Acquiring

TSYS Drops Japan And Focuses On New Deals

Total System Services Inc. thus far this year has relished in new partnership agreements while discontinuing its interests in Japan.

The company this week sold its majority stake in GP Network Corp. and its wholly owner subsidiary TSYS Japan Inc., entities that TSYS has said it has not been happy with for some time.

TSYS in 2011 started the process of strategically assessing its International segment lines of business, and that resulted in making a decision on the future direction of the company’s operations in Japan, M. Troy Woods, TSYS president and chief operating officer, told analysts during a first quarter earnings call on April 22.

TSYS’s operations in Japan have consisted of two lines of businesses, one being issuer processing and the other being the company’s 54 percent stake in GP Net, which provides point-of-sale terminal services and certain business that was related to the sharing of Japanese domestic processing fees with Visa and other shareholders in the joint venture, Woods noted.

Japan has a very large card market, but it is heavily concentrated among a handful of very large financial institutions, almost all of which process internally, he said.

“For almost 14 years, TSYS has been trying to build a profitable issuer-processing business in Japan with very limited success,” Woods said. “After assessing the size of the investment required to enhance our processing platforms and balancing that investment against the low likelihood of successful penetration of scale needed in the domestic processing market, we decided to exit the Japanese issuer processing segment.”

TSYS has transferred its existing issuer-processing business to a local entity created by former leaders of TSYS Japan. TSYS also decided to sell its 54% stake in GP Net to Visa, which held a minority ownership in the joint venture, Woods said.

“Domestic interchange is not a core strategic business line to TSYS, nor one that we could expand or replicate to other markets around the globe,” he said. “And while GP Net has been a good venture for TSYS and for TSYS shareholders, we felt that by disposing of our interest in GP Net now, we could move faster in aligning our various markets with our strategic agenda in the longer term.”

But just as TSYS has relinquished its Japanese operations, it also has made new acquisitions and has established new relationships.

During the analysts call, Philip W. Tomlinson, TSYS chairman and CEO, noted the acquisition during the quarter of an additional 15 percent interest in the Central Payment (CPAY) business, bringing its total to 75 percent ownership. As a part of the CPAY transaction, TSYS also extended the employment terms of the CPAY executive management team, he added.

On the new business front, TSYS in March announced a deal with Virgin Money in the United Kingdom, and on April 22 it announced a NetSpend deal with Western Union to develop a co-branded prepaid card, available later this year.

TSYS soon will begin the processing and servicing of Virgin’s credit card accounts. It also will provide Virgin’s newly established UK-based retail bank, Virgin Money, a comprehensive suite of services, including core processing, analytical solutions, Internet self-service, and a full set of managed services capabilities from its call center facilities in Milton Keynes, UK, Woods said on the call.

“Our current plans are to launch a start-up program for Virgin Money in the fourth quarter and then convert approximately 600,000 accounts in the first quarter of 2015,” he said, noting later on the call the deal represents about 2 million accounts in total.

TSYS also announced on April 22 the signing of a new agreement with PayChex to launch a new PayCard product later this quarter. PayChex is one of the nation’s leading providers of payroll, human resource, and benefits outsourcing solutions to small-to-medium sized businesses and serves more than 570,000 payroll clients.

“We provide our PayCard products and services through 1,900 companies, so having the opportunity to work with 570,000 payroll clients is significant, Woods said during the call. “Western Union and PayChex are two great names in their respective businesses, and we’re very excited about the many opportunities that we will have working with both of them.”

Also on the call, Woods cited the signing of new agreements with Iberia Bank and TrustCo Bank, and contract extensions with Toronto-Dominion, Canadian Tire, and Bank of Nova Scotia. “We have converted just over 800,000 accounts already this quarter, leaving approximately 4.2 million left to be converted,” he said. “This will leave us with approximately 91 million accounts to convert in the third quarter, finishing up the largest conversion pipeline in our history.”

Woods also noted the benefits NetSpend has provided TSYS since the acquisition last year. NetSpend produced record revenues for the quarter of $132.6 million, representing a 13.1% increase over the same period last year, he said.

“A very strong and successful tax season was clearly a contributing factor on the revenue growth for the quarter,” Woods said. “The tax volume and our public growth initiatives also helped produce record direct deposit cards at $2.1 million and industry-leading gross dollar volume of $6.6 billion, representing increases of 21 percent and 22 percent respectively.”

During the quarter ended March 31, TSYS earned revenue of $592.8 million, up 32.1 percent from $448.8 million during the same period last year. Net income was $51.6 million, down 12.7 percent from $549.1 million.

Total revenues by segment for the quarter were North America Services, $262.2 million, up 9.3 percent from $239.8 million a year earlier; International Services, $82.4 million, up 1.9 percent from $80.9 million; Merchant Services, $104.6 million, down 4.3 percent from $109.3 million; and NetSpend, $132.6 million. TSYS, which acquired NetSpend last year, didn’t report first quarter revenue for the company.

Accounts on file for North America totaled 495.5 million, up 17.2 percent from 422.8 million; transactions totaled 2.33 billion, up 15.9 percent from 2.01 billion. International segment accounts totaled 60.7 million, up 9 percent from 55.7 million; transaction volume totaled 517.9 million, up 19.3 percent from 434 million.

Merchant point-of-sale transaction volume totaled 982.2 million, down 10.7 percent from 1.1 billion, as sales volume rose 6.4 percent, to $10.78 billion from $10.13 billion. NetSpend gross dollar volume reached $6.57 billion, up 22.1 percent from $5.38 billion; 90-day active cards totaled 3.6 million, up 12.5 percent from 3.2 million.

Direct-deposit 90-day active NetSpend cards totaled 2.1 million, up 23.5 percent from 1.7 million. The percentage of 90-day active cards with direct deposit jumped to 56.6 percent from 54.1 percent year over year.

 

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