TSYS: Can the Giant Card Processor Conquer the CU Market?
For many years TSYS built its reputation as a leading card processor for primarily large bank issuers or large retailers with their own branded card programs. Currently, TSYS works with only a few credit unions, including Navy Federal with its $4.3 billion card credit card portfolio.
But company executives explained that recent changes in the credit card industry has led it to reconsider its positioning in the market.
"Over a period of years, the top issuers competed aggressively with marketing techniques, such as mass solicitations and teaser rates, to gain greater market share to the point that many smaller banks felt they couldn't effectively compete. Recent regulatory changes have altered the landscape, and we believe the case for re-entry is there if we can demonstrate a compelling and profitable business case," said Philip W. Tomlinson, chairman/CEO of TSYS.
"This solution offers an alternative to the traditional agent-bank relationships that exist today. Through this solution, we have solved the problem of start-up costs and created a win-win for the financial institutions and for TSYS," said Tomlinson
TSYS has dubbed the new division TSYS Program Solutions and said it targets regional and community banks and credit unions interested in strengthening their positions in the card market or even re-entering it. Program Solutions will offer profitability analysis, portfolio management and campaign and marketing support combined with TSYS' core capabilities in data processing, card and statement production, customer care, analytics and loyalty, the company added.
A TSYS executive said the company will offer credit unions these products and services at a reasonable price on a one-to-one basis and not through a contract with group associations or CUSOs. This approach differs markedly from other large processors that generally offer credit unions their best prices only if they are part of a group service organization or association, often a CUSO or their own league.
Credit unions that process their card transactions with FIS usually join an organization sponsored by their league or an association called Card Services for Credit Unions, based in St. Petersburg, Fla., to get the best pricing on FIS services.
Credit unions that process on the First Data Corp. card platform can also join an organization sponsored by their league or one of three CUSOs, PSCU Financial Services, headquartered in St. Petersburg, Fla., TNB Card Services, headquartered in Dallas, or The Members Group, headquartered in Des Moines, Iowa.
"One of the key things I think we offer credit unions is the ability to eliminate the middle man," explained Wayne Johnson, managing director of the new division. He explained that TSYS processes such a large volume of transactions that the company doesn't see the need to aggregate volume to offer better prices, and removing the middle man will allow credit unions to keep more of their card income.
With more than 25 years of experience in credit card and other financial services, including working to set up the system of call centers that PSCU later incorporated, Johnson said that the new TSYS division will be well-suited to helping credit unions meet their high customer-service needs. He also stressed that credit unions should find the easy to use TSYS platform a welcome respite from its competitor's platforms.
Adil Moussa, an card industry analyst for Aite Group LLC, seconded Johnson's opinion, calling both the First Data and FIS card platforms "long in the tooth," "antiquated" and "clunky" compared to the TSYS most recent platform. Moussa also noted that the TSYS platform's relatively user-friendly architecture could make it a favored choice among credit unions that sometimes join card processing CUSO just to get technical help to read reports and activity logs from their processors.
"The thing is that the TSYS platform is nimble enough that it makes it relatively easy to make processing changes," Moussa said, and his observations were confirmed by a card executive with Navy Federal, which has used TSYS since 2000.
"TSYS flexibility makes it that much easier to change the types or amounts of rewards a given card might earn," explained Susan McClure, manager of credit card systems for Navy Federal's roughly 900,000 credit card accounts.
Johnson also explained that TSYS will offer credit unions pricing that was every bit as attractive as other processors, with the added incentive of not charging credit unions for inactive accounts.
"TSYS will only charge credit unions for the accounts in their portfolios that are actually active and making them money," Johnson said, adding that this will also serve as an additional motivation for TSYS to help credit unions convert inactive accounts into active ones.
Ondine Irving, a credit union card consultant who often helps credit unions cut expenses in their credit card programs, said that if TSYS can make good on Johnson's claim, it could give the processor a strong competitive advantage.
"That could be huge for some credit unions," Irving said. "Sometimes I am able to sit down with a credit union and identify thousands of dollars in charges that they should not have had to pay" because of dormant accounts that are still included in their processing bills.
But for their part, none of the other card processing organizations that Johnson indicated were clearly TSYS targeted competitors felt too worried about the new kid on the block.
Chuck Fagan, chief sales officer at PSCU, noted that FDR, the processor that PSCU uses, had gone "head to head" for credit union business against TSYS and had seen a couple of larger credit unions, including BECU, convert from its platform to FDR's. BECU converted away from TSYS to FDR in 2005 and, at the time, did not comment on its reason for the change.
Further, Fagan and other card processing executives noted that the company was coming late into a market where customer service tailored to credit union concerns is key. Fagan also pointed out that PSCU had also begun to offer payment products unrelated to cards, such as electronic bill pay and home banking, that moved the CUSO out of being only a card payments processor.
Robert Hackney, the president of CSCU, shared a similar opinion, noting that the card organizations like CSCU had years of experience working with and getting to know credit unions while TSYS was going to have to ramp up its organization to do the same thing.
"I really don't see anything that they say they will do that isn't already being done already," Hackey said.
Scott Wagner, executive vice president of TNB Card Services, added that he had known Johnson and some of the other executives in the new TSYS effort and respected them but added that he doubted TSYS would be able to offer credit unions the same levels of targeted marketing assistance with their card programs. Credit unions get more value from belonging to organizations like TNB than just better pricing, he said.