Total System Services Inc. hopes that a recent deal with an insurance company and a new card processing service will give it an edge in the growing market for health-care processing.
Cal Holman, the chief operating officer of TSYS Prepaid, confirmed that his company closed a deal last month to process transactions for multi-purse payment cards for Exante Financial Services, a Minnetonka, Minn., unit of UnitedHealth Group. TSYS Prepaid, of New York, is a card unit of the Columbus, Ga., transaction processor.
Mr. Holman said that though processing for health accounts is a small part of TSYS’ business now, the company sees it as a promising market.
“There certainly is a large market share out there,” Mr. Holman said, and multi-purse processing “is a key component in an overall strategy for TSYS and TSYS Prepaid.”
Multi-purse cards can be used to access several accounts through a single card. In this case, Exante will likely link the cards to health savings accounts, flexible spending accounts, and a separate line of credit that Exante will fund.
HSAs, created by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, resemble both FSAs and retirement accounts. Like FSAs, they can be used only for medical expenses. Unlike FSA funds, which must be used within a calendar year, the money in HSAs accrues over many years, and the accounts are designed to be used primarily after retirement.
Because HSAs will eventually have high balances, banking companies are vying for the job of maintaining them, and processors are eager to win the business of handling the transactions.
Mr. Holman said that Exante is expected to offer the multi-purse cards later this year to companies, which would provide them to their employees. People would be approved for the line of credit when they enroll in their employer’s health-care plans, and they could initiate transactions to either their HSA or FSA. The line of credit would kick in for health-care payments that are not eligible for either of those accounts, or if the amount exceeds the balance in the accounts.
The multi-year deal is TSYS’ first with Exante, but not its first foray into health care. In 1999 it began processing for FSAs, and in mid-2005 it began processing for HSAs. Mr. Holman said TSYS’ revenue from health-care is not significant (he would not give a figure).
Bob Borneman, TSYS Prepaid’s director of health-care initiatives, said many people will probably want to save their HSA balances until retirement. With the line of credit option, these people may “elect to use credit and not touch the HSA,” he said.
Because HSAs are relatively new, he said, many consumers are reluctant to use them. Adding credit features to an HSA card will “really help alleviate a lot of the hesitancy to use that card,” and winning more users will give TSYS an early edge in the HSA processing market, he said.
Aamer Baig, a partner in the financial services practice of the Chicago consulting firm DiamondCluster International Inc., said Exante’s offering is unique. Though there are many credit options that consumers can use to pay for health-care expenses, “what wasn’t there was all of that packaged on a card.”
“The consumer is really concerned about a much more seamless experience at the point of service,” and this product allows the consumer to settle the payment immediately, he said.
Katy Henrickson, a senior analyst with Forrester Research Inc. in Cambridge, Mass., said combining a line of credit with health-care accounts is a good strategy.
“The more financial products you add to a health-care account, the more it makes it seem like a financial product rather than a health-care product,” she said.
One complication is that employers perceive this type of card as a health benefit rather than a financial product. Adding a credit component means that employers may not be able to offer them to employees with poor credit.
Matthew Josefowicz, a senior analyst and manager of the insurance group with the Boston market research firm Celent LLC, said the Exante deal will let TSYS “move in and try to grab a share of this growing market.”
And though only about 3 million people are using HSAs, according to America’s Health Insurance Plans, a Washington trade group, “it’s not negligible to be an early market leader,” Mr. Josefowicz said.
HSAs are designed to work in conjunction with high-deductible health plans, which are much cheaper for employers than other health plans. Mr. Josefowicz said companies offering HSA products should emphasize their benefits to consumers.
If the attached credit line is to succeed in getting people to use HSAs, it must do so on its own merits, he said. “It’s not that hard for me to take another card out of my wallet” if it has a better rate or rewards than the multi-use HSA card, he said.
