Merchants Will Be the Winners in the Fed’s Debit Scheme, Global’s Boss Says

Observers of the payments industry who wonder how the Federal Reserve’s proposed rate reductions for debit card acceptance might be received by the nation’s biggest processors heard an unequivocal answer early Tuesday from at least one of them.  “Any time the cost of acceptance goes down, it’s a positive for our customers,” said Cameron Bready, chief executive of Global Payments Inc. “Any benefits will get passed on to our customers.”

The Fed unveiled last week a proposal to reduce by 31% its longstanding ceiling on the main component of debit card interchange fees, from 21 cents per transaction to 14.4 cents. The proposal, for which the Fed is seeking comments over a 90-day period, would cut the main component of debit card fees for merchants for the first time since the cap was put in place more than a decade ago.

Bready, who was speaking to equity analysts to review his Atlanta-based company’s September-quarter performance, added that the cost reduction, if implemented, will likely lead to a market in which merchants will gain and processors competing for debit share will see margins shrink. “Any benefits will get competed away in the market over time,” he noted.

Bready spoke as the merchant-solutions unit of Global Payments, the company’s largest division, notched a 19% quarterly increase year-over-year in adjusted net revenue, to $1.73 billion. Discounting EVO Payments Inc., a big processor Global acquired in March for $4 billon, as well as other factors like dispositions, revenue for the merchant business still climbed 9% in the quarter, the company said. “Unless we find ourselves in [another] pandemic, this model is built to grow,” Bready said. “We’ve got a growth model that will [help us] grow at attractive rates.’

Partly for that reason, Global’s top management said his company is not likely to seek out more acquisition candidates beyond any it’s talking to currently. “From an M&A standpoint, our pipeline is full,” said chief financial officer Josh Whipple. Added Bready: “M&A is going to have to be pretty compelling to compete at these levels with buying back our own stock.”

One of the growth drivers Global is counting on is its relatively new “profacs” strategy. Profacs are payment facilitators that rely on Global for key functions like merchant underwriting and chargeback management. “It’s ISVs that need more control over the [merchant] boarding experience,” Bready said. “They lack expertise.” Payment facilitators, or payfacs, are entities that allow merchants to process transactions on the payfac’s merchant account.

All told, Global registered a total of $2.23 billion in adjusted net revenue for the quarter, up 9%, across its two divisions, merchant solutions and issuer solutions, with the latter registering 6% growth in adjusted net revenue, to $520 million. That yielded an adjusted operating margin of 45.7%, up 50 basis points, while earnings per share grew 11% to $2.75. By mid-morning, Global’s stock was up nearly 2% from Monday’s close, to almost $106 per share.