Now that new Federal Reserve Board rules essentially have cut in half the interchange portion of the merchant acquirer expense for many debit card transactions, Global Payments Inc. plans to share “a significant amount of this” with its merchant clients, the company’s top executive told analyst during an Oct. 4 conference call to discuss fiscal first quarter earnings.
However, not all merchants are equal, stressed Paul Garcia, Global Payments chairman and CEO.
“There are big merchants and there are tiny merchants, and for anyone to suggest that a little merchant would have the same deal as a big merchant, it's just not commercial,” he said.” I don't think even little merchants expect that.”
Some processors, including Heartland Payment Systems Inc., that have “pass-through” pricing policies that pass along all savings from reduced interchange have used the new Fed rule, which took effect Oct. 1, as a marketing tool (
Over time, the competitive nature of the industry will dictate “that we all share this appropriately with the merchant,” Garcia said.
“It is clearly our position that over time, this gets competed away anyway,” he said. “So I believe our position is that we're going to share a significant amount of this, all of it with lots of people, and that I think that will put us in a very competitive position, number one. But I also think our position is not all merchants are created equal.”
Although Atlanta-based Global Payments anticipates the net effect of the rate reduction to be positive, the benefits will be “transitory,” Garcia said, noting he will give more details concerning the effect when the company reports second quarter earnings results in January.
In terms of what the independent sales organizations are going to do with their pricing, a conservative assumption would be that they are going to be more aggressive, Garcia said. “Our own portfolio [includes] big guys and medium-sized guys, which is a very different footprint,” he said.
And not all merchants will benefit from the new rates, regardless of what their processors do, Garcia noted. Merchants with an average ticket that is less than $10 are going to see their rate go up about 30% on the interchange level, particularly for Visa debit card transactions, he said.
“It's certainly not as advertised, particularly by some of our competitors,” Garcia said. “But not everyone is going to get a rate [decrease] even if you give 100% of it back.”
Garcia also noted that Global Payments does not plan to change its ISO strategy, despite a suggestion from one analyst that First Data is cutting back on its ISO relationships.
Thought he would not comment on what a competitor might be doing, Garcia suggested little significant momentum exists with any processors signing each other's ISOs.
“It's kind of stabilized,” he said. “So the ISOs continue to be a strong driver for us in terms of top line and continue to be a double-edged sword on the margin side. But at the end of the day, they produce some lovely earnings, and I think it will continue for some time.”
Citing strong execution across each of its businesses, Global Payments said fiscal first-quarter revenue grew by 23.3%, to $542.8 million from $440.1 million during the same period last year.
Net income for the period ended Aug. 31 was up 29.6%, to $64 million from $49.4 million. Diluted earnings per share rose 29.5%, to 79 cents from 61 cents.
U.S. revenue rose 12.4%, to $287.4 million from $255.6 million, while revenue from Canada grew 12.3%, to $91.2 million from $81.2 million.
Helped by the company’s entrance into Spain in December, revenue in Europe rose 75.3%, to $129.4 million from $73.8 million. Asia-Pacific revenue totaled $34.7 million, up 17.6% from $29.5 million.
In midafternoon trading Oct. 5, shares of Global Payment stock were selling at $40.47, down 1% from the previous day's $40.85 closing price.
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