From the June 24, 2010, issue of ISO&Agent Weekly.

Global Payments Inc. will lose its bank sponsorship to process Visa payment card transactions for merchants in Canada when its contract with the Canadian Imperial Bank of Commerce expires in March 2011, Atlanta-based Global Payments disclosed last week in a U.S. Securities and Exchange Commission document.

Visa Inc. requires processors to secure bank sponsorships so they can process transactions on its network.

Global Payments says it may form its own loan company to secure Visa sponsorship in Canada, but it also may work with another bank.

Having its own loan company–essentially a bank designed for sponsoring transactions–would eliminate the need for the processor to work with a third party, Global Payments says in the SEC filing.

Global Payments would not comment, citing a quiet period the company is in leading up to the July 27 release of second-quarter earnings. CIBC officials did not respond to a request for comment by ISO&Agent Weekly’s deadline.

Not Much Worry

Analysts generally are not worried about the effect the impending sponsorship loss might have on Global.

“We have seen processors switch sponsor banks in the past and never saw any material impacts,” David J. Koning, a senior research analyst at Milwaukee-based Robert W. Baird & Co., said in a research note.

Similarly, analyst Darrin D. Peller of New York-based Barclays Capital Inc., is “not at all worried” about Global Payments’ future ability to process Visa transactions in Canada. Canada contributes approximately 20% of Global Payments’ annual revenue, Peller says.

“My bigger concern is around referrals,” Peller tells ISO&Agent Weekly.

Global Payments and CIBC have a merchant-referral agreement that may account for half of the processor’s merchant accounts in Canada, Peller says. Global Payments did not mention the referral agreement in the SEC document, but the processor says it continues to negotiate with CIBC on other aspects of their relationship, which does not expire until next March.

“If that referral business is not renegotiated, you have [merchant] attrition each year, and that needs to be replaced,” Peller says. Increased attrition could affect Global Payments’ growth and market share in Canada, he notes.

Analyst Andrew Jeffrey contends the CIBC sponsorship and the possible reworking of the merchant referral agreement are emblematic of overall changes in Canada for Global Payments.

“As the share leader, Global likely has the most to lose if Canadian banks increasingly strike out on their own, rather than relying on partners or joint ventures for merchant acquiring,” Jeffrey, with SunTrust Robinson Humphrey, writes in a research note.

“Canadian banks are likely taking a shot at acquiring, motivated by the outsized profitability of acquiring Visa and MasterCard debit transactions, as the networks enter the Canadian market, potentially displacing the incumbent, Interac.”

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