A lemons to lemonade processor

As the United States undergoes unprecedented financial turmoil, ISOs must balance competing desires. On the one hand, they want to hunker down and protect what they have - merchants, offices, staff and bank accounts; on the other hand, they need to keep businesses functioning day-to-day and plan for the future as well.

It is a difficult balancing act that Andrew Rueff, Senior Vice President of Corporate Development at TransFirst Holdings Inc., recognizes. "This is a relationship business, and TransFirst's focus is to provide industry leading services and expertise to ISOs and agents looking to grow in this economically challenging environment," he said.

Founded in 1995 as ACS Merchant Services, TransFirst delivers transaction processing and payment technologies to financial institutions and merchants. Headquartered in Dallas, it has operations in Colorado, Nebraska, Kansas and New York. The company indicated it processes $30 billion annually for more than 160,000 merchants and 1,000 financial institutions.

In 2000, the company changed its name to TransFirst as part of a recapitalization effort by private equity investment firm GTCR Golder Rauner LLC's GTCR Fund VII. In 2007, another private equity firm, Welsh, Carson, Anderson & Stowe, acquired TransFirst from GTCR. According to Rueff, the acquisition took TransFirst to the next level.

"The new partnership with WCAS has energized the management team and reinvigorated the thought process," Rueff said.

While TransFirst had been adding senior executive and sales reps before the latest acquisition, the company added more afterward. Now TransFirst boasts talent formerly employed at many of the industry's leading companies, including Bank of America Corp., Elavon Inc. and First Data Corp.

A relationship business

TransFirst stated it has more than 800 employees and partnerships with more than 100 ISOs and merchant level salespeople (MLSs). The company's services range from traditional merchant offerings to Internet marketing programs; it believes it provides ISOs advantages in the form of competitive pricing, innovative products and merchant retention programs.

Because the company has the financial resources to help ISOs get started in the industry, manage their growth through effective sales programs and ultimately exit through portfolio sales, TransFirst "is quickly building a reputation as the partner to trust for flexible, profitable reseller programs," Rueff said.

Innovative agent programs

TransFirst offers a variety of MLS compensation programs, including upfront money, revenue sharing and residuals. "TransFirst has and will continue to be very flexible in tailoring programs for individual MLS agents/ISOs," Rueff said.

The company is also working on new compensation programs. Rueff noted that Steve Rizzuto, TransFirst's President of Independent Sales Services, has designed innovative programs for agents that attract new ISOs to TransFirst.

In addition to monetary compensation, Rueff said other benefits to ISOs include account retention and lead generation programs, merchant Web advertising, and merchant cash advance. The company also offers telesales support to enable its agents to extend their sales reach and build client rosters.

Positive outlook

Like the payments industry as a whole, TransFirst has not been immune to the recession's effects. The company has seen growth stagnation in some of its customer segments. But Rueff maintains TransFirst is well situated financially to ride out the downturn. Additionally, the company is taking a proactive approach.

"We are working with our partners and merchants to assist them, as they deal with the uncertainty of the current economic environment, through programs that include cash advance, residual restructuring and portfolio profitability management," Rueff said.

One solution is TransFirst's Revenue Sharing Alliance (RSA) program. TransFirst purchases the portfolios of ISOs and banks, which provides those entities with new revenue sources and an opportunity to earn upfront cash.

With the influx of working capital, ISOs and banks can get their sales teams back to selling while businesses and financial institutions still earn revenue on existing portfolios, the company noted.

"The program can significantly bolster the revenue to the bank or ISO over the life of the contractual relationship," Rueff said. "We find that the business generated through the RSA partnership far exceeds what the partner was able to achieve historically, while the cost of sales and support is on TransFirst."

Growth now and beyond

TransFirst has a history of growing its business through acquisitions. In 2001, it acquired Money Tree Merchant Services. The next year it purchased the third-party agent business of BA Merchant Services LLC, as well as PulseCard Inc. and DPI Merchant Services.

In 2004, it bought Payment Resources International and the third-party processing division of Fifth Third Bancorp's FTPS group.

TransFirst plans to keep growing through acquisitions, but with a different angle.

"In the past, our M&A [mergers and acquisitions] efforts were focused primarily on adding specific market niches and on achieving scale to lower our average cost of servicing," Rueff said. "Now our strategy is much more targeted and specific. We have achieved scale; now we are focused on maximizing scale."

The company is exploring services it can bring in-house and sell to customers to help them maximize revenue: stored-value and gift card programs, for example.

"In addition to acquisitions that add innovative technology and products, we will continue to focus on attractive market niches," Rueff said. "An example is a recent opportunity we evaluated in the nonprofit processing space."

Health care-enabled

Another niche for TransFirst is the health care market. By acquiring PulseCard, TransFirst entered this space and has focused on transaction processing for health care providers - one of TransFirst's most stable and best performing market segments, TransFirst stated.

Rueff said the health care market differs from other markets because consumer spending for health care is usually needs-based.

Since purchases are less discretionary in nature, (people with high blood pressure require blood pressure medication, for example), TransFirst believes the health care market is not as dramatically affected by the recession. TransFirst has also found the health care market less competitive since it requires a specialized approach that not many processors have.

However, Rueff said boarding health care providers is more difficult than most other market segments. It is no small feat to walk into a doctor's office and convince him or her to switch processors. Generally, doctors only consider switching when they update other types of services, such as insurance or practice-management software.

"If ISOs want to sell in this market, it makes sense for them to partner with someone like us who knows the sector and has expertise about the products and services the doctor wants to sell," Rueff said.

He added that TransFirst has had the most success in the health care sector by partnering with value-added resellers.

In addition to health care, TransFirst also provides specialized services for public entities, including state and local governments, universities, and nonprofits. It processes tax payments, parking tickets, vehicle registrations and driver's license renewals.

No worries

The current economy makes for an anxious and worrisome time. But it also can be seen as an opportunity for experienced companies prepared to handle it.

Rueff believes TransFirst is that kind of company with its commitment to customer service, technological innovation and flexible pricing.

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