Payment Data Systems (OTCBB: PYDS)

A Look at the History of Payment Data Systems:

Payment Data Systems was formed in 2003 as a payment processor with a focus to deliver payment services to large merchants that have recurring billing.  Today, Payment Data Systems processes payments and delivers bill payments for some of the largest companies in the United States.  Payment Data Systems is a network independent level one payment processor holding the highest level of certifications from the card associations.

Payment Data processes payments has over 1,000 corporate clients including many churches, insurance, utilities, charities, apartment complexes, senior living facilities and eCommerce companies.

Payment Data securely processes multi-million dollars of payment transactions each month.  Payment Data has proprietary technology and systems that gives the company a competitive advantage in the marketplace.

 Payment Data considers itself to be a company that can provide a seamless and comprehensive set of products and services for virtually any payment opportunity with multiple entry points for services.

PYDS: A Leader in Mobile Payments

Payment Data System expects to become a leader in mobile payments through its development of the iRemotepay application for the iPhone, iTouch and iPad. 

 

Michael Long, CEO, said, “The fourth quarter was a tremendous quarter for us. Our ACH processing volumes more than doubled the dramatic growth we experienced in the third quarter and December’s credit card processing was the best month in the history of the company. This growth has led to a dramatic, positive increase in revenues, gross profit, operating income and net income both for the fourth quarter and the year. We look forward to reporting record earnings for 2011.” 

 

The Business of Payment Data Services

First – Payment Data’s primary operations consist of functioning as a processor of electronic payments for other companies. The Company provides integrated multiple channel electronic payment processing (credit and debit cards and ACH) services to merchants and businesses.  This is done through the Payment Data Systems Company.

The Automated Clearinghouse Network is a nationwide electronic funds transfer system that is regulated by the Federal Reserve and provides for the clearing of electronic payments between participating financial institutions – ACH processing. Payment Data’s Automated Clearinghouse processing services enable merchants or businesses to collect payments electronically using e-checks to transfer funds instead of traditional paper checks. An e-check is an electronic debit to a bank checking account that is initiated at the point-of-sale, on the Internet, over the telephone or via a bill payment sent through the mail and is processed using the Automated Clearinghouse network.

Payment Data’s credit card-based processing services enable merchants to process both traditional card-present, or “swipe,” transactions, as well as card-not-present transactions. A traditional card-present transaction occurs whenever a cardholder physically presents a credit or debit card to a merchant at the point-of-sale. A card-not-present transaction occurs whenever the customer does not physically present a payment card at the point-of-sale and may occur over the Internet, mail, fax or telephone.

Payment Data’s electronic payment processing may take place in a variety of forms and situations or payment channels. For example, Payment Data’s capabilities allow merchants to accept check data and converts it into an e-check or receive card authorization at the point-of-sale, have their customer service representatives take e-check or card payments from their consumers by telephone, and enable their consumers to make e-check or card payments directly through the use of a web site or by calling an Interactive Voice Response telephone system.

Payment Data also has pass through credit card rates from MasterCard, Discover and Visa which allows the Company to compete with anyone in terms of pricing – should that be necessary.

 

FiCentive

FiCentive: Payment Data Services’ FiCentive is a wholly-owned subsidiary to customized prepaid card programs for corporations, financial institutions, affinity groups or any organization that needs to deliver a finanicial incentive to their customers, vendors or employees.

FiCentive is a prepaid card program processor that allows for the issue of branded prepaid cards to companies that have a variety of needs for these card types in a number of environments such as retail locations, rebates, employee incentives, travel, per diem, and corporate incentives.

FiCentive has an impressive list of partners including, VISA, MasterCard, Discover and American Express.  FiCentive can issue cards with all association brands.

 

 The following are highlights of an example of one of their products that are being administered through FiCentive:

 Example: Corporate Incentive Card Programs

These cards are used by companies have a need to incentivize prospective customers and existing customers to do business with them.

These cards are attractive to a variety of business types such as home improvement, clinical trials, car dealerships, etc.

• The Prepaid MasterCard  Corporate Incentive Card offers the flexibility to be
  used as either an employee incentive or as a consumer promotion.
• The program provides ways for corporations to provide a company an efficient, economical,
  flexible, and easy-to-administer alternative to traditional incentive programs for their partners,
  vendors, customers and agents.
• The incentive program delivers significant cost savings while improving the efficiency of an
  organization’s incentive programs. They give the company’s stakeholders a real choice in how they
  are rewarded.
• The incentive program help streamline the costs and time involved in managing incentive
  programs. Unlike traditional reward programs, there are no gift certificates to purchase, no
  premiums to choose, no catalogs to administer.

By giving customers real choice in how they are rewarded, the incentive card lends greater recognition value to a company’s customers and effectively promotes brand awareness and loyalty. By clearly separating rewards dollars from a purchase discount, the FiCentive Customer Incentive card significantly adds a greater sense of customer appreciation.

The card is also an efficient and effective way to recognize employees, promote new products and services, or offer a convenient alternative to rebate checks as prepaid cards are cost-effective, practical and can be customized to match a company image for increased brand awareness.

 

HOW THE PROGAM WORKS

The company uploads a corporate image to FiCentive. FiCentive creates a card design for them. They then choose one of the standard greeting card carrier designs or can create a custom card carrier. FiCentive then sends the company an inventory of cards, or the cards can be mailed directly to their customers or employees if desired. If they wish to maintain an inventory of cards, they can load funds real-time using their web based tool.

FiCentive is also among less than a hand full of providers that can do on-demand printing of cards, so card inventory and card waste is eliminated by only ordering what is needed and with 24 hour availability, cards are in the hands of their customers quickly.

 

BENEFITS

Reward Employees

• Assisting in recognizing and retaining valuable employees

• Showing appreciation to employees on special occasions (e.g., holidays)

• Giving employees a card that’s safer and more flexible

• Reinforcing and positioning employer as a source for reward

 

Reward Existing & Prospective Customers

• Support sales promotion and rebate programs

• Build loyalty with existing customers

• Driving preference for prospects and encourage purchases

• Offering an option that’s more enticing to customers and prospects.

 

 

ZBILL, Inc.

Zbill is another wholly-owned subsidiary to deliver private branded online bill payment services to companies that have a need to couple online bill payment services to their prepaid card programs.  Zbill also operates an online payment processing service for consumers under the domain name www.billx.com through which consumers can pay anyone.   The Zbill offering  is truly “bank independent” in that a consumer does not need to use or have a traditional bank account to process bill payments.  With Zbill, the consumer can pay anyone.  Zbill maintains an electronic connection to over 3,000 of the largest companies/billers in the USA.  Everyday, Zbill transmits payments for large companies like:

AT&T, Comcast, Time Warner, Direct TV, Verizon, Chase, T-Mobile and thousands more.

 

The following are a few highlights of their capabilities that are being administered through the subsidiary Zbill.

The product offered through Zbill can be private labeled to an online bill payment site for the benefit of their customers.    The Zbill offering  is truly bank independent in that a consumer does not need to use or have a traditional bank account to process bill payments.  It is also a true pay anyone model as the system allows for electronic processing of payments to those payees that are enabled to receive and process payments electronically.  A hard check is generated where it cannot be done electronically.  An example of each would be a Cable-TV provider and a doctor.

ZBill has created a suite of proprietary applications that facilitate:

• Private labeled electronic bill payment portal for Credit Unions, Community Banks, and card
  issuers.
• Phone payments – convenience fee model – IVR.
• Agent payments – CSR based payments – convenience model.
• Web payments – hosted form based, auto generated,  one time and recurring.
• Remittance & real-time pending payments notifications.
• Electronic lockbox services – MC RPPS.
• Electronic bill payment capabilities to over 3,000 billers.
• Check printing services in three locations in U.S.
• Fast implementation times – as few as 10 days.

 

The Intellectual Property is Protected:

Payment Data retains a perpetual worldwide use license free of royalties and fees protected by the Payment Data Systems U. S. Patent number 7,021,530 for business method for managing and processing bill payment via a stored-value debit card, check card, signature debit card, PIN based card or automatic teller machine (ATM) card from a variety of access points.

 

About the Public Company: Payment Data Services, Inc. (OTCBB: PYDS)

• Management reports approximately 3,500 shareholders.
• All public filings are current, as it is a fully reporting company in good standing on the Over The
  Counter Bulletin Board.
• Over 50% of the shares are held by insiders.

Revenue Highlights and Projections

•  Annual Revenues were 2.6 million dollars at the end of 2010
• The revenues for the first three quarters of 2011 were 2.99 million dollars.
• The company reported record revenues and income for the third quarter of 2011.  Revenues were 1.4M and net income was 263K.
• The company has already announced that its transaction growth for the fourth quarter is up 118% over the third quarter.
• Also, the company announced its ACH volume for the year was 800% higher in 2011 as compared to 2010.
• The company confirmed in its last press release that it will report record earnings for 2011.
•  Payment Data enjoyed a net profit from Operations in the third quarter of 2011.  That is expected to extend into the 4th quarter and beyond.

Payment Data Services is debt free and has entered into a period of income generation.  The Company expects this to continue with solid organic growth in all segments of their business.

 

 

The Unbanked and Other market Opportunities

The Unbanked and Other market Opportunities

There are considerable growth opportunities left in the merchant acquiring segment of their business.  This growth will come for the continued selling of their value added payment services into their market of large billers or through the effective execution of our acquisition strategy.

However it would appear that the “new” market opportunity is within the prepaid card market.  This market of particular interest due to the fact there an estimated 53 million Americans that are unbanked and an additional 109 million are under banked (Source: MRI data).

The Pelorus Group has suggested that the significant growth will occur in use of prepaid debit cards, especially in the form of prepaid cash and payroll cards.  Average reload of a prepaid debit card is now $350, which mirrors the average amount of spending per month on a credit card.

Additional research suggests the following:

• An estimate suggests there are over 22 million cards in circulation and the number is expected to
  grow to 540 million cards by 2014.
• By year-end 2010, analysts predicted the prepaid market will exceed $71 billion in dollar volume.
• Increased use of prepaid products and already high use of credit and debit cards has led to a
  decrease in the amount of cash or checks used for consumer purchases from 80% in 1994 to 66%
  today.

The large amount of unbanked and under banked consumers also represents a sizable Hispanic market which they plan to serve through focused prepaid card programs.   Many of their programs are highly attractive to the unbanked and under banked ethnic communities.  An example would be the Hispanic community.

The following attributes can be attributed to that group:

• An estimated 40 million Hispanics in U.S. plus an estimated 12 million undocumented.
• An estimated $17 to $20 billion is transferred from the U.S. To Mexico each year.  This figure is
  actually higher, since it does not include monies transferred cross-border to Mexico by hand.
• Total estimated amount for all of Latin America and the Caribbean is $53.6 billion
• Western Union and MoneyGram are the primary conduits, plus a hand full of smaller services.

 

Competition

The Independent Sales Organization (ISO) marketplace has a large number of competitors but it is important to know that the vast majority of the ISOs are not true processors as is PDS.  These ISO companies sell under their brand but are only reselling companies such as First Data Corporation, Paymentech or Payment Data.  Therefore, they do not enjoy some of the competitive attributes of Payment Data such as pass through rates, LEVEL 1 Processor and PCI DSS Compliance status. These ISO generally do not have any technology per se and only use the capabilities of the processor for which they are reselling.  The merchant agreement between the retailer and the processor actually carries the name of the processor and not that of the reselling ISO.

This ISO group consists of typically private companies.  Therefore, providing meaningful comparators is beyond the scope of this document.

 

Growth Strategy

It is this Reseller group in which Payment Data is likely to focus their acquisition activities.  There are literally thousands of ISOs that would be candidates for acquisition activities.  Their monthly net revenues will range from very small ($5.000) to the very large (greater than $100 million).  The initial targets will be in the $50,000 per month net revenue.

While Payment Data’s growth has and continues to be very solid by building upon the Company’s own resources, they believe that by coupling a strategy of acquisitions with the organic growth they can achieve significant improvement in shareholder value.

 

Acquisitions could also include companies that add to and expand the product offerings and have positive EBITDA

Portfolio acquisitions provide an immediate positive effect to both the top line and bottom line.  For example if a portfolio of $50,000 is purchased then Payment Data moves the full amount to  the bottom line with no expenses associated with the revenue.  This avoids any conversion expenses or management expenses since they are, through their technology platforms, attached to all processors in the U. S. and therefore there is no need to convert from the portfolio’s current processor to Payment Data’s primary processor.  This also avoids disturbing any acquired customer.

Portfolios are readily available for purchase and range in sizes from very small ($5,000) to very large (in the millions of dollars) in monthly net revenue or residuals.  Portfolios can be purchased at approximately 20 to 30 times monthly net residuals or 1.6 – 2.5 times annual net residual ($1,000,000 to $1,500,000 per portfolio).  Not all portfolios are purchased with cash. Some could be purchased using PDS stock as the currency.

 

Management Team

Michael R. Long

Co-founder, Chairman and Chief Executive Officer

Michael Long has more than 30 years of senior executive management and systems development experience in six publicly traded companies, as well as operating a systems consulting business. Before assuming the top position at Payment Data Systems (Formerly Billserv, Inc.), Michael was vice president of information technology at Billing Concepts, the largest third party billing clearinghouse for the telecommunications industry. Michael’s career experience also includes the national financial services industry business development head for Accenture (Andersen Consulting) and several executive positions in publicly traded telecommunications and financial services companies. He has conducted studies for several hardware and software companies, which resulted in strategic decisions that led to improved market share and high growth.

 

Louis A. Hoch

Co-founder, Vice-Chairman, President and Chief Operating Officer

Louis Hoch has more than 19 years of management experience 14 of which at a senior executive level of public companies. Louis is an expert in payment processing and service bureau operations. In additions to his duties as the CEO of FiCentive, Louis remains responsible for all operations and strategy for Payment Data Systems, Inc. in his role as Vice-Chairman, President and COO and co-founder.  Louis previously co-founded Billserv, Inc., the industry leader in Electronic Bill Presentment and Payment, where he was the company’s President and COO. Billserv reached a peak market cap of over 500 million while on NASDAQ national market exchange.  Billserv is now owned by American Express.  Louis has held various key management positions with U.S. Long Distance (NASDAQ:USLD), Billing Concepts (NASDAQ:BILL) and Andersen Consulting (NYSE:ACN).  Louis holds a BBA in computer information systems and a MBA in international business management, both from Our Lady of the Lake University. Louis is currently a director on the advisory board for Our Lady of the Lake University Business School. He is also an executive lecturer in the school’s weekend MBA program. He is a board member of San Antonio Children’s Museum. Louis holds inventor status on U.S. Patent 7,021,530 “System and method for managing and processing stored-value cards and bill payment therefrom”. He has other published patent pending applications which are all related to the payment processing industry.

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