TSYS Signals Progress for Its Vital Line of Small-Business Processing Services

Total System Services Inc. (TSYS) late on Tuesday said it has now deployed “thousands” of its new Vital point-of-sale devices, which were launched in January. The product is “showing strong out-of-the-gate momentum,” said M. Troy Woods, TSYS’s chief executive, during a call with stock analysts to discuss the Columbus, Ga.-based company’s first-quarter results.

Management also singled out GoPoint, a service TSYS launched in March with wireless carrier T-Mobile US Inc. to compete in the market for mobile POS business. Aimed at small businesses, the service features single-price processing from TSYS, with same-day funding at no additional charge, and support for mobile card readers.

“The combination of T-Mobile’s scale and reach combined with our innovative platform is a game changer for expanding Vital’s addressable market,” Woods said, according to a transcript of the call.

Vital is important to TSYS’s strategy as it represents the processor’s effort to penetrate the small-business market and compete with rivals ranging from Square Inc. to First Data Corp.’s Clover unit. Shortly after launching Vital, Woods said TSYS had set “aggressive” goals for the service, which is based on technology the company gained with its June acquisition of iMobile3. He did not indicate on Tuesday’s call whether results so far were meeting those expectations.

Woods also reported that TSYS’s prepaid business, NetSpend, has conformed to sweeping regulations that came into effect April 1 with the Consumer Financial Protection Bureau’s 1,600-page prepaid rule. The rule sets rigorous standards for matters ranging from error resolution to fee disclosures to account information to overdraft features.

Compliance was “a long arduous journey,” Woods said Tuesday. “Congratulations to so many people in our consumer solutions group for all the hard work to get it to the finish line. It was implemented on time, no real issues. Everything so far is working as expected.”

In January, TSYS executives had warned that compliance with the CFPB rule’s complicated structure could result in “headwinds” that could cut prepaid revenue by $60 million to $65 million this year, though they believed that with new products the company could reduce that impact to about $35 million, with a $25 million hit to operating income. The company on Tuesday did not quantify an impact, if any, from the rule.

“Getting to this point has been a challenging journey for the entire industry,” Woods said. “But [compliance] is an important step which enables our consumer solutions business to differentiate itself from new competitive threats as well as from some existing players with less diversified value propositions.”

With NetSpend as a base, the company indicated it has larger plans in store. Asked about competing with deposit-like products from Square Cash and PayPal Holdings Inc.’s Venmo service, for example, TSYS senior executive vice president Kelley Knutson said the company has near-term plans for new services. “We’re … going to be moving more and more into the whole money-movement space and virtual-accounts space at the back end of this year,” he said. “So I think later this year we’ll be in a position to talk about some of the newer relationships and some of the things we’ll be progressing in those two areas in particular around virtual accounts and money movement.”

For the quarter, TSYS reported a 5% year-over-year increase in net revenue to $980.3 million. Total revenue was $1.03 billion, also up 5%. The company’s merchant-solutions unit, which includes merchant processing, posted $343 million in net revenue, up 8.1% year-over-year. The unit now represents 35% of total net revenue, with the rest accounted for by the issuer solutions and consumer solutions units.