Earlier this week Ackroo announced a highly strategic partnership with First Data Canada, a subsidiary of First Data Corporation, the largest payment provider in the world in terms of merchant locations (6M+ locations), having the biggest market share in the USA at around 55% of all merchant locations. This is a significant milestone for the company, and a very unique one, as it is not everyday you hear about a $12B+ market cap company selecting to partner with a $3M market cap company.
I have received some very good questions from investors regarding the partnership and I thought I would address them here for all to see. These answers are based on some high level discussions with Steve Levely (CEO) as well as some independent research and discussions with some people that are very familiar with First Data and this industry in general.
Question: First Data has all kinds of solutions for small businesses with loyalty programs/management and gift cards being only one of their offerings. What kind of incentives are there for First Data Canada in ''pushing'' AKR's solution vs the dozen or so solutions First Data is currently offering?
Answer: There are a few answers to this question that I believe are important to understand:
1) If this relationship works like similar ones, the First Data sales reps are paid a one-time commission for the referral and First Data makes a commission on Ackroo's processing fees. So there is a financial gain to First Data.
2) It is my understanding that First Data is losing merchant accounts in Canada. As a result they are very likely looking (just an assumption of mine as I would be looking too) to move their core customers to Ackroo in an effort to keep those customers in their merchant network.
3) When payment processors sell gift card and loyalty products, statistics show merchants stay 2 years longer with the processor. Given this, it becomes very important for a company like First Data to partner with a company such as Ackroo who has a very high customer retention rate (90%+).
4) In order for First Data to win many new merchant accounts they are looking to differentiate and aligning with a robust and affordable gift card and loyalty provider like Ackroo makes it easier for them to close the deals.
5) To win business from the competition (like Moneris and others) who have their own gift card and loyalty platform First Data needs a 3rd party provider like Ackroo to import the competitive card #’s and balances into Ackroo's platform so that the consumers are not affected and they can continue to use the current cards.
Question: Why should we expect Ackroo to have success penetrating First Data's Canadian merchant locations when they have such small current penetration in their existing payment processors (Global and Chase) current network? (FYI...as a reference point Ackroo has about 250,000 merchant locations available to them within the networks of current partners Chase and Global Payments, of which they are in 1,200 or so at this time-- approx. 400 of those 1,200 locations are with various other processors using Ackroo's system through direct integration to their POS software or AKR virtual terminals).
Answer: Currently First Data has only two partners in Canada, now Ackroo being one of them. Based on some conversations I have had with some people close to First Data, they are having some issues with their current partner so it is possible that eventually First Data will only work with Ackroo (again, a BIG assumption on my part). Another reason why it's very important for Ackroo to deliver in the early innings of this relationship.
To put this in perspective, Chase has 3 partners and Global has 5 partners in the space (making the penetration into Ackroo's potential merchant locations a bit more challenging) so effectively Ackroo will be only one of two current Canadian partners for First Data...and hopefully eventually the only one.
Question: What does this initial partnership with First Data Canada mean in terms of the future potential for the partnership to expand into First Data's USA's 4M potential merchant locations? How quickly could this potentially happen?
Answer: A very conservative response to this question would be that a transition into the USA with First Data would be a mid-2017 event. However, I suspect the first 3-4 months of the partnership will dictate what this potential US expansion timeline may look like. I would anticipate that Ackroo, outside of its First Data relationship, would begin entering the US market aggressively in late 2016, leveraging the relationships it is currently building with some of it's Canadian customers with US operations (i.e. Perkins test in Canada...could it roll out in the USA to all locations?)
I hope the above is helpful and feel free to post any comments or additional questions you may have in the comments section below to engage with myself and others.