Nova’s Deal for Southern DataComm Gives It a Hospitality Gateway

U.S. Bancorp's Nova Information Services Inc. merchant-acquiring subsidiary is diving headfirst into the increasingly competitive payment-gateway business with its pending acquisition of Southern DataComm Inc., a gateway with a big presence in the hospitality sector. Largo, Fla.-based Southern DataComm handles an estimated $50 billion-plus in annualized payment volume, according to president and founder Gary Eng. The company serves about 50,000 merchants and has a head count of 200, including more than 50 application developers who work on software systems that enable merchants to use one interface for connecting to the various payment networks and which integrate applications from so-called value-added resellers, or VARs. These VARs make specialized software applications for the point of sale or back-office operations such as inventory management and other functions, and they connect to the merchant's data-transfer telecommunications systems. Building those links itself is something Nova considered, but it's a job easier said than done, according to Nova president Stuart C. Harvey Jr. “The point-of-sale environment is becoming more complicated,” Harvey tells Digital Transactions News. “It would take us a very long time to do what Gary has done.” For Southern DataComm, a potential benefit of the deal is access to the huge Nova/U.S. Bank merchant portfolio?850,000 locations, including about 200,000 in Europe through Nova's Dublin, Ireland-based Elavon Financial Services unit. Heavy in airlines?about 80 in all globally, including American Airlines, Delta Air Lines, and Northwest Airlines?the portfolio also includes hotels and thousands of mom-and-pop retailers. Atlanta-based Nova has made about 150 acquisitions over the years, mostly of merchant portfolios. Thus, Harvey calls the Southern DataComm buy an “outlier” because that company is a technology provider, not an owner of merchant accounts. With an eye on broadening its presence in the retail sector, especially large, multilane stores, Southern DataComm in November completed its purchase of Ingenico Inc.'s line of eN-Concert payment applications. The Ingenico applications give Southern DataComm new capabilities in signature capture, management of bank-identification number (BIN) files, and in-house switching, according to Nova. Once the Southern DataComm deal is done, Nova will find itself the owner of a company in a formerly obscure industry that's becoming more competitive as acquirers fight for more relationships with merchants?sometimes in court. Heartland Payment Systems Inc., a big merchant acquirer with lots of restaurants in its portfolio, late last year sued a leading hospitality industry VAR, Micros Systems Inc., along with gateway Merchant Link LLC and Merchant Link's owner, Chase Paymentech Solutions LLC. The federal suit alleges that through a tying arrangement, Micros and Merchant Link force independent competitors such as Heartland to pay for the use of Merchant Link's gateway in order to process credit and debit card payments on the popular Micros POS platform (Digital Transactions News, Nov. 27, 2007). The beneficiary, according to Heartland, is Chase Paymentech, the No. 1 acquirer. Chase Paymentech and Micros deny the claims. Another prominent player in the gateway business with numerous hospitality-industry merchants is Shift4 Corp. (Digital Transactions News, April 28, 2005). Harvey would not comment in detail about his competitors, but says Southern DataComm's client base presents many opportunities for growth from merchants that don't use Nova. “We hope we can redirect some of that acquiring volume to [Nova],” he says. “We're in much better shape to offer a comprehensive vertical solution.” The parties would not release financial details of the deal, which is expected to close in February.