Total System Services Inc. announced Wednesday that it is in talks with Capital One Corp. to provide processing services for the issuer’s U.S. consumer and small-business credit card portfolios.
TSYS said in a press release that the companies expect to finalize an agreement “in the near future.” Neither would comment further until negotiations have concluded, TSYS said.
Analysts said a Capital One deal would be a score for the Columbus, Ga., processor, which has landed several major customers in the past two years.
“Their market share is rising — from 23% in 2003, to over 40% in 2004 — and it will be even more in 2005,” said Tony Davis of Ryan Beck & Co.
In 2003, Bank One Corp. of Chicago moved its 50 million card accounts from First Data to TSYS. After acquiring Bank One last year, JPMorgan Chase & Co. switched its 35 million Chase accounts from First Data, though JPMorgan Chase has said it ultimately wants to take all of its processing in-house.
Also last year, Bank of America Corp. said that it would switch from First Data to TSYS the 12 million Fleet card accounts it acquired when it bought FleetBoston Financial Corp.
Capital One, of McLean, Va., is the No. 5 card issuer, and if a deal with TSYS is secured TSYS will be processing consumer transactions for three of the top five. The remaining top-five issuers, Citigroup Inc. and MBNA Corp., process consumer card payments in-house, though TSYS does handle MBNA’s commercial cards.
David Scharf, an analyst at JMP Securities LLC, said the Capital One talks are “evidence that TSYS has distanced itself from First Data. It’s becoming somewhat of a one-person race.”
“There’s a shrinking universe of megadeals,” Mr. Scharf said, “so this is clearly positive for them.”
A deal would not be another defection from First Data, since Capital One does its card processing in-house. But Mr. Davis said it shows that TSYS has “the gold standard” in processing.
The $40 million a year TSYS has been putting into its TS2 payment-processing system is paying off, Mr. Davis said.
Mr. Scharf agreed. TSYS has always had a bit of a technology edge and now will have a scale advantage, he said.
