May 2 (Reuters) - French payment company Worldline on Thursday reported better-than-expected organic growth in first-quarter revenue, driven by its merchant services division. The company, which operates digital payment and transactional solutions, generated first-quarter revenue of 1.10 billion euros ($1.18 billion), up 2.5% organically.

Analysts were expecting a revenue growth of 0.7%, a company-provided consensus showed.

The merchant services division contributes to around 70% of the total group revenue and provides services in the areas of payment terminals, multi-channel payment acceptance, non-cash payments and e-commerce.

The division's revenue was 787 million euros, up 3.9% organically compared to last year, above analysts' expectations of 1.3% organic growth.

"Despite good results achieved in the new markets addressed, such as Italy, the quarter was impacted by the continuously soft macro-economic context and the termination of some specific merchants' contracts", the company said in a statement.

In October, Worldline shares lost more than half of their value, sending shockwaves across the sector, after it cut its full-year financial targets.

CEO Gilles Grapinet had said shoppers were reducing non-essential spending due to the economic downturn in Europe, while increased regulatory scrutiny had forced the company to review its merchant risk policies.

On Thursday, Group Chief Financial Officer Gregory Lambertie told reporters the merchants' termination process was "behind us" and confirmed it cost the firm about 130 million euros in lost revenues.

Worldline confirmed its full-year guidance for organic revenue growth of at least 3%. ($1 = 0.9334 euros) (Reporting by Gaëlle Sheehan; Editing by Christian Schmollinger and Mrigank Dhaniwala)