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Earlier this week, Keybank N.A., a wing of KeyCorp (KEY - Analyst Report), declared a couple of strategic measures to reinforce its consumer and commercial payments businesses. These include the acquisition of its credit card assets from Elan Financial Services and amendment of its merchant services agreement with Elavon, Inc.

After obtaining the Key-branded credit card assets from Elan Financial Services, the company will initiate issuing its own credit cards. These measures have been taken to offset the negative impact of the current regulatory changes on KeyCorp’s financials.

As part of the deal, KeyCorp obtained credit card assets of roughly $725 million and 400,000 consumer and business accounts of its clients. These clients have deposits of roughly $10.0 billion and loans of $5.8 billion at KeyCorp.
Moreover, the new arrangement for merchant services further boosted its long standing association with Elavon. The agreement led to the incorporation of merchant processing services into the overall payment solutions for its corporate clients.
Additionally, KeyCorp stated that the strategic initiatives are in sync with its ATM and debit card branding as well as processing agreements with Mastercard Incorporated (MA - Analyst Report), which was announced during late 2011. These agreements are expected to be implemented in the first half of 2013.

With the implementation of these agreements, it is anticipated that KeyCorp will be considered as one of the frontrunners in debit payment solutions and processing. These agreements are likely to enhance the company’s operating efficiency as well as favorably impact its expense management.

These strategic initiatives are expected to provide KeyCorp with opportunities for future expansions and broaden its revenue base.

Through these strategic steps, KeyCorp is expected to be able to maintain better relationships with its clients. Moreover, these will help the company gain the sole authority over its credit card business. Also, the integration of the card offerings into the Key Relationship Rewards program in the following year is expected to be beneficial to the clients.

However, the Durbin Amendment has made the regulatory environment more costly, and it is adversely impacting KeyCorp’s revenue and expenses. We expect that the company will be able to offset the regulatory headwinds to a great extent through these initiatives.

KeyCorp currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. However, we maintain a long-term Neutral recommendation on the stock.

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