The global payment system is undergoing a tectonic change with the swift change in technology. The changes are resulting in new challenges as well as in opportunities. Traditionally, the system engaged the services of a niche group of stakeholders consisting of cardholders, businesses and concerned banks. The critical link between these stakeholders is a payment processor and this is where Payment Data Systems Inc. (NASDAQ:PYDS) enters the scene. A processor is essential for ensuring that there is proper information flow between the acquirer bank and card issuing bank. Payment Data Systems is a third party processor system which changed the face of the payment processing industry with the innovative use of technological tools. Read more
The company is now in an expansion mode as it focuses on introducing new products and boosting its pipeline with acquisitions. Payment Data Systems recently announced the acquisition of Florida based Singular Payments LLC, which is a prominent player in the merchant billing software segment. The biggest draw for Payment Data Systems is that the acquisition will help it in extending its services in a new segment viz. Healthcare market, which is the main focus of Singular.
The acquisition will also let Payment Data Systems scale up its volumes as Singular is reported to have processed 2.5 million transactions worth nearly $400 million through its systems in 2016. In contrast, Payment Data Systems processed over $2.9 billion worth of transactions during the same time period. Thus, the acquisition will let the company further scale up its business in a meaningful manner.
Apart from this, Payment Data Systems will also have access to state of the art payment processing technologies possessed by Singular. One of the noteworthy technologies of Singular is Card Connect. This technology lets the payment processor offer better security for the transactions as it does not require dial-up connection at credit card terminals for providing point to point merchant processing encryption. The technology is expected to be integrated with current offerings of Payment Data Systems and thus lead to synergies.
Apart from technology, Singular acquisition will also let Payment Data Systems leverage its sales channel for further boosting its revenue stream. While the operational details of the deal are available, the companies did not disclose the financial structure of the collaboration. However, it is expected that Payment Data Systems will be paying consideration in cash and stock. In absence of these details, it is premature at the moment to fully analyze the impact of the acquisition. However, operationally, the deal is expected to have positive impact for Payment Data Systems.
Payment Data Systems has shown strong revenue and net income trend in the recent past, which is in line with general growth and optimistic scenario of electronic payment ecosystem. The integration of technological tools is leading to a new fintech paradigm. Payment Data Systems is optimally positioned to use these new developments to drive up its revenue and boost its position in the market. The company is still midsize and hence possesses the nimbleness required for fast adaptation of new trends.
In the recent past, the company has taken a number of steps to consolidate its position in the growing yet highly competitive market. On infrastructure side, Payment Data Systems implemented its real-time debit card services. This foray has helped the company in diversifying its business. These pre-loaded cards have been received favorably by the users as these help them in staying within their budgetary limits. Payment Data Systems, on the other hand, is using its money sharing feature for cross selling other financial products.
The prepaid card system is also attractive for the company as Payment Data Systems draws its substantial revenue from low end customers. While the company is focused on maintaining its low cost operations to provide value oriented services to its clients, it is also looking to organically grow its business by customizing and fine tuning its existing technological solutions. It has also made several management changes, including the appointment of Louis Hoch as its new CEO, to reflect its renewed strategy for driving future growth.
However, the company stock price trend in 2016 failed to mirror its operational growth. During the past 12 months, the stock price has plummeted over 37 percent. The stock price decline may mainly be attributed to higher costs incurred on account of increasing scales and its acquisition spree. In 2016, the company had finalized a number of collaborations. These acquisitions and collaborations are expected to start yielding results in the current and upcoming year.
The stock price is currently more that 50 percent down from its 52 weeks high of $3.80. However, looking at the company’s pace of making changes and its acquisitions, even conservative estimates point to a solid rally in the near future. The current low price of the stock thus offers an interesting opportunity for investors to initiate new positions with mid to long term horizons.