Services are the road to growth—and more importantly—differentiation among similar looking providers. As Yahoo Finance points out below, payments industry processors and acquirers are stepping up their services portfolios not only because of growth, but just as importantly, for higher margins.
Visa (V) is focusing on co-branded offerings, customized offerings for corporations, and data processing. In the December quarter, the company saw a 7% rise in service revenue to $1.6 billion compared to $1.5 billion in the prior year’s quarter. This was mainly due to higher global payment volumes and pricing actions.
Service revenue is primarily generated from payment volumes on Visa-branded cards for purchased goods and services. Visa’s data-processing revenue came in at $1.5 billion, a 7% rise on a YoY (year-over-year) basis. It was backed by continued strong growth rates in processed transactions. The company’s data-processing revenue includes revenue earned for authorization, network access, clearing, settlement, and other maintenance and support services.
Global Network & Merchant Services segment
American Express’s (AXP) Global Network & Merchant Services segment operates a global payments network that processes and settles proprietary and non-proprietary card transactions. The division acquires merchants and provides point-of-sale products, multichannel marketing programs and capabilities, and services and data. These products and services leverage the company’s global closed-loop network.
The division’s total revenues net of interest expenses fell by 4% to $1.4 billion in the fourth quarter of 2015. This formed 17% of the company’s total revenues compared to $1.5 billion in the prior year’s quarter. On a constant dollar basis, the division’s revenues rose by 1%, mainly due to increased revenues from its bank partners.
American Express, through its Global Commercial Services segment, offers global corporate payment services to large and mid-sized companies. These services include expense management and travel services through its Global Corporate Payments and Global Business Travel businesses.
MasterCard (MA) and Discover Financial (DFS) also generate less than 20% of their total revenues from data processing services such as clearing, maintenance, and other corporate services
Payments processing is typically a high volume-low margin business with hardly any differentiation. Customized services and customer focused applications provide much greater value for which users are usually willing to pay more. This is standard practice in every industry, and payments processors are discovering its benefits. Their customers are also looking for a more services oriented processing and acquiring package, so it’s really a win-win for both sides.
Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group
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