FIS Logs a Flat Quarter And Avoids a Question Regarding Credit Card Routing

As FIS Inc. prepares to dispose of a majority interest in its merchant-acquiring unit, the big processor confronts other key questions regarding potentially favorable developments in the payments business. Still, its top brass proved reluctant early Wednesday to discuss those questions, one of which touched on opportunities the proposed Credit Card Competition Act may offer the company.

All systems are go at FIS for the Jacksonville, Fla.-based company to sell a 55% interest in its Worldpay merchant processor to the Chicago-based private equity firm GTCR, a deal the company announced July 6.

The Worldpay transaction, expected to close by the end of the first quarter next year, will funnel at least $11.7 billion in cash to FIS. “Worldpay will remain an important partner and distribution channel for FIS,” said FIS chief executive Stephanie Ferris during a call held to discuss her company’s second-quarter results. “We’re not hearing any concerns. We have a proven track record that we can do these types of transactions and have it be value-enhancing.”

The deal will leave FIS with its banking and capital markets business, which accounted for nearly two-thirds of its $3.7 billion in second-quarter revenue. This unit, which manages card programs, transaction networking, and other key functions on behalf of financial institutions, could prove increasingly critical with developments such as the looming Credit Card Competition Act and the launch last month of the Federal Reserve’s FedNow real-time payments platform.

So far, FIS has 115 banks “in the pipeline” to participate in FedNow, Ferris said. “We’re seeing some early momentum, probably more than when RTP launched,” she added, without giving details. “RTP” refers to the Real Time Payments service launched in 2017 by The Clearing House Payments Co., a New York City-based company owned by most of the nation’s biggest banks.

Ferris also cautioned against “hype” banks may be hearing about FedNow. “There’s always a lot of hype, but FIS is there to enable anyone who’d like to use [FedNow],” she said.

FIS may also see benefits from a Fed ruling that took effect July 1 and clarifies financial institutions must enable at least two competing networks for online debit card transactions. The clarification, which some observers regard as long overdue, stems from the 2010 Durbin Amendment and is meant to ensure banks allow debit networks other than those of Mastercard and Visa to carry online transactions.

By implication, these competing networks would include debit systems such as FIS’s NYCE network, unleashing a potential flood of transactions. “We continue to see [this] as an opportunity for us,” Ferris told analysts on the call.

But Ferris was even more reticent about a potential opportunity that lies in the CCCA, dodging an analyst’s question regarding potential volume it could offer NYCE. The bill, which was reintroduced in Congress this summer after failing to get a vote last year, would require that the 100 biggest banks in the country offer merchants at least two competing networks for credit card processing. If one network is Mastercard, the other can’t be Visa. EFT systems such as NYCE are widely seen as the probable alternatives.

For the quarter, FIS saw $1.3 billion in revenue from Worldpay, up 1% net of acquisitions, bringing the company’s total revenue to $3.7 billion, up 3% organically. It forecasts flat growth, with revenue for the third quarter falling into the $3.64 billion-to-$3.69 billion range.