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.

REFERENCES

Certegy, Inc. (2005). "Certegy reports third quarter diluted EPS from continuing operations of $0.36, or $0.47 before direct merger and acquisition costs". Press Release 25 October 2005. St. Petersburg, FL.

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FirstData, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year ended December 31, 2004.

Frontline-Public Broadcasting Services. (2004). "Secret History of the Credit Card". program--http://www.pbs.org/wgbh/pages/frontline/shows/credit/

Global Payments, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year to end December 31, 2005. Interactive web version.

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Peng, Mike. (2004) Global Strategy. Thomson South-western

Simpson, Burney. (2004) A Powerful Group Of Processors. Credit Card Management. 17 (8), 30-35.

TSYS, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year ended December 31, 2003. F11 - F47.

TSYS, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year ended December 31, 2002. F10 - F41.

TSYS, Inc. Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, Fiscal year ended December 31, 2001. F8 - F18.

TSYS, Inc. (2005). "TSYS To Acquire Full Ownership of Vital Processing Services: Offers End-to-End Processing Services for Merchant Acquirers and Issuers". Press Release 18 January 2005. Columbus, GA.

TSYS, Inc. (2004). "TSYS Builds European Data Center". Press Release 6 October 2004. Columbus, GA.

TSYS Global Operations. (n.d.) Retrieved on 8 February 2005, from http://www.tsys.com/company/global_operations/index.htm

John T. Finley, Columbus State University