Attractive profit margins in merchant services

Ian Rogers
One item in the Royal Bank of Scotland announcement on its forced divestment of select businesses is the details relating to its Global Merchant Services division. The EU is forcing RBS to sell this as one of the conditions of continuing financial aid from the government of Britain.

The business is in merchant acquiring, that is, processing debit card and credit card payments and the like. RBS has been a consolidator in this space for years and an investor in a range of payments innovations, few of which have found much of a market.

RBS said this business earned a profit before impairments of £121 million on revenue of £264 million in the six months to June 2009, and a profit of £286 million on revenue of £552 million in the six months to December 2008.

Margins may have been falling, and could be expected to fall further, given the concerted attack on pricing (and in particular on interchange fees) by regulators and merchants in many markets.

The RBS merchant services business is the third largest in the world and includes the Lynch acquiring network in the US.