Deluxe Data Systems is changing the way it does its electronic benefits transfer business.
The electronic transaction processing company is moving the flow of electronic benefits transaction data from its own network to another.
Last week the subsidiary of Milwaukee-based Deluxe Corp. signed a deal with Transaction Network Services Inc., a telecommunications network that acts as a conduit for the flow of transaction data.
Deluxe wants to develop scale and get a better price by moving its data flow business to Reston, Va.-based Transaction Network. But experts said Deluxe may also be getting ready to shed its electronic benefits transfer business.
Deluxe has emerged as one of top two processors in the electronic benefits transfer business over the last five years, but it has expressed some ambivalence about whether it will stay in the business. It competes with the Transactive Corp., Austin, Tex., which also uses Transaction Network.
Since 1992, Deluxe has used Transaction Network for transactions in small towns, reserving those in large cities for its own operations.
Deluxe realized that it is a data processor, said Brian Bates, Transaction Network's general manager, point of sale division. "Our strength is in transporting data."
Deluxe has electronic benefits transfer contracts in Colorado, Connecticut, Kansas, Louisiana, Utah, Maryland, and New Jersey. It said it expects contracts with 20 other states.
About 31 million people receive $112 billion in government benefits each year electronically.
Last year, Deluxe processed more than two billion transactions, including automated teller machine and electronic benefits.
Deluxe spokesman Stuart Alexander said the decision to switch to Transaction Network was made because of "price and service."
"The indications are that we will continue" in the electronic benefits transfer business, he added, but he did not say for how long.
Dominick Cavuoto, partner of KPMG Peat Marwick, in New York, said although Deluxe has a big stake in the electronic benefits marketplace, it hasn't "made money at this business yet."
He said Deluxe is probably looking for "a common platform for all of its service offerings," but "could be putting everything in one place to spin it off."
Patrick M. Burton, an analyst for Lehman Brothers who covers Deluxe, said the electronic benefits industry "has taken off slower than people thought." He said Deluxe "won't allow an indefinite period of investment spending to develop an EBT franchise."
J.A. "Gus" Blanchard, Deluxe Corp.'s chairman and chief executive officer, has made no secret of his mission to shed unprofitable parts of his company.
Recently, Deluxe Corp. divested its merchant processor, Financial Alliance, and parts of its check-printing business. Mr. Blanchard has also talked about restructuring to make Deluxe Data Systems more competitive.