In a deal that may symbolize the card industry’s high hopes for the prepaid market, Total System Services Inc. has bought the prepaid processing specialist Clarity Payment Solutions Inc. of New York for $53 million in cash.
TSYS, which is majority-owned by Synovus Financial Corp. of Columbus, Ga., announced the purchase Tuesday. It said it will combine its own prepaid card operation, which handles about 12 million cards a year, with Clarity’s, which processes several million, to create a division called TSYS Prepaid Inc.
TSYS said the acquisition will extend its reach in the prepaid card business. All new accounts will go onto Clarity’s system, and TSYS’ old prepaid business will be moved there over time, officials said.
“They just have a flat better technology than we do,” said M. Troy Woods, TSYS’ president and chief operating officer. Clarity’s system can handle more types of stored-value prepaid cards, he said, and “they have Web-enabled their platform from A to Z.”
Anil D. Aggarwal, Clarity’s chief executive, said the integration should not be very difficult. Mr. Aggarwal will be the new unit’s CEO.
TSYS processes cards for retailers and financial institutions; its prepaid division mostly served financial institutions. Clarity’s clients were mostly nonfinancial companies, such as Coca Cola Co., Sharp Corp., and Ford Motor Co., though the list also includes KeyCorp and M&T Bank Corp.
Mr. Woods said prepaid card processing contributed 2% of TSYS’ revenue last year and will contribute 4% now that Clarity is factored in. The two operations had about the same revenue, he said; he would not give a dollar figure.
Mr. Aggarwal said that though the privately held Clarity focused on prepaid cards, he does not see prepaid as a stand-alone business. He envisions “prepaid converging with other forms of payment.”
For example, banks that provide payroll cards to corporate customers might be able to turn unbanked payroll cardholders into credit or debit card customers, he said.
Card issuers, merchants, Visa U.S.A., and MasterCard International have all expressed high hopes that prepaid products — also known as stored-value cards — will emerge as a growth area in the highly saturated cards market. The cards have also been marketed as gift cards, health-care cards, and insurance claim cards.
Kartik Mehta, an analyst at First Horizon National Corp.’s FTN Midwest Research in Nashville, said Clarity was “a good strategic acquisition” for TSYS — “but I don’t think it’s a difference-maker.” It will help TSYS diversify and will add scale, he said.
He noted that Clarity was smaller than First Data Corp.’s ValueLink LLC division, which mostly processes proprietary gift cards for large merchants.
(First Data was downgraded Monday by Credit Suisse First Boston to “neutral” from “outperform.” “Organic growth has slowed (perhaps more than meets the eye), and margin pressure could be next,” analyst Dris Upitis wrote. His main concern seemed to be First Data’s Western Union business, whose growth he said was slowing down.
