In technology, and especially in payments, the competitive landscape is a heated one.
The question, when eyeing the competition and trying to stay ahead of the curve, usually boils down to “build or buy?” But sometimes the strategy can be tweaked a bit to “buy and build.”
In an interview with PYMNTS’ Karen Webster, Philip McHugh, EVP and president of TSYS Merchant Solutions, laid out the strategy in a space — namely merchant services — that is rapidly evolving, and where TSYS has made a string of acquisitions to bolster its merchant-focused operations.
“You go big, or you go home in this space,” he told Webster.
But the movement to scale, especially through an acquisition, has not been without its challenges, said McHugh, amid integration tasks and in interactions with analysts and others who all struggled to say what TSYS is really good at — and where it was going to make its mark as a payments provider for the merchant industry.
To that point, McHugh told Webster, “The primary goal is to be the number one payments provider to [small businesses (SMBs)] in the United States.”
The pushback from naysayers has focused on the competition — namely, for example, that First Data, Worldpay and Bank of America are bigger, and Square and Stripe are faster.
“But we have the assets to do it. We have the scale to do it,” said McHugh of his company’s transformative plans, which are driven, in part, by focusing on software integration into the gateway, boarding new merchants and serving existing customers on the platform.
He noted TSYS is operating across a single settlement and back-end platform.
“There are few players of scale that have sewn boarding and servicing together to make them really effective,” he told Webster. “Those platforms, plus being active in the consolidation of the market, can lead us to an exciting place on integration.”
As consolidation remains part of the roadmap moving forward, McHugh gave Webster a few pointers on what TSYS seeks in the market. When looking for firms to acquire, TSYS looks at, and will continue to look at, technology, ease of integration and verticals that remain untapped.
That combination, he said, is hard to replicate and hard to create from scratch.
These guiding principles were among the ones that led TSYS to Cayan. As was widely reported last year, TSYS acquired the payments solution company in a bid to boost its omnichannel offerings, striking a deal to buy Cayan for $1.05 billion in a transaction that closed in January of this year.
Cayan is the company behind Genius, a cloud-based platform that integrates payments processing, acceptance and tokenization services.
Said McHugh, “Cayan will integrate into TSYS just as much as TSYS will integrate into Cayan, both technically and culturally.”
The broad strategy here, he told Webster, is one where, admittedly, no gateway does it all. Stripe may be known for being the best in terms of ease of integration, while Adyen is known for its global coverage.
But with any gateway, he said, many questions must be answered. Among those questions: How easy is the technology to integrate for developers, and are application programming interfaces (APIs) easy to work with? Are the technology offerings broad enough to be deployed across in-store and online use cases? Is the tech stack robust enough to scale?
McHugh noted he’s focused on acquisitions where business development teams are already in place —and have a strong presence in verticals that can catch fire quickly.
“It’s all about feature functionality,” he told Webster. “You build one or two things that really, really work for a vertical, and it takes off, [expanding] the use cases.”
The Cayan acquisition is helping TSYS boost efforts in retail, healthcare and in the salon and wellness verticals.
By way of illustration, he said TSYS has “a whole team, a large team, that specializes in health, and they can really talk to the needs of that industry … when you swipe your card at a doctor’s office, there may be four or five sub-merchants involved in a transaction.”
Complexity — in a world where the lines between payment companies and independent software vendors (ISVs) are blurring — demands product development that understands the nuances and layers inherent in those transactions, he said. In the case of healthcare, McHugh said TSYS, with its integrated payments solutions, can address the complexity on the back end, while preserving the healthcare providers and consumer’s user experience.
If integrated payments are viewed as a wave of the future, opportunity lies in green fields for TSYS, as companies realize they need a strong technology partner that can provide payments services on their behalf — enabling payments without having to manage all the details.
“We say that 30 percent of our direct business is integrated, which basically means we are selling to an ISV of some sort,” he told Webster.
Two years out, the company is likely to see a landscape where a larger percentage of its business will be a software solution and not a processing solution, said McHugh, even though he said TSYS has developed a platform that makes processing a core competence that delivers growth and margins.
“We will have dedicated teams focused on integrated [payments] sales, either through a traditional model or payment facilitators model … what we want to do is make our integrated solutions, be it ProPay or Cayan … available to our partners through an ISV, ISO (independent sales organization) or FI.”