On Tuesday, First Data Corporation (NYSE:FDC) announced that it is now handling credit card purchases for Burger King in Canada. But that's not the interesting news. After all, First Data, an Inside Value pick for its strong free cash flow and powerful competitive advantages, is already a major player in credit card processing. The more interesting news is the deployment of the MasterCard's Quick Payment Service (QPS) program.
QPS allows customers with purchases less than $25 to pay with their credit card without signing a receipt. This is great for Burger King, since it speeds up transactions, and one of the major metrics used to evaluate the performance of a fast food restaurant is the speed of service. However, it's equally important for First Data because it helps to ward off the lurking threat of new payment technologies.
Smart cards, still rare in North America, are similar to prepayment cards. A person can load up the card with a small amount of money, say $100, and then debit the card for small transactions rather than using cash. It is easier for a consumer to load up a card over the Internet and use it pay for the bus or the mandatory latte than it is to go to an ATM, withdraw cash, search a wallet for bills, and lug around the accumulated change. Plus, it would be much simpler for businesses and the government if all transactions were electronic.
Other payment technologies are in the works too. American Express (NYSE:AXP), Nokia (NYSE:NOK), and Oracle (NASDAQ:ORCL) are cooperating to design solutions that allow consumers to use their mobile phones to pay vendors. Some of these technologies are already being deployed in Asia.
For First Data, these technologies are exciting, since they create new areas of electronic commerce that the company could potentially dominate. In fact, First Data issues smart cards in Europe already. But new technologies are scary, too, because a disruptive technology could emerge that could seriously threaten any of First Data's businesses.
That's why QPS is great. By eliminating the signature, credit card transactions can be as simple and as quick as a smart card transaction or mobile phone payment. Consequently, it will be more difficult for any competing technologies to gain a foothold in the market. Thus, QPS should both reinforce First Data's competitive position and ensure that First Data can transition to these new technologies on its own terms.
For related Foolishness, check out:
- Why we love First Data.
- Other ways First Data is shoring up its defences.
- How homes are getting as smart as cards.
Fool contributor Richard Gibbons, a member of the Motley Fool Inside Value team, likes both hamburgers and money, so this deal is his ideal. He does not own shares in any company mentioned in this article.
