Monday , February 24, 2020

The New Global Payments Looks to Value to Offset Impending Visa Rate Changes

News of impending interchange-rate revisions from Visa Inc. may have roiled the payments industry, but for processing giants like Global Payments Inc., the impact will simply be business as usual.

Top Global executives made that point crystal clear Wednesday. “We see these [rate changes] all the time. We have to accommodate that,” said Cameron Bready, president and chief operating officer at Atlanta-based Global, in an answer to stock-analyst questions about the Visa news during an earnings call. One other thing Bready made clear: the impact of any rate increases will not fall on Global. “We’re not in the business of absorbing that,” he said, adding any changes will be passed on to merchants and other clients.

Visa plans in April and in October to introduce sweeping changes to its interchange-rate schedule that are expected to increase costs for e-commerce and other card-not-present transactions but also reduce rates in some other categories, such as big grocery chains. The revisions are expected to be the most comprehensive the network has undertaken in years. Acquiring banks and their processors pay interchange fees but pass them on to merchants, typically with a markup.

Despite the publicity Visa’s plans have provoked—including harsh criticism from merchant groups—top executives at Global are positioning the news as a net positive. “Any change is good for us,” Jeff Sloan, Global’s chief executive told the equity analysts. “Of course, we prefer [rates] to go down, but the more value we can provide, the better it is for us.” Added Bready: “We feel good about our pricing.”

Sloan: “Of course, we prefer [rates] to go down, but the more value we can provide, the better it is for us.”

Aside from Visa’s pricing plans, Global has plenty on it plate, including the job of absorbing rival processor Total System Services Inc. (TSYS), which it acquired last year in a $21.5 billion deal. With that task well advanced, top executives made it plain Global will quickly leverage several key TSYS technologies, including the Genius point-of-sale system and the Vital line of POS devices.

Global’s Vital products will start rolling out in March, Bready said, in an effort to win business from competing products like Clover, offered by rival processing giant Fiserv Inc. “We think [Vital] competes very well for that register-replacement market,” he noted. Genius, meanwhile, recently scored two “partner wins,” as Bready put it, without disclosing details. “We’re excited about the prospects of leveraging Genius,” he added.

Another positive for Global, executives said, is that its prepaid card business is now “lapping” the impact from the massive prepaid rule put in place by the Consumer Financial Protection Bureau. Global’s prepaid business, NetSpend, is housed within its Business and Consumer Solutions unit, which accounted for 11% of the company’s $1.8 billion in fourth-quarter adjusted revenue. With the impact from the CFPB regulation, which took effect in April, now largely absorbed, its “headwinds” will decline over the coming year, noted chief financial officer Paul Todd, who formerly filled the same role at TSYS.

Global’s top brass also told the analysts they see no prospect of swerving from the company’s long-time strategy of direct sales. So-called wholesale distribution—reliance on resellers like independent sales organizations—now accounts for about 8% of sales in the company’s merchant-solutions unit, which racked up 2019 revenue of $1.16 billion, good for 64% of Global’s total adjusted revenue. Besides merchant solutions and business and consumer solutions, the company’s third unit, issuer solutions, took in $459 million for the year.

That posture regarding ISOs isn’t likely to change any time soon. “We’re happy to stay in that business at that level,” said Bready. “Our strategy is to maintain that business where it is. We’ll focus on our direct-distribution business.”

For 2019, the company recorded total adjusted revenue of $4.59 billion, up 48% year-over-year.

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