The Birth of Global Payments
The business combination that became my current employer.
A few years ago, I wrote “How To Start a Fintech” which detailed the first days of the National Data Corporation (NDC) which would go on to spin off Global Payments who would buy TSYS: my current employer. I’ve had this piece on Global Payment Systems sitting in my draft folder for over a year, and at the beginning of my career here, it seems only fitting to document the beginnings of this company.
For a payments company — or any network-based company — to grow, it must manage a combination of expanding network volume and increasing the amount of revenue which is generated from that volume1. Regardless of the option chosen, the network is reliant on the behavior of its customer base for growth.
There is, of course, another option: grow without relying on current customers.
“Inorganic growth”, mergers and acquisitions, is a quick way for network companies to grow revenues.2 Businesses can tap into new customer bases and markets for cross-selling and up-selling. It’s this well which NDC would return time and time again between its founding and eventual spin-off of Global Payments in 2000. The is a story about Global Payments. However, it doesn’t begin with NDC, but instead with the F-18’s manufacturer.
MAPP
Failure to Launch
In 1982, the aircraft manufacturer, McDonnell-Douglas, sold its Payment Services division to MasterCard3 which rebranded it to the Merchant Automated Point of Sale Program (MAPP) with the objective of providing automatic credit and debit card payment processing for merchants at the point of sale (POS). Filling this critical link in the card processing system in-house would make MasterCard more competitive as it tried to gain market share on Visa.4
But rather than a gold-rush of growth, MAPP floundered for 6 years without ever generating a profit. Recessionary pressures reduced card spending in the early 1980s, suppressing transaction volumes. Then as the economy picked up in the back half of the decade, MAPP was outclassed by other processors like NDC, TSYS, and American Express (later FirstData).
Turning the Ship Around
In 1988, MasterCard made the decision to replace all of the management for the group. The new managers were given the challenge of turning around MAPP or see it shut down.5 It was slow going at first, but over the following 6 years, the management team completed a full turnaround.
They managed this through turning over staff, sticking to long-term goals, and empowering employees to innovate. This let their sales team find their voice and gain market share. According to a Nielsen Report, at the end of 1990, MAPP ranked number five among the top electronic draft capture data processors.
MAPP had gone from struggling to support 20 million transactions across 48,000 terminals in 1986 to supporting more than over 200,000 terminals and processing 330 million transactions in 1991. This placed them in the top five largest electronic draft data processors.6 By 1996, MAPP was generating $4.2 million in net income on $38.5 million in revenues.7
NDC
A Decade of Growth, Then the Shoes Keep Dropping
While MAPP was thriving, NDC was just emerging from the hangover of the 1980s. The decade saw NDC explode onto the global scene with European and Japanese expansions. Through a series of portfolio acquisitions, an aggressive Japanese expansion, and new business lines, the company’s revenues grew 500% in just eight years. By 1987, they were the largest merchant acquirer in the world with an estimated 35% market share.8 They had suitors like H&R Block and Medco valuing NDC at +$400MM — around $1B today.
Then, like a Shakespearean tragedy, things began unravelling in 1988 and didn’t stop for almost five years.
June 1988, the Medco deal fell through with little public explanation.
November 1988 saw Eastern Airlines (acquired as a client from Chemical Bank in 1987) go bust, introducing a massive liability for refunds.
September 1989: Braniff Airlines folds. On the Braniff news, NDC would post an $8 million operating loss and see the share price fall 33% in a single day.9
December 1989: As if to add insult to injury, Japan — where NDC held an estimated 45% of the market — saw their markets collapse.
February 1990: NDC loses its largest customer and 10% of revenues. 10
Getting Back on Track
I would expect that we have lost some credibility in the marketplace with the financial community. — LC Whitney, NDC’s CEO (1979-1991) in a 1990 statement to reporters.
The period from 1989 to 1994 featured an 80% crash in stock price, laying off half the staff, leadership turnover, and attempted corporate raids.11 The company shuttered its data services group — their cash cow in Japan — and was left with two (increasingly divergent) pillars: healthcare and financial data processing.
After a series of leadership changes and a shift in focus to healthcare, NDC managed to right itself. They exited the OTC “pink sheet” market and listed on NYSE under the ticker ‘NDC’. This signaled their financial health and granted access to a greater pool of capital to grow the business.
Global Payment Systems
Bringing Things Together
On February 22, 1996, NDC and MasterCard signed a $128 million agreement to create Global Payment Systems LLC (GPS).12 The new business would be a combination of NDC’s Payment Services and Information Systems businesses and Mastercard’s MAPP business unit. For 1995, GPS would have generated $24 million net income on $230 million in revenue — about the same profit margin Global Payments maintains to this day.13 To finance the deal, NDC used $38 million cash on hand along with an additional $63 million secondary offering and $9 million in corporate bonds.14 The deal was announced on April 1, 1996, and saw National Data’s stock price rising 17% on the news.
The next three years saw NDC’s fortunes turn up as the healthcare business expanded and GPS grew. Each line would nearly double revenues between 1996 and 1999.
NDC eCommerce
In 1999, NDC and Mastercard voted to roll GPS into a new entity, NDC eCommerce, to capitalize on the dot-com boom that raged from 1995 to 2000. This division combined GPS with NDC’s Integrated Payments Division, though they maintained Global Payment Systems branding. The division was set to be run by Paul R. Garcia, a second generation payments exec.15 With Garcia at the helm, NDC Commerce would file for an IPO a year later as Global Payments, ticker “GPN”. The following twelve years would see a massive expansion16 fueled by the same growth strategy NDC had applied in the 1980s, but that’s a story for another time.
If you want to read more history about National Data Corp, check out the story of its founding.
How to Start a Fintech
For the last 3 years, I have been enamored with the story of a boring and clever fintech company. The hook was the year long struggle to buy its first computer — not generate its first sale but acquire the means of generating any sales. The deep end really begins when looking at the moment in which National Data Corporation came into existence.
Thanks for taking the time to read this mini dive. I’ll be working through my drafts folder periodically thought out the year. Many of them are similar historical studies, but a few are reflections on past events and notes from lectures. Let me know what you’d like to see more of!
A critical balance for any owner or network operator is to balance the impact of raising prices on the amount of volume lost due to customers leaving your network. Netflix, Disney+, and YouTubeTV have been playing this game recently while cable, internet, and cell phone providers have been doing it since their inception. In a max profit world, a business places itself in a position where either the switching costs are too high or the customer is required to use your service at any price.
This demand/price dynamic is grouped under “price elasticity” and has a whole host of literature which is beyond the scope of this piece.
Acquisitions are the most common, because it’s easier for a big fish to gobble up a smaller competitor who has either a great niche the acquirer is not already in or a great piece of technology that will further monetize the base of existing customers.
Mergers/business combinations are relatively rare given the complexity of network integrations of for businesses at scale. Initially, these become two companies that happen to share the same stock ticker. Sometimes these mega-mergers fail in spectacular fashion (AOL + TimeWarner, FIS + Worldpay, etc.) because of the complexity. For more on FIS + Worldpay, check out this post from David Cencula breaking down the rationale.
You might be asking: “why did the company making F-18s have a payment services division?” Diversification. In the 1970s, McDonnell Douglas was trying to diversify away from aircraft manufacturing and defense in an era of high inflation. They did this by building way outside of core competencies which was a recipe for middling performance.
While no reason was explicitly given and the dealmakers have long since retired or passed, I have a suspicion that the sale was influenced by a court ruling in September 1981. The case saw McDonnell Douglas plead guilty to charges related to illegal sales of aircraft to South Korea, the Philippines, Venezuela, Zaire (Democratic Republic of the Congo) and Pakistan. As a result, they were ordered to pay a $1.2MM fine on top of millions in fines related to a string of McDonnell Douglas airline crashes in the late 1970s.
See New York Times for more.
It’s also the exact problem which NDC was set up to solve, just for debit instead of credit cards.
For more on MAPP’s turnaround, check out the 1991 case study.
Goff, Heidi R. "MasterCard division masters the quality possibilities." National Productivity Review, vol. 11, no. 1, winter 1990, pp. 105+. Gale Academic OneFile, link.gale.com/apps/doc/A11821154/AONE?u=anon~94d0fc98&sid=bookmark-AONE&xid=d8134aba. Accessed 3 May 2024.
Goff (1990)
See Note 4 of the 1996 NDC 10K
Because they’re on the hook and stories like this, acquirers now require 100% capitalization from airlines. In layman’s terms, this means Delta and United have to wait until your flight to spend the money you pay them.
In 2023, Delta carried a balance for “Air traffic liability“ — their accounting term for flights yet to be flown — of $7 billion or 12% of the 2023 revenues.
The original draft of this post included the full breakdown of the decade, including details of the rapid M&A expansion, but it’s a full story in and of itself, so I’ll save it for another time.
The stock price and layoffs coincided with the early 1990s recession. Leadership changes included the retirement of longtime CEO LC Whitney, resignation of a division president, a new CEO who resigned less than a year later, and a host of other shakeups in the C-Suite. The corporate raid came as event driven investors aimed to cash in on an expected shareholder settlement related to the Braniff & Eastern bankruptcies + loss of the Sprint contract.
This is also the point where some of my coworkers started their careers with Global Payments. No one I’ve talked to yet has insight into exactly how this came about.
This section was lifted directly from the 8K filing from April 1, 1996. It’s long and not as much fun to read as the press releases, but has some fun snippets:
despite a 92.5/7.5 ownership split, the board was 75/25
Mastercard retained a veto for new board members
This is where NYSE access became incredibly important. OTC markets and even NASDAQ at the time didn’t carry the same liquidity.
From a 2014 interview: “I was born into it. My dad was COO of Diners Club and was one of the founders of the American Express credit card — he was actually very influential in giving the card its name.”
Garcia would retire in 2013 having grown revenues from $350 million to $2.4 billion, a 585% increase or 16.9% annually.