TSYS Sets ‘Aggressive Goals’ for Vital But Predicts ‘Headwinds’ From the CFPB’s Prepaid Rule

Top executives at Total System Services Inc. on Tuesday predicted big results from the Columbus, Ga.-based processor’s new Vital line of point-of-sale payment devices but also warned the onset of a massive federal regulation this spring will crimp prepaid card revenues in 2019. They also assured analysts on a conference call to discuss fourth-quarter 2018 results they see no changes in strategic direction at TSYS in response to the sweeping merger announced earlier this month between Fiserv Inc. and First Data Corp.

TSYS announced Vital earlier this month as the latest entry in a rapidly growing market for so-called smart terminals, or devices that typically feature big screens, beefed up processing power, and a wide range of business-management applications beyond payments. The new devices rely on technology TSYS picked up in June with its acquisition of iMobile3.

Vital will allow TSYS to compete in a hot but crowded business that includes newcomers like Poynt Co. and Square Inc. but also heavyweights like First Data with its Clover brand. “We have said for some time we needed a product,” M. Troy Woods, chairman, chief executive, and president at TSYS, told analysts. “It’s clearly our effort to go after the small-business market. It’s what we see that our customers want. We have very aggressive goals set for those products for 2019.”

TSYS, which processes transactions on both the merchant and issuing sides of payments, also runs a prepaid card operation through its Netspend unit that embraces some 5 million cards. But in April the Consumer Financial Protection Bureau’s prepaid rule takes effect after a one-year extension of the effective date. Long in gestation, the rule regulates matters ranging from error resolution to fee disclosures to account information to overdraft features.

On Tuesday, TSYS executives warned of “headwinds” from the rule, telling analysts they expect the extensive regulations could shave revenue from prepaid operations in 2019 by $60 million to $65 million. With some mitigating factors, such as business expansion or new products, the company could reduce that impact to about $35 million, with a $25 million hit to operating income, said Paul Todd, chief financial officer.

But while some analysts have speculated that the $22 billion Fiserv-First Data merger could push other processors like TSYS to seek out huge acquisitions, Woods was at pains Tuesday to assure analysts nothing could be further from his mind. “I don’t think anything has changed here at TSYS,” he said. “Our model has proven quite successful. We don’t see a need for a fourth leg to our stool.”

As for Jeff Yabuki, Fiserv’s chief executive, and Frank Bisignano, his counterpart at First Data, Woods extended congratulations. “We send our best wishes to Jeff and Frank. They’re both good customers of ours,” he said.

For the fourth quarter, TSYS logged revenue of $1.02 billion, down 20% year-over-year owing to the company’s adoption of a new accounting rule. Net revenue, however, grew 10.2% to $959.3 million. This figure excludes reimbursable items, interchange, and payment-network fees. For all of 2018, revenue totaled $4.03 billion, down 18.3% from 2017 because of the accounting-rule change. Net revenue came to $3.82 billion, up 12.2%.