Pay By Touch Trumps Bid from CyberSource for CardSystems

Pay By Touch Solutions, which said over the weekend it will buy the assets of troubled card processor CardSystems Solutions Inc. for an undisclosed price, apparently trumped an earlier bid for the same assets from CyberSource Corp. CyberSource, which withdrew on Saturday the offer it had made Sept. 23, says it did not believe it could consummate the acquisition at the price Pay By Touch offered and in a timely manner. “Another player put in a bid we were not willing to meet,” says a CyberSource spokesman, referring to San Francisco-based Pay By Touch. The Mountain View, Calif.-based gateway for e-commerce sites says it also saw time running out on its bid. “We did not feel [CardSystems] was an asset that was appreciating,” says the spokesman, given that the processor faced termination in January of its link to the Visa USA network. A pending acquisition of the payments platform of CardSystems, which markets its card-processing services through independent sales organizations, also posed to CyberSource the need to hold on to those reseller relationships in the face of processor's imminent disconnection from Visa. “We were looking at card association deadlines and ISO relationships, there was urgency with those deadlines to be met and relationships to be held,” says the spokesman. He would not say how much CyberSource offered for CardSystems. A call from Digital Transactions News to CardSystems was not returned. Pay By Touch, which markets a point-of-sale authentication system based on electronic fingerprint scans, said in a statement that it plans to use the CardSystems platform, including the ISO relationships, to help sell its biometric system to more merchants. Last week, Cub Foods West Region's 65 stores became the latest chain to adopt the system, which allows consumers to pay by linking card and checking account data to stored templates of their fingerprints. This is not the first time Pay By Touch has agreed to buy a merchant processor. In March 2004 it bought InterCept Payment Solutions for $30.5 million, and has since folded it into the company as its merchant-services unit. The CardSystems deal could add another 120,000 merchants. Although its agreement with CyberSource forbade CardSystems from entertaining other bids, that restriction expired before the offer from Pay By Touch, says the CyberSource spokesman. CyberSource, which performs gateway and fraud-management services related to Internet-based card transactions for 10,000 clients, says it remains in the hunt for a deal. “We will continue to be open to appropriate deals when they are made known to us,” says the spokesman. The deal for CardSystems would have taken CyberSource deeper into the merchant-acquiring business and handed it a significant position in processing for card-present merchants. The company, which has been quietly building an acquiring business, now derives 20% of its revenue from acquiring, compared to 5% a year ago. In a massive hacking incident that came to light this spring, intruders were able to gain access to data on some 40 million card accounts at CardSystems. The break-in, the largest known incident of its kind, triggered decisions from both Visa and American Express Co. to terminate the processor's access to their networks. The original deadline from both Visa and AmEx was Oct. 31, but Visa in September granted an extension to Jan. 31 to accommodate negotiations surrounding the proposed CyberSource deal. That extension remains in place for the Pay By Touch acquisition, the company's statement says. A spokeswoman for American Express says its Oct. 31 deadline officially remains in place, but adds the company is “reviewing the situation.”