Metavante Corp. said its deal to purchase the government payment processor Link2Gov Corp. is aimed at pulling a share of the growing volume of card-based payments onto its NYCE debit network.
Link2Gov, of Nashville, processes payments for a wide variety of government fees and taxes, and is one of two companies authorized by the Internal Revenue Service to let people make federal income tax payments with a credit card.
Edward Braswell, the president and chief executive of Link2Gov, said one of the goals of the deal, announced Monday, is to route some of his company’s PIN debit volume through NYCE. Doing so would let Link2Gov discontinue its partnerships with other processors in many regions, he said.
“By driving payment through the debit network, we can reduce the cost to that process,” Mr. Braswell said. Credit card payments would continue to be routed over the card companies’ networks, and Link2Gov would continue to work with certain third-party processors (which he would not name) in areas where NYCE does not operate.
Mr. Braswell also said Link 2Gov’s Web site would “display the NYCE logo as prominently as we can” to encourage more people to use the debit network.
More people are willing to pay the government electronically — even if they have to pay a fee for it.
The number of people who paid their federal income taxes with a credit or signature debit card in the last fiscal year, which ended Sept. 30, rose 50% from a year earlier and 163% from the year before that, to 1,468,023, according to the IRS.
To cover both the interchange fee — which the IRS is prohibited by law from paying — and overhead, both Link2Gov and its income tax rival, Official Payments Corp., charge taxpayers 2.49% of the payment for the service.
Besides state and federal tax payments, Link2Gov also processes payments for a variety of agencies for such things as fishing licenses, court fees, vehicle registrations; in many cases the agencies must pay the processing costs for these electronic payments, and by using NYCE, Link2Gov would be able to offer them lower prices for these debit transactions.
Metavante, the technology subsidiary of the Milwaukee banking company Marshall & Ilsley Corp., already does some business with government agencies, though analysts said this work does not generate a large portion of the unit’s revenue.
Frank D’Angelo, the president and chief operating officer of Metavante’s payment solutions group, said that it offers electronic benefit cards to government agencies through some of its bank customers, and that moving into tax payments would add “a completely new set of products to us.”
He expects Link2Gov’s payment volume to increase in the next few years. “Consumers will, over time, do more and more electronic transacting,” and government agencies are trying to encourage this shift, because they “have a need to eliminate paper, to improve the process, to reduce fraud, reduce risk, and reduce expenses.”
Combining Link2Gov’s service with NYCE is “one of the most natural fits in term of two businesses,” Mr. D’Angelo said.
Beth Robertson, a senior analyst at MasterCard International’s TowerGroup Inc. research unit in Needham, Mass., estimated that consumers would make 380 million federal, state, and local tax payments this year, so the deal could provide a significant source of revenue to Metavante.
“The fact that Metavante owns the NYCE network gives them the opportunity to build volume through that network,” she said.
Alan E. Webber, a consulting analyst with Forrester Research Inc. of Cambridge, Mass., said that it is cheaper for government agencies to accept electronic payments than cash, and that many agencies are eager to persuade consumers to make payments with credit and debit cards. “A lot of the movement in government is really toward self-service.”
For example, some cities have installed parking meters that accept credit card payments instead of coins, he said, and even though they must pay interchange fees for the cards, they end up saving money on staffing. “They don’t need somebody going around collecting all the change.”
Similarly, by accepting credit and debit cards for tax payments, agencies may eventually avoid having to sort through millions of paper checks, he said.
And with the number of people paying taxes electronically growing, Metavante would gain an early presence in the growing market of processing these payments, Mr. Webber said. “Essentially, what Metavante is doing is buying a new market.”
Dan Schatt, a senior analyst for the Boston market research firm Celent Communications LLC, said, “The government is a naturally evolving market for payments and eventually people are going to pay for most government services with a debit or credit card.”
From Metavante’s perspective, this acquisition “makes perfect sense,” he said. “Everybody has to pay their taxes.” And if they pay by debit card, “Metavante will basically get all the transactions.”
