Expanding its merchant service solutions, on Tuesday, Total System Services Inc. (TSS) announced a strategic alliance with Caledon Card Services in Canada, in an attempt to provide end-to-end solutions for its merchants and partners. However, terms of the deal remain concealed.
Caledon is a payments technology provider in the rapidly growing eCommerce, tokenization and card-not-present areas. Meanwhile, the partnership is expected to help boost Total System’s market presence and its long-term growth strategy that also includes business diversification.
Moreover, through its alliance, Caledon’s merchants using Total System’s well-established interchange system can avail merchant support, risk management, authorization, capture, settlement and other payment related services. On the other hand, Caledon will also be able to send its dispute processing functions through Total System’s renowned dispute and chargeback processing services.
Hence, the alliance is expected to be mutually beneficial to both the parties, thereby directing diversified long-term growth, which is crucial for the card companies such as Total System, MasterCard Inc. (MA) and Visa Inc. (V) that are facing regulatory compliance issues on debit and credit card offerings.
As a result, Total System has been gearing up to boost its merchant acquiring business. Last week, the company also announced the acquisition of Atlanta-based merchant acquirer, TermNet Merchant Services, which is the 52nd largest merchant acquirer in the U.S. by dollar volume, according to The Nilson Report. However, the pricing of the deal remains undisclosed.
Furthermore, in January this year, Total System had fully acquired First National Merchant Solutions LLC (FNMS), thereby renaming it as TSYS Merchant Solutions (TMS).
Overall, we believe that although the complete acquisition of TMS and expansion into merchant acquiring services is expected to drive growth, sole dependence on it could be risky for long-term growth. In addition, we do not foresee any other substantial development strategy to drive earnings in the near future.
However, we expect Total System to benefit from the improving economy and generate healthy cash flow to achieve the guidance for 2011. This would also help the company to consistently deploy capital through stock repurchases and dividends, thereby retaining the investors’ confidence and market share.
MASTERCARD INC (MA): Free Stock Analysis Report
TOTAL SYS SVC (TSS): Free Stock Analysis Report
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