Benefiting from the bounty

If you put talented, seasoned payment professionals in a room, they'll talk payments and make plans. And if you give them the latest industry data, a newspaper and someone with a knack for knowing what trends to capitalize on and when, all they'll need to establish a thriving company is capital and more like-minded professionals, right?

In the case of Payment Alliance International, the answer is yes. And after PAI was on solid footing, the company began a strategic acquisition campaign. This meant not only selecting which companies to buy and when, but also determining how to smoothly integrate the merged companies' processes, sales agents and merchant accounts.

Building an empire

The details to master in any such undertaking are daunting, but PAI, which was founded in 2005, followed an aggressive acquisition plan, adding at least one new company or bankcard portfolio every quarter until 2008. By then the company had 30,000 merchant locations and 30,000 off-premise ATMs.

The company now has a corporate office in Louisville, Ky., an operation center in West Palm Beach, Fla. (primarily for the POS and bankcard products), an operation center in Jackson, Miss. (primarily serving the ATM division) and a large ATM sales office in Billings, Mont. This is in addition to sales offices across the nation.

Some of PAI's acquisitions illustrate the forward thinking of its executive team. In the third quarter of 2006, it acquired Confluent Technology, which brought tools that PAI could pass down to its market partners and use internally. Confluent's target vertical was education. It provided online data manipulation for school districts. It also had restaurant and bank versions of its program. John J. Leehy, President and Chief Executive Officer of PAI, and Greg Sahrmann, the company's Chief Operating Officer, co-founded and grew Confluent before forming PAI.

PAI made its foray into the ATM business when it acquired Netbank Payment Systems in 2007. Netbank had both bankcard portfolios and off-premise ATMs. Don Apgar, PAI Senior Vice President, National Partner Sales, said, "'07 was really a huge acquisition year for us. We bought a bunch of bankcard portfolios, and I think we did a total of seven or eight acquisitions in '07, followed by the acquisition of ATM Express in March of '08."

The company now boasts more than 33,000 ATMs and claims to be the number one deployer of ATMs in the nation. After the ATM Express acquisition, PAI focused on consolidating and leveraging the market partners it had gained through its acquisitions to establish strong distribution channels with bank agents, direct sales, ISOs, merchant level salespeople (MLSs) and value-added resellers (primarily of ATMs and service and installation of same). "That left us with about 700 market partners," said PAI Senior Vice President Donna Embry.

Leading with experience

With its bankcard and off-premise ATM divisions, PAI believes it is well-positioned to profit from the three major types of transactions: cash, debit cards and credit cards. And it took vision on the part of leadership to reach this point. Embry said the PAI executive team is like a "perfect storm" of professionals. "There is no one in this industry that I admire more than John Leehy," she said, adding that his energy, vision and enthusiasm are "just contagious."

Embry, a 43-year industry veteran, received the Midwest Acquirers Association's Lifetime Achievement Award at the organization's seventh annual conference held near Chicago in July 2009.

"I've always considered myself a student of the payments industry, and I guess I've earned my degree now," Embry said. "And it's such an interesting business because you get to touch on everything from consumer behavior to economics and technology. I feel lucky to have had this payments playground, I would call it, almost for my whole career."

Growing through ATMs

PAI serves a large number of convenience store accounts. It can offer these locations fleet fuel processing, ATMs, bankcard processing, age verification services and prepaid cards in addition to traditional check services.

For merchants, ATMs provide a source of revenue because they share in a portion of the transactions through a surcharge or, in some cases, a portion of the residuals.

The company has seen an increase in off-premise ATM sales and service since the economic downturn and ensuing credit crunch.

Embry said no one was prepared for the extent of the economic downturn, but many who have been in the business for a while knew that "when people tighten their belts and they quit using credit cards, what do they use? Cash. Where do they get the cash? ATMs."

Embry believes there is always opportunity in any economy. "Tech changes, but human behavior is human behavior," she said.

With off-premise ATMs, banks can open up virtual branches within retail locations. Banks working with PAI pay the company to service, install and brand the ATMs. PAI performs a bank identification number block on the machines, which allows customers to use ATMs branded by their banks without incurring convenience fees. PAI uses both independent sales agents and a direct sales force to market the following products and services:

• Credit and debit card processing
• Payment card security
• ATMs, branded ATMs
• Merchant cash advance
• Check guarantee
• Electronic check conversion
• Automated clearing house services
• Check 21 services
• Gift and other prepaid cards
• E-commerce card processing
• PC-based processing
• Business-specific packages
• Referral program

PAI is able to deliver more value to merchants and sales agents alike because of the transaction volume it handles, according to the company. Merchants can get ATMs at a lower price, and agents benefit from the aggregate volume discount and the strong support of a large ATM division. Working with PAI, MLSs can participate in ATM processing in several ways. They can purchase the ATM and either place it at a merchant location or sell it to the merchant. Once the ATM is installed, the merchant, agent or PAI can assume responsibility for servicing the machine.

The agent and merchant can negotiate the convenience fee. "If I'm an agent and I own and service that machine, I'm going to get the lion's share of that fee," Apgar said. "If I'm the merchant and I buy the machine and fill it myself, well, I'm going to get the lion's share of that fee - and then all the possibilities in between." Embry said some companies "are better in the bankcard space than us, but there are none that are bigger in the ATM space than us."

No boundaries

Embry believes there are no limits when it comes to products that can be brought to the table in this industry. In doing business, she follows her instincts, and she said they rarely let her down. PAI is exploring new opportunities in self-service kiosks, mobile payments and remote deposit capture.

"We recently have worked with NCR Corp. to release a capability to use our distribution center to distribute Blockbuster Express DVD kiosks, which are perfect extensions for the grocery and food store environment," Embry said. "And we're looking to work further with self-service partners to expand those types of self-service, stand-alone locations."

Self-service DVD kiosks are hot, according to Embry. "It's sweeping our markets and our distribution channels like crazy, like candy," she noted. She sees convenience stores as the ideal place for multifunction kiosks that cater to unbanked consumers. PAI is also looking into card issuing opportunities in such spheres as private-label prepaid, network-branded prepaid cards (including payroll cards), health care payments and health savings accounts.

Research indicates that the post-baby boom generations are embracing mobile technology and are eager to avoid standing in lines to purchase products and services. And PAI is ready to ride that trend. "The way the next generation will evolve, they'll be tied to self-service type devices and instant gratification that they don't necessarily get unless it's downloading content over the Internet," Embry said.

Joining the party

PAI is always in the market for new sales partners. "We have a couple different compensation plans based on the individual ISO or MLS, what they're looking for and what level of sales activity they're generating," Apgar said. He added that PAI offers an activation bonus and generous revenues share. According to Apgar, ISOs and MLSs working with PAI have access to diverse payment products and services, including the off-premise ATMs, and, perhaps more important, the less tangible qualities and capabilities the company embodies.

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