private equity firm Kohlberg Kravis Roberts & Co (KKR) owns the company.

If Mr Capellas is successful in creating a major new business in financial data services, which would equal one-half of total revenues for First Data in 2011, possibly a $6 billion plus business group, KKR will have greatly increased the value of their investment and will have set the stage for a potentially successful IPO in two to three years, producing a very quick return on investment--plus a substantial profit.

Foremski's Take:

Providing people with an opportunity to control the content of their financial reports, and control who they share that financial information with, is a potentially ground breaking service. If First Data can provide a stamp of veracity to those user generated financial reports it will give back control over private financial data to tens of millions of people.

Currently, credit ratings are controlled by just three companies, Experian, Equifax and TransUnion and each uses an unique secret algorithm to calculate credit ratings, and mistakes are extremely difficult to correct.

Under First Data's plan, people would own their financial data and its content could be checked and verified. This would provide a highly accurate report of a person's financial history and it would be controlled by each person. The content could be kept private and only shared by approval of the owner.

First Data, however could also sell its data to third parties, which would negate some of the privacy controls and services it was providing consumers. The company will have to decide whether revenues from services to consumers outweigh the multi-billion dollar market for selling private financial data to third parties.

Clearly, it can't have its cake and eat it.

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Additional Info:

http://www.firstdata.com/news/mediaroom/overview.htm

* First Data generated more than $8 billion in revenue in 2007(i).

* Over 30 billion domestic merchant and international transactions as well as 11.7 billion domestic debit issuer transactions.

* First Data enables over 5.4 million merchant locations to securely accept electronic payments.

* More than 700 million card accounts on file worldwide.

* The STAR Network offers PIN-secured debit acceptance at 2.1 million ATM and retail locations.

* Outside the U.S., First Data processed approximately 5.5 billion transactions in 2007.

http://www.firstdata.com/about/history.htm

In April 2007, First Data announced that it had entered into an agreement to be acquired by an affiliate of Kohlberg Kravis Roberts & Co. (KKR) in a transaction with a total value of approximately $29 billion. The transaction was completed in September 2007.

First Data - Michael D. Capellas



A 30-year veteran of the IT industry, Michael Capellas became First Data’s chairman and chief executive officer upon the close of the acquisition of First Data by an affiliate of Kohlberg Kravis Roberts & Co. (KKR) in September 2007.

Capellas is a two-time, former CEO of Compaq Computer Corporation and MCI and a recognized global thought leader in the technology space. He began his career with Schlumberger Limited and went on to hold senior management positions at Schlumberger as well as Oracle Corporation and SAP Americas. He joined Compaq in 1998 as their chief information officer and was named Chairman and CEO in July 1999. After the merger with HP, Capellas served as President of HP. In 2002, he accepted the challenge of leading MCI (then WorldCom) through the largest corporate reorganization in history. For three years, he served as MCI’s president and CEO and oversaw the successful rebuilding of the company. Turnaround completed, Verizon Communications ultimately acquired MCI in 2006.