DAVID S. EVANS: Hi, this is David Evans from PYMNTS.com. Exciting news today – TSYS acquired the remaining 49 percent interest in First National Merchant Solutions from First National Bank of Omaha. That’s going to be rebranded as the TSYS Merchant Solutions. TSYS formed a joint venture with FNBO back in April 2010, when they acquired a 51 percent controlling interest in the direct merchant acquirer and transaction processor. This transaction today completes that acquisition.
Today, I have with me to talk more about this: Troy Woods, President and Chief Operating Officer of TSYS, Diana Mehochko, President of TSYS Merchant Solutions, and Mark Pyke, President of TSYS Acquiring. Troy, let me begin with you. What does this mean for TSYS?
TROY WOODS: TSYS has had a strong desire to diversify our business, beyond just processing, to find a way to get closer to the endgame or to the merchant. Hence, we created the joint venture, as you indicated, back in April of this year, with First National Bank of Omaha and FNMS.
I know we did not anticipate such an accelerated acquisition of the remaining 49 percent. The circumstances changed for both of us. Both teams are very satisfied with the results that were coming forward from the FNMS leadership team, and the bank decided that they had some opportunities to take advantage of. Literally, in the last 60 days, we were able to get together and pull the entire transaction together to make the announcement that you mentioned this morning.
EVANS: Diana, what kind of value does TSYS Merchant Solutions bring to merchants?
DIANA MEHOCHKO: It brings a lot of value. I will echo some of the things that Troy has said, but there’s certainly a cultural fit in terms of the history of both of our organizations – the focus on the most valued asset, the people. From a technology standpoint – working with some of the work streams and some of the things that we’ve done from a synergy with Mark’s group from TAS – there’s certainly investment opportunities and acquisitions beyond the organic growth that this organization has done in the last several years. Certainly last but not least, with the rebranding, the brand recognition and the power of the TSYS name just to mention a few.
EVANS: One of the things that, obviously, everyone is talking about in the industry these days is the Federal Reserve Board proposals on interchange fees and how that’s changing the business and so forth. I don’t know whether any of you want to comment on how this sort of interplays with the increased importance of really providing good services to merchants and making sure that the merchant is considered to be, and taken care of as, an important customer in the payments ecosystem. I don’t know, Mark or Diana or Troy, whether any of you would like to take that up.
MEHOCHKO: I think it exemplifies what both of these organizations have focused on in the past has been the value of the customer and looking at the products and services and bringing the best solutions to the market. That’s what both organizations have stood for. That’s what their reputation precedes them. I think it just further enhances that being able to work together with Mark’s group and looking at it from a products standpoint, from a technology, from a compliance, and certainly being able to react to the changes in the market in a time that it’s not going to prohibit or impact negatively our clients. The ability to be able to react to that, I think, is going to be paramount to be able to navigate through these changes that are going to be, for lack of a better term, bestowed upon us by the regulators.
MARK PYKE: The only thing I would add to that was, when we looked at forming the joint venture and obviously now buying out the remaining 49 percent, we really looked at the core assets and the core value of FNMS. We saw best-in-class service, highly knowledgeable staff that really knew how to provide the right solutions to the merchants. As we all know, the biggest cost for merchants in card acceptance is interchange, and so Diana and her team have worked very hard to position the merchants to give them the most effective and lowest-cost cost-of-acceptance for cards. I think Durbin is just another dynamic in that, as I mentioned, and as we learn more about really what the final rules are going to be, that will allow us to respond accordingly and work diligently on behalf of our merchants to, again, lower their total cost of card acceptance.
EVANS: What reaction have you gotten from the merchant community or from other people in the industry on your acquisition of the final portion of First National Merchant Solutions?
MEHOCHKO: I’ve been with these gentleman and have the fortune of doing several of these interviews since our announcement at 9:00 this morning Central Time to our staff, so I haven’t had the opportunity to have those conversations yet, but I fully believe that we’ll have the same type of reaction that we did when we announced the joint venture with TSYS in April 1st of 2010 of warm welcome, a wonderful reaction seeing the powerhouses. I think our competitors are the ones that are probably going to react not probably in a positive way from a threat in the marketplace. So, I’m anticipating more of the same.
EVANS: I’d like to close with just two questions that are more general in nature, if you’re willing to indulge me in them. We’re at the beginning of 2011 and by some way of counting decades, we’re also at the beginning of a new decade. What you guys are up to here? Looking forward over the next year and over the next few years, what sorts of innovations do you see happening at the merchant point of sale? What kind of innovations do you see really benefiting the merchant as a customer?
PYKE: I’ll go first. I’ve got a couple of thoughts that come to mind. You have to think about mobile payment – a lot of activity with the carriers potentially rolling out an initiative called ISIS. You hear a lot with Visa and MasterCard and a number of financial institutions, so but from a merchant perspective, if the carriers and the brands are able to create an environment where there’s not only just a mobile wallet but allow for the merchants to market to people that walk into their store and provide instant rewards or loyalty and leveraging GPS, you know, type of aspects. So it’s not just a form of payment from a merchant perspective, if they can do something along the lines of increasing store traffic and sales, you know, offer in redemptions, so to speak, is the key one.
The other main thing, I would say, that’s out there is encryption. There’s a lot of activity going on today with regards to encrypting the merchant’s point of sale with PCI compliance being costly and complex. I think encryption can be a way to not only increase the security for the merchants but also lessen the burden on PCI compliance. Once you do end-to-end encryption, so to speak, it is a scenario where it’s secure and less costly for the merchants. Diana, I would –
MEHOCHKO: I think just to add to, probably, the previous question as it relates to not only navigating all the regulatory requirements that are come down, IRS, I think, from a product standpoint, looking at chip & PIN from our issuer. From acceptance, I think looking at specific niche markets as it relates to providing solutions for those, whether it be healthcare or certainly the growing market of prepaid. So, I think there is a lot of things that are on the horizon that are from a point-of-sale innovation standpoint that we will be looking at, obviously in unison, from a processor and from an acquirer standpoint.
EVANS: Looking forward this year, how’s life looking for TSYS?
WOODS: Great question. It’s a whole lot better as of 9:00 this morning. We’re clearly excited about the transaction and the opportunities that it brings. The transaction is clearly accreted to the shareholders of the company, effective immediately, in 2011. We’re beginning to see good light at the end of the tunnel. We’re beginning to see these FIs make some decisions that, in the past two years, they have procrastinated and put off. Our transaction activity for Christmas season was right at low, low, low, double-digit increase over 2009 Christmas season, and so we’re feeling pretty good. I don’t think we’re out of the hole yet. From the standpoint of the consumer, and for that matter, the FIs, many FIs are still struggling. Many have certainly rebounded, but all in all, looking better, good opportunities in the marketplace. Ttransactions like the one we announced this morning certainly go a long way to help us achieve our vision. So, we’re pretty robust.
EVANS: Excellent. So congratulations again on the transaction this morning.
WOODS: Totally great. Thanks David. Appreciate your interest and support.
Troy Woods
Troy Woods, president and chief operating officer of TSYS, has been a critical influence in the company’s strategic decisions for the past two decades. Woods has been involved in directing the company’s international expansion, strategic planning activities, negotiations with major clients, and the continual improvement of TS2, the company’s core payments engine. Under Woods’ leadership, the company has expanded to Canada, Mexico, Europe, Brazil and the Asia-Pacific.
Woods started his career at Columbus Bank and Trust Company (Columbus, Ga.) in 1970, working part-time in the bankcard department and eventually becoming a vice president. He left the company in 1977 to become a senior vice president for consumer lending with AmSouth Bank in Birmingham, Ala. He rejoined TSYS in 1987.
Woods is member of the TSYS Board of Directors, along with serving on the Board of Directors for China UnionPay Data Services, Ltd. (CUP Data), TSYS’ joint venture with CUP Data in China; GP Network Corporation, TSYS’ joint venture in Japan; and First National Merchant Solutions (FNMS), TSYS’ joint venture with First National Bank of Omaha. He also serves on the Board of Directors for several civic organizations, including the YMCA of Metropolitan Columbus (Ga.), West Georgia Honor Flight and the Greater Columbus Georgia Chamber of Commerce. He is also a member of the Board of Trustees for Columbus State University.
Woods earned a bachelor’s degree from Columbus State University (Columbus, Ga.), and also graduated from the University of Virginia’s Graduate School of Retail Bank Management and Louisiana State University’s School of Banking of the South.
Mark Pyke
As president of TSYS Acquiring Solutions, Mark Pyke uses his extensive banking and financial expertise to generate strong business results for the wholly owned TSYS affiliate. Serving on the TSYS management committee, he brings more than 25 years of payments and financial services experience to the company.
Prior to joining TSYS Acquiring Solutions, Pyke served as president of Bank of America Merchant Services. He also previously held the title of chief operating officer and executive vice president for National Processing Company, and served as vice president and chief credit officer of NaBANCO Merchant Services — a division of First Data Corporation — along with a variety of other positions in the payments and financial services industries.
Pyke holds a Bachelor of Science degree from Northeastern University and master’s in business administration from the University of Michigan.
Diana Mehochko
Diana Mehochko brings vast leadership and payment industry experience to her role as president of First National Merchant Solutions. She joined the division in 2005, and in 2010, oversaw the operation’s transition from a subsidiary of First National Bank Omaha (FNBO) to an independent company jointly owned by TSYS and FNBO.
Before joining First National Merchant Solutions, Mehochko was the head of DMM Consulting, Inc., working with industry executives to improve transaction services, develop business and product strategies and create operational efficiencies. Prior to that, she was chief operating officer of Chase Merchant Services, responsible for all aspects of daily operations including technical solutions, account implementations and association compliance.
Mehochko has also held various sales and sales management positions at First USA Merchant Services, First Bankcard Center of First National Bank of Omaha, and NCR Credit Corporation.
In addition to past service on the Visa Acquirers Executive Council and MasterCard Acquirer Committee, Mehochko serves on the Discover Acquirers Council. She has held various chair and member positions with the Electronic Transaction Association; is past president of the board of Omaha’s Rose Theater and is a board member of Omaha’s YWCA.
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