Text Size:


Pressing Acquisition Strategy, TSYS Uses ProPay Deal to Get into Mobile Acceptance
November 19, 2012

Total System Services Inc.’s announcement late last week that it has agreed to buy ProPay Inc. is the latest chapter in TSYS’s strategy of bulking up its position in the merchant-acquiring business through acquisitions. The deal will also hand the Columbus, Ga.-based processor a key stake in the rapidly growing business of handling transactions for so-called micro-merchants, especially via mobile devices.

TSYS most likely isn’t through making deals to beef up its stake in acquiring even further. “We continue to look a acquisition opportunities,” says Carey Blackstone, group executive for corporate strategy at TSYS.

The ProPay deal, which is expected to close by year’s end, brings 250,000 merchants into TSYS’s fold, including thousands of small merchants, sales agents for direct-marketing concerns, and sellers on eBay Inc.’s online-auction site. Terms of the deal were not disclosed, indicating the price was likely not material for publicly held TSYS.

Key to the deal is ProPay’s position in mobile acceptance, says Blackstone. The Lehi, Utah-based company markets a card-reading dongle and app for use with smart phones that let mobile merchants accept credit and debit cards, technology that competes in an increasingly crowded field that includes Square Inc., PayPal Inc., Intuit Inc., and VeriFone Systems Inc. As with these competitors, the mobile capability allows ProPay to sign up tradesmen, festival sellers, and others that were previously unreachable with fixed acceptance devices.

Through a technique called account aggregation , ProPay is also able to get these sellers live on its platform almost immediately. With aggregation, a processor stands in as the merchant for sellers it signs up rather than giving them their own merchant accounts, an often cumbersome process involving risk underwriting and other paperwork. “Mobile and self-enrollment and instant activation make it possible to offer payment acceptance to a whole new class of merchant, the micro-merchant,” notes Blackstone in explaining the appeal of ProPay to TSYS.

“It’s a matter of keeping up with trends as far as acquiring goes,” says Rick Oglesby, a former TSYS executive and now a senior analyst at Aite Group LLC, in commenting on TSYS’s deal to buy ProPay. “ProPay has reach into those micro-merchants.”

A 15-year-old company, ProPay has enjoyed a reputation in the payments business for innovation. In 2011, it launched a mobile wallet that allows users to communicate with merchants, place orders, and make payments, with all payment credentials stored on ProPay servers and protected with an encryption and tokenization service called ProtectPay. In 2008, when eBay introduced a policy requiring electronic payments, ProPay was initially the only service it permitted other than that of its own PayPal unit.

While the wallet, called ProPay Link, hasn’t enjoyed the same success as the mobile-acceptance app, called JAK, “it is one of those things that has potential,” says Blackstone.

TSYS has expanded significantly in the acquiring business via deals in recent years. In May 2011, it acquired Termnet Merchant Services, which at the time served 327,000 merchants. Earlier that year, it shelled out $169.6 million to buy the 49% of First National Merchant Services it didn’t already own. The acquirer, which processed for 300,000 merchants and had been part of First National Bank of Omaha, was rechristened TSYS Merchant Solutions. And in 2005, TSYS bought out Visa Inc.s’ 50% stake in a TSYS-Visa acquiring partnership called Vital Processing Services. That unit became TSYS Acquiring Solutions.

In August this year, TSYS took a 60% interest in a joint venture with Central Payment, a San Rafael, Calif.-based merchant processor.

The TSYS-ProPay tieup follows other recent deals by major acquirers in recent weeks, including a move earlier this month by Bank of America Merchant Services to introduce its own mobile-acceptance service and an agreement last month by Vantiv Inc. to buy Litle & Co., a major processor for card-not-present merchants, for $361 milllion.

Share |


Read Digital Transactions Online
read more