TSYS CEO: No Target Breach Exposure at Our Company

Total System Services CEO Phil Tomlinson took time out from discussing record revenue during the payments processor's Jan. 28th earnings call to proclaim his company safe from the slate of recent data breaches that have afflicted Target and other retailers.

"I want to address the Target situation because the question is burning in your mind," said Tomlinson at the start of the call. "TSYS has no involvement in the Target issue or any of the other breaches that are announced daily."

Tomlinson, who called Target a "wonderful long-term TSYS client," did not provide details on how TSYS has avoided exposure to the Target breach, which has caused worries across the entire retail category. About 40 million card accounts may have been exposed during the Target breach, as well as 70 million other customer records. Nearly half of all U.S. banks are reissuing cards.

"I have empathy for [Target]," Tomlinson said, also saying TSYS is safe from other recent breaches. He did not name other retailers, though Neiman Marcus has also suffered a recent breach and Michaels is investigating a possible breach.

Tomlinson's not the only executive to distance his company from the Target breach. American Express CFO Jeff Campbell also assured investors during a recent earnings call that Amex was shielded from the Target breach.

For the fourth quarter, TSYS' revenue was $600.8 million, an increase of 25.4% over 2012's fourth quarter earnings. For the full year, total revenue was $2.1 billion, an increase of 14% over 2012. Net income attributable to common shareholders was $65.7 million, an increase of about 8%. For the year, net income attributable to common shareholder was $244.8 million, an increase of 0.2%. For 2014, the company is projecting total growth in revenue of 17% to 19%.

It was the first time the company's yearly revenues passed $2 billion, a milestone partly driven by the impact of TSYS' 2013 acquisition of the prepaid card company NetSpend, which has boosted TSYS' ability to tap the prepaid card market.  

TSYS signed 80 new prepaid clients in the fourth quarter, and the total NetSpend/TSYS prepaid network now includes more than 1,800 businesses, said Troy Woods, TSYS's president and chief operating officer. TSYS and NetSpend's prepaid clients include PayPal, Intuit, CVS, Walgreens, Regions Bank, Family Dollar and others, he said. NetSpend has contributed nearly $208 million in revenue to TSYS, which helped push the company over the $2 billion revenue mark for the year, Woods said.

TSYS will continue its pursuit of other prepaid initiatives, such as an option to load tax refunds onto prepaid cards. This was a successful program in 2013, Woods said. "It's given us another established base of cardholders," he said.

The company also plans to continue its ongoing migration to direct merchant acquiring over indirect merchant acquiring via third parties, Tomlinson said, adding TSYS was responding to a payments processing industry trend toward direct merchant acquisition by processors. The direct acquisition market is a $12 billion in the U.S., and the third-party acquisition market is about $500 million, executives said, adding the indirect market is getting smaller while the direct market is expanding.

2013 was the first year that more than half of TSYS' merchant segment income came via direct acquiring as the company moves toward a goal of 80% by the end of 2014, the company said.