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Consumer spending at merchants processing with Global Payments Inc. is slowing, but the Atlanta-based payments processor continues to see growth globally, says Paul R. Garcia, Global's chairman, president and CEO.
Last week, Global Payments reported 32% growth in net income for the fiscal first quarter ended Aug. 31, to $57.5 million from $43.6 million during the same quarter a year ago. Revenue grew by 30.5%, to $405.8 million from $311 million.
Garcia acknowledged that the softer U.S. economy is affecting the company. "Now, the good news for us, with our strong ISO channels, [this] still means pretty significant growth," Garcia said. "It's just not as robust."
Global Payments' North American merchant-services business generated $286.6 million in first-quarter revenue, a 16.5% increase from $246.1 million in the same period a year ago.
"We definitely saw some softness domestically in the first quarter for our merchant business, both with the ISOs and within the direct business," Garcia said.
Despite economic changes, Garcia said Global Payments is positioned well because it has a number of processing contracts with education, health care and government organizations, which are nondiscretionary spending categories.
"It is a cautious environment we are watching carefully, but we are as well positioned as one can be given the macro trends," he said.
Indeed, Global Payments' appetite to sign more ISOs continues, especially if they can connect the processor to small and medium-size merchants, he said.
"We continue to focus on finding small and mid-size merchants in the United States through our ISO channel and our own direct-sales effort," Garcia told analysts. Global Payments added five ISOs during the quarter, but it did not disclose how many ISOs it works with overall.
Garcia said Global Payments historically signed smaller ISOs with more frequency than it did larger ones, a response to one analyst question regarding whether Global Payments was shifting its focus to smaller ISOs. "I'm not sure there's a shift there," Garcia said.
To that end, Global Payments continues to talk to ISOs with differing business models. Some assume full liability for the transactions, while others split the liability or take on none, Garcia said.
"Our strategy has been to service the [ISO] channel, and we are willing to support anybody on an introductory level, 0% liability program to a shared liability to full liability," James Kelly, Global's senior executive vice president and chief operating officer, told analysts.
In a report to investors, Robert P. Napoli, senior research analyst at Minneapolis-based Piper Jaffray & Co., says Global Payments faces a trio of risks: a consumer spending slowdowns; the potential for competition to force it to resell its processing services at a lower profit margin, and issues surrounding the integration of acquisitions.
Still, Napoli is relatively optimistic about the company. "We remain concerned about the economic backdrop, especially in the United States and United Kingdom," Napoli writes. Favorable pricing for transactions Global Payments processes for Canadian merchants and the boost in transaction volume from a joint venture with HSBC in the United Kingdom should help carry the company through a rough stretch in the United States, Napoli writes.
