Jan. 27, 2011
Payment processor Total System Services Inc. sees new opportunities in merchant acquiring while No. 3 credit card network American Express Co. saw a double-digit jump in charge volume in the fourth quarter, an indication of a possible revival in consumer spending.
Boosted by its new business from merchant acquirer First National Merchant Solutions, Columbus, Ga.-based TSYS saw fourth-quarter revenues in its merchant-services segment rise 66%. Merchant revenues before reimbursable items from external customers hit $93.5 million compared with $56.4 million in 2009’s last quarter. Merchant processing now accounts for 27% of total company revenues, up from 19% in late 2009. For all of 2010, merchant services generated $337.2 million in revenues before reimbursables, up 45% from $232.3 million in 2009.
TSYS formed a joint venture with FNMS owner First National Bank of Omaha last April, holding a 51% stake. The joint venture for the first time made TSYS an owner of merchant accounts, not just a third-party processor. Earlier this month, TSYS announced it had bought First of Omaha’s 49% share in the venture for $169.6 million. The acquisition of FNMS, the nation’s 10th-largest acquirer and now renamed TSYS Merchant Solutions, lessens TSYS’s dependence on processing for bank and retail credit card issuers, a sector battered in the recession and whose growth prospects are limited. Same-store transaction volumes increased 8.6% in the fourth quarter over a year earlier.
“We believe this diversification will contribute to our growth and benefit our margins in the future,” Philip W. Tomlinson, TSYS chairman and chief executive, said in a statement.
Beyond merchant processing, TSYS is aiming for more deals in the U.S. and Canada from community banks and credit unions, and also big debit card issuers. The processor recently landed a multiyear deal to process Bank of Montreal’s consumer and commercial credit card files. And, despite looming debit card interchange regulation in the U.S., TSYS sees untapped opportunity in the debit market. Debit cards currently account for less than 2% of TSYS’s cards on file.
“We want to focus more on large debit issuers, in addition to the traditional business that we’ve been working on for 30 years,” Tomlinson told analysts Tuesday. Later, in answering an analyst’s question about the effects of debit regulation on TSYS, he said the transaction flow might shift a bit from debit to credit or prepaid cards, but the transactions will flow nonetheless. “I don’t believe banks are considering getting out of the debit business,” he said. “It’s still a great product, but I think they’re just going to have to figure out a way to re-price it if it stands as it is today.”
TSYS had a total of 342.9 million card accounts on file as of Dec. 31, down slightly from 344.8 million at 2009’s end. Credit card accounts represented 52% of 2010’s total: 179.5 million, down 4% from 187.8 million in 2009. The other card accounts for 2010 and 2009, respectively, in millions, were: stored value, 55.3, 42.0; commercial, 49.7, 41.1; government, 28.1, 25.5; retail, 24.2, 42.9; debit, 5.3, 5.2; and health care, 0.8, 0.3.
In all, TSYS reported $440.0 million in revenues for the fourth quarter, up 2% from $432.5 million a year earlier, and $51.6 million in net income, down 18% from $62.9 million. For all of 2010, TSYS reported $1.72 billion in revenues, up 2% from $1.68 billion in 2009, and net income of $205.6 million, down 6% from $219.2 million.
AmEx, meanwhile, reported worldwide card-billed business of $197.7 billion in the fourth quarter, up 15% from $172.6 billion a year earlier. In the U.S., charge volume rose 14% to $131.1 billion while international volume grew 16% to $66.6 billion. The higher volume boosted AmEx’s discount revenues to $4.09 billion, up 12% from $3.65 billion in 2009’s fourth quarter.
For all of 2010, AmEx posted charge volume of $713.3 billion, up 15% from $619.8 billion in 2009. U.S. volume increased 13% to $479.3 billion and international volume grew 19% to $234.0 billion. The average worldwide discount rate was 2.55% compared with 2.54% in 2009.
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