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Pay By Touch Outbids CyberSource to Acquire CardSystems

Biometrics payments company Pay By Touch announced its intent to purchase all the assets of beleaguered third-party payment processor CardSystems Solutions Inc. following CyberSource Corp.'s withdrawing its offer for the company. After several weeks of negotiations, terminating the deal was fundamentally an issue of valuation, CyberSource spokesman Bruce Frymire said. "After a fair amount of due diligence, we arrived at a certain price, then another bidder, we now know who, came in with an offer that we weren't willing to meet."

CardSystems Timeline 2005

» June 17: News breaks that up to 40 million cards potentially compromised in CardSystems breach. (CardSystems later admitted to storing data against card Association rules.)

» July 18: Visa U.S.A. says it will no longer authorize CardSystems to process transactions on its network after Oct. 31, 2005. American Express Co. (AmEx) follows suit the next day.

» July 20: CardSystems retains AmbironTrustWave to perform a compliance audit and any required remediation.

» Aug. 31: AmbironTrustWave submits CardSystems Report on Compliance to Visa, MasterCard, AmEx and Discover. Visa and AmEx maintain their original position.

» Sept. 23: CyberSource Corp. announces intent to purchase CardSystems.

» Sept. 29: Visa U.S.A. extends deadline for cutting ties with CardSystems to Jan. 31, 2006.

» Oct. 15: CyberSource rescinds its offer. Pay By Touch announces intent to purchase CardSystems.

He said it's not unusual for this to happen, but it was unusual for CyberSource's initial letter of intent to be released so early in the process when both parties were still "feeling each other out."

CyberSource had announced in September its intent to acquire CardSystems, whose system suffered a security breach resulting in the compromise of up to 40 million credit and debit accounts. Following the breach, when CardSystems was also found to be noncompliant with the card Association's Payment Card Industry Data Security Standard, Visa U.S.A. said that after Oct. 31, it would no longer authorize CardSystems to process transactions on its network. However, upon the acquisition announcement (first from CyberSource, then Pay By Touch) Visa extended the deadline for CardSystems to Jan. 31 "for the sole purpose of helping to facilitate [the] planned acquisition."

Pay By Touch Merchant Services

What does a biometrics solution provider want with a payment processor? Pay By Touch's service allows consumers to pay for purchases or cash checks with the touch of a finger. With the acquisition, Pay By Touch will have access to all 120,000 of CardSystems' merchant customers as well as a direct connection to acquiring banks and ISOs.

"We are eager to optimize the existing sales and marketing channels that have produced exceptional growth for CardSystems over the past several years," said John Rogers, Founder, Chairman and Chief Executive Officer of Pay By Touch. "... Pay By Touch will work to offer its patented biometric products to CardSystems' ISOs as a new feature for their merchant base."

In 2004 Pay By Touch acquired InterCept Payment Solutions (IPS), which specializes in card-not-present transactions, and ATM Direct, which specializes in PIN-based debit transactions. Pay By Touch will combine these companies along with CardSystems into a new business unit called Pay By Touch Merchant Services. (Incidentally CardSystems CEO John Perry was the former head of IPS prior to the acquisition by Pay By Touch.)

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