Global Payments On A Direct-Sell Shift As ISO Support Wanes

By Jeffrey Green (@epaymentsguy)

Merchant processor Global Payments scored some big fiscal third-quarter gains, driven by across-the-board 10 percent boosts in international-sector revenues. The company also is making strides in North America, where the company is shifting strategies toward direct sales, which will result independent sales organizations (ISOs) assuming a lesser role in affecting the company’s bottom line.

Global Payments for “several years” has been struggling against a “headwind” as growth in the ISO channel has slowed, David Magnum, Global Payments senior vice president and chief financial officer, told analysts during an April 3 call to discuss the quarter’s earnings.

Helping control direct sales moving forward is the company’s recent acquisition of Payment Processing Inc. (PayPros), which provides payment solutions to 58,000 small and midsize merchants. PayPros will help the company expand technology-enabled distribution and drive more revenue and earnings growth from direct channels, Magnum said

“As growth slows in our ISO channel and we add PayPros to the mix at the beginning of the fourth quarter, our 90 or so active ISO partners in United States now represents in aggregate a low double-digit percentage of total Global Payments’ operating income and, thus, contributed about 20% to North American operating income,” he said, based on a transcript of that call.

Asked what has driven the ISO slowdown, Magnum said he couldn’t point to any one specific thing.

One issue that has been affecting ISOs is how to generate revenue as point-of-sale technology gets more sophisticated through cloud-based processing. Tablets also quickly are replacing traditional POS terminals, which some ISOs have leveraged for revenue purposes. Companies such as Square that have chosen the direct-sales route also haven’t helped ISOs looking for new revenue opportunities.

To help ISOs address the changing market, POS tablet vendor Leaf earlier this week launched the Payment Apps marketplace through which merchant acquirers and ISOs can market their payment-processing services directly to merchants.

Jeff Sloan, Global Payments president and CEO, told analysts that, while he hopes its ISO partners continue to grow, they will represent a shrinking piece of the overall pie of Global Payments.

“Where the ISOs are now, they are great partners. They are good piece of the overall portfolio of Global Payments,” he said. “From a direct-to-sell, we are investing in high-growth assets. So that curve should continue down in terms of their overall share. At what rate depends on how quickly we grow and how we quickly we acquire.”

Global Payments also has some exposure to the events occurring in Russia related to U.S. sanctions, but it’s still to early to define specifically how the issue will affect the company, Sloan said.

“I do believe that what’s going in Russia is primarily a political event,” he said. “And with potential events, it is difficult to handicap what may happen in the coming days and weeks.”

For the quarter ended Feb. 28, revenue grew 6.5 percent, to $616.5 million from $578.7 million during the same period last year. Net income attributable to the company was down 5.8 percent, however, to  $55.1 million from $58.5 million.

North American merchant services revenue was up 5 percent, to $429.3 million from $408.6 million. U.S. merchant services revenue was up 5.8 percent, to $355.9 million  from $336.4 million. Canadian merchant services revenue rose 1.8 percent, to $73.5 million from $72.2 million

International merchant services revenue for the quarter was up 9.9 percent, to $187.1 million from $170.2 million. Europe merchant services revenue was $143.8 million, up 9.9 percent from $130.8 million. Asia-Pacific merchant services revenue rose 9.9 percent, to $43.3 million from $39.4 million.