Outsourcer playing his cards right as Bank of Ireland quits venture
Despite BoI's withdrawal from the card processing venture, a bright future beckons as more banks outsource their card payments administration to this specialist firm
BANK of Ireland's decision to forsake co-ownership of the card payments' business euroConex came right out of the blue.
The bank stands to make a nice but as yet undisclosed profit from the ?40m sale proceeds, but its decision is at odds with the strategic thinking back in 1999 when the US payments specialist Nova chose Bank of Ireland as its European partner.
It is also interesting that Nova's new parent, US Bancorp, the fifth largest American bank, is pressing on alone with this venture, seemingly determined to build a major processing presence in Europe, as originally envisaged by both shareholders.
Through Nova, it is in the course of buying out Bank of Ireland and has also funded two acquisitions in the past couple of weeks. Polish card processor Cardpoint has been bought from AIB-owned Bank Zachodni WBK, followed last Friday by confirmation that Nova is buying Alliance & Leicester's merchant acquiring business in the UK.
These two deals are costing ?136m on top of the ?40m being paid to Bank of Ireland, which is, however, remaining a customer or sponsor bank of euroConex in terms of its own card transactions.
Billy Saunderson, who spent 30 years working for Bank of Ireland but who now runs euroConex, has no doubts about his ultimate parent's thinking.
"US Bancorp is totally committed to euroConex, the only business the bank has in Europe," he said. He is slow to criticise the Bank of Ireland, but concedes that its present management under Mike Soden has not been committed to the project for at least 18 months.
"Maurice Keane (chief executive prior to Soden) saw euroConex as being totally consistent with Bank of Ireland's growth plans, but Mr Soden is on record as saying he didn't believe in joint ventures," explained Mr Saunderson.
"Mr Keane was looking for ways to grow the bank, and saw the potential to leverage its payments' processing capability," he added.
EuroConex is headquartered in Cherrywood in south County Dublin, has its process operating centre in Arklow, and was set up almost four years ago. However, it has not quite lived up to the growth projections that were envisaged at the time.
The view then was that employment would have reached 800 at this stage, whereas euroConex currently employs 250. This figure will rise to 340 when the payment volumes flowing from the two businesses just acquired have been integrated into the Arklow set-up.
"I accept targets have not been met, but I am still extremely proud of what has been achieved," commented Mr Saunderson. "We broke even in the third full year of operation, and I'm confident we would have generated significant profit going forward even before these acquisitions."
He said that Bank of Ireland's loss of commitment was a factor in euroConex missing its initial targets. "We saw the first 12 months being devoted to building the technology infrastructure and new processing platform in Arklow," he explained.
"Then in year two we were to start to focus on acquisition opportunities, but the Bank of Ireland indicated they were no longer interested in a joint venture strategy or putting up additional investment.
"One shareholder was committed to make capital available, the other was not, so we focused on organic growth instead. We lost 18 months," he recalls with a hint of annoyance.
It would be wrong to solely blame the Bank of Ireland's change of heart though. In fact, Mr Saunderson admits that there were more fundamental reasons why the employment target fell short.
"Back in 1999, all I had in front of me was a blank piece of paper. Nobody had done this kind of venture in Europe before, so we didn't have much to go on," he explained.
"The dotcom boom was all the rage, and so naturally enough we envisaged that 300 of the new jobs would by supported by ecommerce activity over the internet. But the anticipated volumes of card-based transactions did not materialise," he added. Billy Saunderson was appointed chief executive officer of euroConex on its inception in June 2000. It is easy to see why. From January 1993 to June 2000, he was head of card services at Bank of Ireland.
There he had responsibility for all credit/charge card issuing and credit/charge/debit card acquiring in the Republic of Ireland, Northern Ireland and the UK.
Between 1988 and 1993, Mr Saunderson was head of personnel services at the bank. Prior to that, he worked in retail banking, administration, procurement and staff relations positions within Bank of Ireland, where he has worked since 1970.
Billy was a director of Europay International from 1993 to 1999, and a director of Centurion Card Services from 1996 to 2001, a wholly-owned subsidiary of Bank of Ireland through which the American Express business in Ireland is operated.
A Fellow of the Institute of Bankers, he graduated from Trinity College, Dublin, with a Masters of Science degree in Organisation Behaviour.
Once bitten, twice shy, you might think when it comes to forecasting. But Billy Saunderson is confident that the business will reach 500 employed by the end of 2006.
For one thing, he expects euroConex's recent acquisitions to spark off quite a bit of interest, especially among smaller and medium-sized European banks.
"A lot of these banks continue to process their own card transactions in-house, but this is a high-volume, low-margin business that is extremely costly for the smaller operators to run.
"They won't be able to afford the ongoing investment needed to keep their technology up to date," he suggested. He thinks the big banks may be slower to move, even though he says the central processors owned by them are "over staffed and not nearly as efficient as euroConex."
Mr Saunderson says there are four key strands to the euroConex business model.
Through organic growth or the recruitment of merchant acquirers (anybody who accepts payment by either a credit or debit card), the company has already 60,000-plus customers, including those from the two acquisitions.
Alliances are its second strand, and already euroConex's ability to offer a multi-currency conversion option has won a major contract with Spanish bank Santander Central Hispano.
Card holders operating in an unfamiliar currency, such as Americans transacting in the euro, can immediately see what their hotel bill, for example, is costing in US dollars.
He is confident of tying down a similar deal with an unnamed major French bank and with a couple of non-banks in the Benelux region.
Acquisitions form strand three, and more are in the pipeline, particularly in the Nordic region.
"I believe we're only at the beginning of the evolution in the industry in Europe. More opportunities will arise," he believed.
The fourth and final strand is outsourcing.
"Our preference is to buy the banks' merchant acquirers and for the banks to continue as our customer, but some don't want to see and they will prefer to outsource their processing business to us," he explained.