Profile: Global Payments Inc. (GPN)

Global Payments Inc., incorporated in September 2000, is a provider of electronic payments transaction processing services for consumers, merchants, independent sales organizations (ISOs), financial institutions, government agencies and multi-national corporations located throughout the United States, Canada, Latin America, the United Kingdom, the Asia-Pacific region, the Czech Republic and the Russian Federation. The Company serves as an intermediary to facilitate payments transactions, and operates in three segments: North America merchant services, International merchant services and money transfer. The Company’s merchant services segments target customers in many vertical industries, including financial institutions, gaming, government, healthcare, professional services, restaurants, retail, universities and utilities. Its money transfer segment primarily targets immigrants in the United States and Europe.

On June 30, 2008, the Company acquired a 51% majority ownership interest in HSBC Merchant Services LLP (the LLP), from HSBC Bank plc (HSBC UK). The LLP provides payment processing services to merchants in the United Kingdom and Internet merchants globally. On June 12, 2009, Global Payments completed the purchase of the remaining 49% interest in the LLP from HSBC UK. On April 30, 2009, the Company completed the acquisition of all outstanding stock of ZAO United Card Service (UCS), a direct merchant acquirer and indirect payment processor in the Russian Federation, from ZAO United Investments. On September 4, 2008, Global Payments Asia-Pacific, Limited (GPAP), the entity through which the Company conducts its merchant acquiring business in the Asia-Pacific region, indirectly acquired Global Payments Asia-Pacific Philippines Incorporated (GPAP Philippines), a company into which The Hongkong and Shanghai Banking Corporation Limited (HSBC Asia Pacific) contributed its merchant acquiring business in the Philippines. The Company owns 56% of GPAP and HSBC Asia Pacific owns the remaining 44%.

The Company conducts its merchant acquiring business using two different business models, direct and indirect. In the direct model, merchants are its end customers. The Company provides its merchant customers with the ability to accept card-based and check payments. It sells its services through multiple sales channels worldwide and targets customers in many vertical industries. Card-based payment forms consist of credit, debit, gift, stored value and electronic benefits transfer cards. Credit and debit card transaction processing includes the processing of Visa, MasterCard, Discover and JCB credit cards, cards issued by other card networks (such as American Express) and debit cards. The Company is the processing intermediary between the merchant, the credit and debit networks and the financial institutions that issue cards. Its services include a comprehensive offering, including terminal sales and deployment, front-end authorization processing, settlement and funding processing, customer support and help-desk functions, chargeback resolution, industry compliance, Payment Card Industry (PCI) security, consolidated billing and statements, and online reporting. The Company markets direct merchant services in the United States, Canada, the Asia-Pacific region, the United Kingdom and the Russian Federation.

Indirect merchant services provides similar basic products and services as the Company’s direct merchant services model, primarily to financial institutions and a limited number of ISOs on an unbundled basis, that in turn resell the Company’s products and services to merchants. These services are marketed in the United States and parts of Eastern Europe, primarily in the Czech Republic and the Russian Federation. Global Payments also offers sales, installation and servicing of automated teller machine (ATM) and point-of-sale (POS) terminals, and selected card issuing services, including card management and card personalization, which are components of indirect merchant services, through Global Payments Europe and UCS. Direct merchant services revenue is generated on services primarily priced as a percentage of transaction value, whereas indirect merchant services revenue is generated on services primarily priced as a specified fee per transaction or per service rendered. In both merchant services models, the Company also charges other fees unrelated to the number of transactions or the transaction value. The Company performs a series of services, including authorization, electronic draft capture, file transfers to facilitate the funds settlement and certain exception-based, back office support services, such as chargeback and retrieval resolution. It also provides credit card transaction processing for Discover Financial Services or Discover Card (Discover) and is designated as an acquirer by Discover.

North America Merchant Services Segment

During the fiscal year ended May 31, 2009 (fiscal 2009), the North America merchant services represented 69% of the Company’s total consolidated revenues, and included operations in the United States and Canada. In the United States, Global Payments sells its services via ISOs, a direct sales force, trade associations, agent and value-added reseller (VAR) referral arrangements, as well as its own telesales groups. Its ISO channel targets a variety of merchant types with a typical annual bankcard volume of $150,000 or less. The ISOs contract with the Company to provide processing and other services depending on the ISOs requirements. These contracts are multi-year and priced by service on a per transaction basis. The ISOs act as a third-party sales group selling Global Payments-branded merchant acquiring products and services, with the majority of Global Payments’ ISOs marketing direct merchant acquiring.

The Company’s direct sales channel receives qualified leads from its agent bank, VAR and trade association referral partners signing a variety of mid to large-sized merchants with annual bankcard volume above $300,000. Its United States revenue also includes check and gaming services and indirect merchant services. Its check products offer merchant customers risk management alternatives in the case of its verification and recovery offerings, or risk elimination in the case of its guarantee offerings, by using its internal and external databases of check writers to help decide whether the merchant should accept a check as the form of payment from a particular check writer. The Company’s check services products are part of its domestic direct service offering. Check guarantee services include comprehensive check verification and guarantee services designed for a merchant’s specific needs and risk adversity. This service offering guarantees payment of all checks that are electronically verified. If a verified check is dishonored, the Company’s check guarantee service generally provides the merchant with reimbursement of the check’s face value, and then it pursues collection of the check through its internal collection services.

In the specialized vertical market of gaming, Global Payment’s VIP LightSpeed software and VIP Preferred Advantage product provide the gaming industry with the tools necessary to establish revolving check cashing limits for the casinos’ customers. Its gaming products allow access to cash with high limits so that gaming establishments can increase the flow of money to their gaming floors. The Company derives revenue from its gaming products primarily based on a percentage of the transaction value. In Canada, the Company sells its services primarily through its direct sales force using its bank referral relationships. Unlike the United States, the majority of payment transactions in Canada are personal identification number (PIN)-based debit transactions.

International Merchant Services Segment

International merchant services represented 22% of the Company’s total consolidated revenues in fiscal 2009, and consisted of operations in Europe and the Asia-Pacific region. The Company’s business in Europe is primarily located in the United Kingdom, the Czech Republic and the Russian Federation. Its Asia-Pacific region includes 11 countries and territories: Brunei, China, Hong Kong, India, Macau, Malaysia, Maldives, the Philippines, Singapore, Sri Lanka and Taiwan. It has a direct sales force in the United Kingdom, the Russian Federation and the Asia-Pacific region, through which it primarily sells its services, while using its bank referral relationships. In the Czech Republic and the Russian Federation, the Company provides indirect merchant acquiring and other similar card services.

Money Transfer Segment

The Company’s money transfer segment provides consumer money transfer services. Revenue derived from its money transfer offering consists of its electronic money transfer services marketed under the Company’s DolEx brand to Latin Americans living in the United States. The Company has expanded its money transfer origination locations to Europe, and its settlement locations to Morocco, the Philippines, Romania and Poland. Money transfer represented 9% of its total consolidated revenues in fiscal 2009.

In a typical money transfer transaction, a customer visits one of the Company’s originating branch locations and pays a fee based on the nature and amount of the transaction performed on the customer’s behalf. Where applicable, the customer is quoted a retail foreign currency exchange rate when the money transfer transaction is requested. The customer will receive a receipt that includes the amount the beneficiary will receive, the retail exchange rate, money transfer fee, settlement location and total amount that was remitted to the Company. Global Payments earns additional revenue based on the difference between the retail exchange rate that is quoted and the wholesale exchange rate when the currency is purchased, which is in much larger denominations than the individual customer’s transaction.

The Company competes with Chase Paymentech, First Data Corporation, Bank of America Merchant Services, Moneris Solutions, Paymentech Solutions, TD Merchant Services, Royal Bank of Scotland, Barclays, Sberbank, Russian Standard Bank, SiNSYS, Euronet and Merchant Solutions.