Elavon’s New Boss Aims to Strengthen Processor’s Game Plan

Merchant processing is one of the bright stars in U.S. Bancorp’s firmament, and Mike Passilla, the new boss of the Minneapolis-based banking firm’s Elavon merchant-acquiring subsidiary, aims to keep payments shining.

Passilla on Monday became president and chief executive of Atlanta-based Elavon, which serves 1.2 million merchants in North America and abroad generating $200 billion in annualized charge volume. He succeeded Stuart C. Harvey Jr., who left to become chief executive of Ceridian Corp., a payroll and human-resources services firm that owns payment processor Comdata Corp. and prepaid card provider Ceridian Stored Value Solutions. Passilla joined Elavon in 2007 and most recently was executive vice president in charge of global business development.

Passilla now heads a key unit of a bank that has emphasized payments for more than 20 years with not just merchant acquiring, but also ATM management and commercial cards in addition to consumer credit and debit cards. Many of U.S. Bank’s peers bailed on payment processing in the 1990s and in the early 2000s because, according to the conventional wisdom, margins were too thin and it was hard to keep up technologically with the fast-growing third-party processors. Things didn’t get any easier when the financial crisis hit about three years ago, but payments traditionally have and still are paying off for U.S Bank. The Payment Services segment produced $180 million in net income in 2010’s first half, or 23.5% of $766 million in consolidated earnings. Higher net revenues and lower credit losses more than tripled payments income from $54 million in 2009’s second quarter.

Merchant processing alone generated $320 million in revenues in the second quarter, up 15.1% from $278 million a year earlier. “It’s a recurring revenue stream,” Passilla tells Digital Transactions News. He attributes the strong contribution of payments to the parent company’s revenues and profits in recent years to “the management and style of U.S. Bank in the [financial] downfall, and before the downfall.”

For now, Passilla isn’t planning any dramatic changes in Elavon’s strategy, or if he is, he’s keeping them close to the vest. His immediate goals are to maintain and strengthen the basic elements of Elavon’s game plan that he inherited from Harvey, a strategy that has largely worked. They include a focus on airlines—clients include 72 carriers—all the way down to thousands of small and mid-sized merchants recruited through 170 independent sales organizations. “We’re perceived as a flight to quality,” Passilla says of Elavon’s ISO relationships.

Besides card acceptance, Elavon offers automated clearing house services and was one of the first acquirers to roll out a payment product that included the back-office conversion (BOC) code that lets retailers or processors working for them convert checks in their back offices. “We are one of the leaders in electronic checks,” says Passilla.

Elavon has been an active buyer of small and regional banks’ merchant portfolios. The typical multiyear agreement calls for the selling bank to refer business customers to Elavon for merchant processing. The company also is one of the acquirers Discover Financial Services and American Express Co. use to sign merchants for acceptance of their brands (Digital Transactions News, March 10, 2009). Passilla wouldn’t give numbers, but says many new Elavon merchants want to accept more than just Visa and MasterCard. “We certainly lead with the all-card option,” he says.

Elavon also will continue to pursue international growth. Its merchant base breaks down to 900,000 in the U.S., Canada, and Puerto Rico and 300,000 abroad. In May Elavon, State Bank of India and Visa Inc. announced a joint venture in India. Last September, Elavon bought Citigroup Inc.’s Diners Club portfolio of 75,000 merchants in Western Europe.

In partnership with Spain’s Grupo Santander, one of the world’s largest banks, Elavon processes for merchants in Spain, the Caribbean, the United Kingdom, and, under their most recent deal announced in February, Mexico. Passilla won’t say if anything new is cooking with Santander but adds, “We have a very healthy mutual relationship. If Santander would invite us to go into other markets, we would be willing to listen.”

Before Elavon, Passilla served as president of North America for Inforte Corp., a Chicago-based business-analytics company. He is a graduate of the University of Notre Dame and earned an MBA from Northwestern University’s Kellogg Graduate School of Management.