International marketing and delivery of bankcard processing services (TSYS).
Finley, John T.
CASE DESCRIPTION
This case depicts a US-based firm that painstakingly but
successfully markets its bankcard processing services to international
prospects. The case intends to enable the student to assess how
TSYS' success in the European market entry has taken place.
Following this assessment, students will study strategic considerations
related to the present market attained by TSYS in the United Kingdom and
Ireland and the possibility of further expansion of operations
internationally. The basic modes of supply are a combination of services
supplied from one country to another, corporate subsidiary setup of
operations and local personnel recruitment. Prior to the establishment
of operations, an extensive discovery, sales and marketing process
leading to contract negotiation takes place. The case describes the
strategic challenges facing a services firm and the integration
requirements necessary for successful market penetration. The case
concludes with an overview of the successes enjoyed by TSYS as a result
of these efforts and decisions to be made regarding subsequent actions.
Although TSYS has developed operations in several regions
internationally, the case concerns service delivery to the European
market and the potential of further expansion in that market. A firm
embarking on such exportation must be cognizant of and form entry
strategies bearing in mind the longer sales cycle and a need for direct
in-country representation to achieve product awareness. This case is
designed for a junior level undergraduate course in International
Business, International Marketing or International Strategy in which the
above topics may be covered.
The exercise is designed to be taught in a one hour class and is
expected to require two hours of outside preparation. The author
endeavors to provide an enhanced understanding of bankcard services
marketing and delivery with the corporate objective of long-term growth,
increased revenue generation and improved market share. Study of the
proliferation of services is notably important in light of the
continuous augmentation of this type of business endeavor versus
manufacturing. According to the 2004 World Investment Report published
by the United Nations Conference on Trade and Development, future
economic growth improvements will be patent particularly in "the
case of services, which make up the largest economic sector in many
countries, and which dominate foreign direct investment" (UNCTAD World Investment Report, 2004).
CASE SYNOPSIS
Service industry exportation entails a certain marketing-related
complexity not similarly encountered with the export of manufactured
goods. TSYS, a processor of bankcard transactions, boasts top notch
sales, technical and project management expertise that has effected
success in the services marketplace. Having thoroughly penetrated the
United States bankcard services market, TSYS set out to explore new and
international opportunities through a customized sales approach of
bankcard processing service offerings. Just as regulations and other
compliance issues vary from country to country, so do processing
requirements, rules and other idiosyncrasies of the industry on an
international level. The solution to ensure ultimate delivery is shaped
by several elements "unique to a services solution that
differentiate it from a [tangible] product solution" (Hill, 2003).
Speed to market is greatly affected in comparison with that of tangible
product offerings. Additionally, estimation and control of the
timeliness of deliverables tend to be more elusive thus requiring
increasingly skilled management of the process. TSYS' marketing
with regards to cross-border service bankcard provision involved dealing
with factors such as intangibility, customization requirements, lack of
inventory, time sensitivity and change and quality management. The case
is instructional in terms of the challenges such service firms may face
and how to respond.
INSTRUCTORS' NOTES
Recommendations for Teaching Approaches
As this case deals with a credit product that many students own,
will own, may use internationally etc., the instructor should
strategically segue into the case with a basic overview of the existence
of the credit card processing industry and the basic activities taking
place with the generation of transactions as portrayed in the case. The
credit card processing realm can be presented as the backbone to a
system that provides a payment infrastructure that allows for easier
payments internationally (e.g. when the students travel be it via study
abroad, on business or other form of personal travel). Within an
international business course in which barriers to trade are discussed,
the credit card and the credit card industry can arouse interest as a
mechanism that lowers barriers to trade and commerce in ways as a
payment option accepted on a global scale that does not require a
multitude of slow processes such as those barriers that exist with the
use of traveler's checks or the costs involved in time and fees
when exchanging foreign currency. The case can also be a catalyst to a
lively conversation about the existence and circulation of the euro in
most of Europe but not in the United Kingdom.
It stands to reason that the average cardholder is vaguely familiar
with some of the general occurrences associated with bankcard usage such
as the need to swipe the card at certain terminals, receipt of a
periodic statement, and the option of disputing transactions. The
students are, in many cases, stakeholders with regard to the product
itself and therefore curiosity may be piqued by the possibility of
learning a bit more about related operations surrounding the piece of
plastic found in many wallets. It is also crucial for undergraduate
students to place adequate focus on service industries along side
manufacturing industries as a large portion of the graduates may enter
the job market in a service providing firm.
CASE QUESTIONS
1. Explain some of the factors and challenges TSYS met upon the
launch of international expansion into the United Kingdom and Ireland.
Discuss the strategies employed in facing the challenges and
implications for a service industry manager of an internationally
expanding corporation.
Inherent with bankcard processing is the sensitivity of data. The
precision with which data is to be processed is essential in any market
related to bankcard processing services. The due diligence required when
exploring other markets entails the research of key channels, potential
markets, and areas in which to benefit from economies of scale or
strategically enhancing processing platforms to economically handle
multiple smaller markets. In the case of TSYS as a third party processor
(outsourced solution for banks), often has been the case that the larger
customers would observe the results of the processing of smaller
entities or portfolios and employ a "wait-and-see" approach. A
successful observation phase implied higher possibility of signing on
the bigger clients or the remaining portfolios of the larger banks.
The sales cycle deals with lengthy contractual discussions and
agreements as well as highly coordinated turning over of clients known
as the deconversion/conversion process. That is, when a bank changes
processor, there is a deconversion (from in-house or other vendor) and a
subsequent conversion (in this case, to TSYS) of the live cardholder
accounts. The processing of these accounts cannot be placed on hold
while outsourcing changes are underway thus the meticulous nature of
this process. The longer sales cycle is an aspect of the third part
processing environment. The initial discovery and contact with a
prospective client until the actual implementation can be from two to
five years. Therefore, a manifold-like pipeline is an important strategy
for TSYS because having multiple prospects in the pipeline enables TSYS
a greater diversification in terms of time and size of the prospects
that finally reach a decision.
2. How can TSYS determine the value of diversifying into multiple
markets beyond the United Kingdom and Ireland? Is there a point at which
further expansion becomes detrimental for an individual processing firm?
If so, how? Consider the inflows and outflows incurred related to the
United Kingdom/Ireland presence from table 10. The pricing in the
bankcard processing arena is rarely based on a standard worldwide price
due to the factors in the negotiation process and the level of
customization that each client requires. In the services industry, there
are not necessarily price increases due to distance as may be the case
when a physical product must be shipped or direct investment in assets
within the target market is a factor. The objectives of a firm as well
as market conditions have greatly affected prior pricing decisions. This
case depicts a firm using, in certain initial phases of a particular
market entry, a market-differentiated price-setting strategy based on
client-specific demand and potential rather than actual cost of the
sales process, establishment of operations and project management. This
can imply different foreign and domestic pricing. Further expansion may
become detrimental if the different platforms on which processing takes
placed are not managed properly and either cause reduced economies of
scale or data processing issues. The inflows and outflows illustrated in
table 10 provide a general notion of what expansion and maintenance has
entailed in terms of costs and cash flows.
3. Using the internet, explore the global reach of various credit
card processors such as TSYS, Certegy, First Data, Nova, Global
Payments, and Capital One and bankcard associations such as Master and
Visa. What does the future for the outsourcing for bankcard processing
portend? Consult the article: Simpson, Burney. (2004) A Powerful Group
Of Processors. Credit Card Management. 17 (8), 30-35.
The bankcard processors continue to be greatly influenced by the
merger and acquisition activity of the larger banks of the world. In
many cases, this activity has resulted in changes in vendors for the
processing service. There is presently a trend towards consolidation of
the market share among the major processors. The problem for some
processing firms, however, is the overall pieces of the pie are becoming
larger as the banking industry consolidates under fewer and fewer roofs.
Consider the merger and acquisition activities of JP Morgan Chase as
well as Bank of America and Fleet Bank. Such consolidation among large
banking corporations with sizeable bankcard portfolios implies that in
the near future there will be some processing firms with greatly reduced
market share and possibly some acquisitions or takeovers of the weakened
firms.
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TSYS, Inc. Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934, Fiscal year ended December 31,
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John T. Finley, Columbus State University