Total System Services Inc. hopes the data center it has acquired in Japan will help it to attract more clients in Asia.
The Columbus, Ga., company said that the data center, which it purchased last month from a Japanese provider of hosting and processing services, will allow it to expand in Japan, which has long been considered a tough market for foreign processors.
"Japan is a relatively complicated market, but it is certainly a large market," Gaylon Jowers, the president of TSYS' international business, said Friday in an interview.
TSYS said its contract does not allow it to name the firm that sold it the Nago City, Okinawa, data center.
The company entered the Japanese market in 2000 by buying a 53% stake in GP Network Corp., a merchant processor.
In 2006, TSYS began processing prepaid transactions for a cobranded Visa debit card offered by Toyota Finance Corp. and Nikko Cordial Securities, a major brokerage company in Japan. The processor won that deal because of its ability to offer multicurrency capabilities, a first for the Japanese market.
In acquiring the data center, TSYS also received a card processing platform and three clients: AZ Card, OCS, and Nagasaki Kenmin Shinyo Kumiai.
Mr. Jowers called the platform an "interim solution that we can build and grow new clients on," though he said TSYS would start putting Japanese clients on its proprietary platform soon.
TSYS will not immediately move its clients in Japan, such as Toyota and Nikko Cordial, over to the Okinawa data center; those transactions are processed in North America.
Though TSYS may turn the Okinawa center into a hub that serves clients in Southeast Asia, "initially it's just for Japan," Mr. Jowers said.
The data center added little in terms of new technology, he said, though the redundancy will help strengthen its disaster recovery capabilities. Also, having a center in the same time zone as its Japanese clients, and staffing it with locals for whom there is no language barrier, "cuts down on the confusion and the potential for errors."
TSYS also processes transactions in China through its 44.5% ownership of China UnionPay Data Co. Ltd., the processing unit of the nation's only card network.
Adil Moussa, an analyst at Aite Group LLC of Boston, said the consolidation of the U.S. banking industry makes it more important than ever for TSYS to expand in foreign countries.
TSYS said this month that Washington Mutual Inc. (which sold its banking operation to JP-Morgan Chase & Co.) and Wachovia Corp. (which is selling itself to Wells Fargo & Co.) account for 4.5% of its revenue. Mr. Moussa said that the business could go to First Data Corp., and that other clients may bring their processing in-house to keep costs down.
The consolidation in the banking industry, combined with the credit crisis and general economic uncertainty, makes it all the more difficult for TSYS to win business in its home country, he said. "The U.S. market has been really slowing down a lot, so they're facing competition here."
China, Korea, and Japan are "spots that are really hot" for card processors, he said. "The Asian market is one of the most developed ones."
There are many benefits to having a hub for that market, Mr. Moussa said; putting the data center in an Asian country makes it easier to meet the regulatory requirements for that market.
Having a data center in that time zone also helps TSYS meet the needs of its customers, he said, plus "you want a redundancy." Even though its North American and European data centers could handle the workload, it helps not to rely on them alone, he said.
Brian Riley, a research director in the bank cards practice at TowerGroup, the Needham, Mass., independent research firm owned by MasterCard Inc., said the Okinawa data center's reach "is going to go far beyond Japan, I would imagine," and could even handle processing for customers as far away as Australia.
As it becomes increasingly clear that "the United States market is going to be lackluster for the next year or so," it is important for TSYS to make its international strategy clear, Mr. Riley said. "The reality is there's other growth areas that service credit, debit, and prepaid cards outside the U.S."
He likened TSYS' strategy to the decision by Global Payments Inc., another large processor, to base its European unit in Prague, while many rivals were centered in London.
"Rather than having concentrated hubs where everybody is in one single country … to have more of a diversified approach probably makes more sense," Mr. Riley said.
TSYS' purchase of a Japanese data center, even when its U.S. center could handle its foreign clients, "shows that they're focused on markets outside the U.S.," Mr. Riley said.
It also gives the company a launching point to seek more business outside Japan, he said. "There's other markets that are opening up, particularly in the Middle East" for prepaid cards.