Payment Firms’ Returns Belie the Economic Gloom

Shadows darken the recent economic news, but early third-quarter reports from payments-industry companies paint a much sunnier picture. The big card-issuer and merchant processor Total System Services Inc., for instance, on Tuesday said it was increasing its dividend by 43%, its first dividend increase in five years. Last week, Visa Inc. boosted its dividend by 47%. And The Western Union Co. reported an uptick in its main business, consumer-to-consumer payments.

For TSYS, the third-quarter news was especially welcome after several hard years for its credit card processing business as issuers curtailed credit and the loss of some clients. Bank of America Corp. deconverted much of its card file and is converting its merchant accounts to the BofA/First Data Corp. joint venture, Bank of America Merchant Services (BAMS).

“This time last year, the year before, I really thought all my hair was going to fall out, and most of it has, apparently,” TSYS chairman and chief executive Philip W. Tomlinson quipped at a conference call with analysts late Tuesday when asked about how economic conditions are affecting his company. He added that the “economic problems are not over,” but he believes there is too much pessimism. “A lot of people are having a hard time being optimistic about the sun coming up tomorrow. I’m not having that problem. I think we’ve got an awful lot to be optimistic about.”

Tomlinson noted that his company still faces plenty of headwinds, including turbulence in some international markets, but his optimism springs in large part from improving earnings. Columbus, Ga.-based TSYS reported net income attributable to common shareholders of $58.1 million, up 27% from $45.7 million in 2010’s third quarter. Revenues increased 6% to $459.7 million from $433.2 million a year earlier. Earnings exceeded analysts’ expectations and TSYS upped its financial guidance for 2011.

The North American card-issuer processing unit saw a 13% increase in cardholder transactions to 1.87 billion. Accounts on file grew 6% to 341.9 million from 293.8 million in 2010’s third quarter. Segment revenues increased 5% to $243.9 million and operating income jumped 29% to $68 million.

TSYS’s merchant unit processed 1.26 billion point-of-sale transactions in the third quarter, down 6% from a year earlier. Chief financial officer James Lipham said the decline was the result of deconversions, especially BAMS. Excluding the deconversions, transactions would have increased 5%, he said. Segment revenues fell 2% to $122.9 million while operating income dropped 13% to $27.4 million.

Englewood, Colo.-based Western Union, where consumer-to-consumer transactions generate 84% of revenues, reported Tuesday that total third-quarter revenues increased 6% before currency adjustments to $1.41 billion from $1.33 billion last year. Net income grew only 1% to $239.7 million, but it still exceeded analysts’ expectations when one-times are excluded. The C2C transaction tally was 57.6 million, up 5%, and consumer-transaction fee revenues grew 5% to $922.2 million.

Western Union said it has 1.2 million prepaid cards in force and 13,000 U.S. locations where its cards are sold.

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