Banks that stopped issuing credit cards during the recession are showing renewed interest in getting back into the business, signaling a positive trend that could bode well for payments processors next year, contends the top executive at Total Systems Services Inc., or TSYS.
While admitting “the economic problems are not over,” Phil Tomlinson, TSYS chairman and CEO, told analysts during an Oct. 25 conference call to discuss third-quarter earnings that growing interest among banks to issue cards and an uptick in U.S. business has him optimistic his company can continue to grow revenue and profits.
The Columbus, Ga.-based payments processor reported $459.7 million in total revenues for the quarter ended Sept. 30, up 6.1% from $433.2 million during the same period last year. Net income was up 27.1%, to $58.1 million from $45.7 million (
“We are starting to talk to people that, historically, had been in the card-issuing business and had sold out, and [we are] starting to see more people, and more banks, looking at the idea of getting back into the card-issuing business,” Tomlinson said. “And I certainly think we will win our fair share of those [sales].”
Jim Lipham, TSYS chief financial officer, pointed to increased revenue of 5.4% in North America as an important factor.
“North America really did drive the growth this quarter,” Lipham said. “Our expenses in North America were actually down $2.2 million, so we just had an outstanding quarter for margin improvement for North America.”
With signs that business is improving in North America, particularly in the U.S. market, and continued strength for in international markets, the company’s “prospect pipeline is about as good as it ever has been,” Tomlinson said.
The sales cycle averages six to 18 months, and the challenge is for TSYS to close its share of deals in the prospect pipeline, he said.
“We are talking to people today that we have been trying to talk to for a long time, and we are actually getting some traction on some of that. And to me that means people are starting to feel at least somewhat more positive about where this economy is at,” Tomlinson said.
Tomlinson reminded analysts that he had mentioned during the second quarter that he felt the U.S. market was opening up a bit, after “that market went dark for a couple of years.”
Continuing to increase the number of commercial credit card accounts on file will have a “substantial” impact on future TSYS revenues, Tomlinson said.
Commercial cards generally include travel-and-entertainment or small-business credit cards, many of which were canceled or their limits drastically cut back in recent years as issuers moved to reduce risk.
TSYS enjoyed a 14.7% increase in commercial card accounts during the third quarter, to 59.6 million from 51.9 million a year earlier.
“Profitability on commercial cards is much higher, credit lines are higher, and transaction amounts tend to be higher,” Tomlinson said. “It’s just that the utility of the various cards [commercial, consumer or private-label] is very different.”
Executives declined to provide details on TSYS extending an agreement with one of its largest clients, Capital One Financial Corp.
Tomlinson acknowledged mention of the extension of its agreement with Cap One through 2017 in a U.S. Securities and Exchange Commission filing on Oct. 7, calling for TSYS to continue providing processing services for Capital One North American portfolio customers and small-business credit card accounts (
However, Tomlinson said he could not comment on the prospect of TSYS picking up the reportedly 27 million active accounts of London-based HSBC Holdings PLC if Cap One successfully closes its planned $2.6 billion acquisition (
Despite the ups and downs of the global economy, Tomlinson told analysts he believes electronic payments are an important part of the global economy, “and I think it is going to continue to be a real mainstream and a key part of both the developed and emerging markets.”
Analyst Darrin Peller of New York-based Barclays Capital wrote in his “Instant Insights” report Oct. 26 that the TSYS portfolio continues to be encouraging.
“Overall, we believe these results were strong and continue to illustrate solid underlying trends towards credit card issuance by banks looking for profitable asset growth,” Peller wrote.
The third-quarter earnings also show TSYS continues to have “leading brand and network capabilities within issuer processing,” he added.
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