Rapid Growth Puts Acquiring at 25% of Sales for Gateway CyberSource

CyberSource Corp.'s acquiring business now accounts for fully a quarter of revenue for the Mountain View, Calif.-based provider of gateway and fraud-management services for e-commerce merchants, the company announced today. That represents significant growth from a year ago, when the fledgling acquiring business, in which the company offers and supports merchant accounts for clients in addition to funneling card transactions to processors, accounted for 12% of revenue. “We're happy with the traction we're getting with global acquiring,” William S. McKiernan, chief executive of CyberSource, said in a conference call with analysts to discuss the company's fourth-quarter results. McKiernan also drew attention to continuing fallout from the notorious case of CardSystems Solutions Inc. Citing a $300,000 in legal and banking fees as well as due-diligence expenses related to CyberSource's failed attempt to buy the assets of CardSystems, McKiernan pointed to a legal action CyberSource has filed to seek recovery of at least some of that loss. CyberSource signed a letter of intent late last summer to buy the assets of CardSystems for an undisclosed price when the troubled Atlanta-based merchant processor, which had been the victim of a massive and widely publicized breach of its data center, suddenly announced it was being sold to Pay By Touch Solutions, a San Francisco-based company specializing in biometric payment systems (Digital Transactions News, Oct. 17, 2005). “We're out $300,000 from that transaction,” McKiernan said in today's conference call. “To the extent we've got a legal claim to recover that money we're going to do that. The legal team is proceeding.” CyberSource filed suit against CardSystems and its board of directors for breach of contract and other charges Oct. 21 in the Superior Court of California for the county of Santa Clara. No further developments have emerged surrounding the suit, a CyberSource spokesman says. Had it been able to consummate its deal with CardSystems, CyberSource would have greatly augmented its acquiring business, since the processor had agreements with multiple independent sales organizations and processed for 120,000 merchants. As it is, CyberSource's acquiring business is closely watched because of the company's close ties with partners who are themselves acquirers and refer merchants to the company for gateway connections. CyberSource ended 2005 with 900 merchants in its acquiring portfolio, up 200 over the third quarter. The business, which CyberSource has been quietly building over the past few years, generated $11 million for the company in 2005, up from $2.4 million in 2004. It derived $3.7 million from acquiring in the fourth quarter, 25% of its $14.9 million in total sales. Questioned by analysts about possible conflicts with acquiring partners, McKiernan was at pains to put such ideas to rest. “We never do anything to harm the relationships we have with our partners,” he said. “We're very candid with them that we're in the acquiring business.” McKiernan further said CyberSource has so far seen no ill effects from eBay Inc.'s $370-million acquisition last year of VeriSign Inc.'s payment gateway (Digital Transactions News, Oct. 10, 2005), even though the online auctioneer's PayPal processing service is integrated into CyberSource's gateway. “I'm a paranoid guy, I worry about everything,” he said. “[But] I don't think that [deal] will affect the current relationship we have [with eBay and PayPal].” In total, CyberSource processed 192.7 million transactions in the fourth quarter, up 51% from the year-ago period. For the year, it handled 637 million transactions, a 46% increase over 2004. Its overall client base grew by 1,800 in the last quarter of 2005, to a total of 13,000 merchants.