August 19, 2016
MeS Acquisition Driven by Technology not Geography
By D.J. Murphy, Editor-in-Chief
Until very recently, Redwood City, Calif.-based merchant acquirer and processor Merchant e-Solutions (MeS) was a 300-person company serving 70,000 U.S. merchants—most of which tally between $10 million and $100 million per year in credit card volume. E-commerce merchants account for about half of MeS’s client base, according to Kevin Gallagher, general manager of e-commerce for MeS.
When the company was founded by Bank of America Merchant Services veterans 13 years ago, it was with the idea that MeS could build a state-of-the-art platform that would be more feature-rich and flexible than many of the existing legacy systems. And, Gallagher said during an interview at the recent CNP Expo in Orlando, Fla., the organization has spent the intervening years adding features and functionality that have enabled it not only to compete with larger legacy providers, but to exceed them in many ways. As a smaller, nimbler company, Gallagher said MeS could make changes and enhancements to its platform sooner than other larger acquirers (MeS began offering tokenization, for instance, nearly five years ago). He proudly noted at the time that 100 percent of the company’s technology and 100 percent of its service and support—front-end authorization platform, payment gateway and back-end settlement services—were in house.
Platform Attracts Buyer
The company’s pride in its technology appeared justified last week as Cielo S.A., the largest merchant acquirer in Latin America (and by market capitalization, the largest in the world), said its platform was the primary consideration in a $670 million acquisition of MeS by the Brazilian firm. Cielo processes payments for 1.2 million merchants in Brazil representing about 50 percent of that country’s payments market. And, while it did not have a U.S. presence prior to its holiday-week announcement, the deal was driven much more by technology than geography, according to Gallagher.
“What they needed, not only in Brazil but globally, is state-of-the-art technology for their future platform,” said Gallagher. “Their current platform is a bit older and not quite where it needs to be now and in the future. They spent two years looking at quite a few companies around the world and our platform was a huge key for why they wanted to acquire MeS.”
Cielo and smaller rival Redecard operated a virtual duopoly in Brazil’s $300 billion payment processing market, but the country’s government recently opened the market to foreign competition and both companies are reportedly looking to diversify their services. Cielo chose to acquire MeS, according to Gallagher, with the understanding the Brazilian company would use the superior technology platform to secure its position in its home country and eventually help them grow in the U.S. and in other parts of the world.
The acquisition will require MeS to consider the additional South American merchants its platform will now serve, Gallagher said, but the company remains intact in its Redwood City headquarters (with an operations center in Spokane, Wash.) and will continue to process transactions for its domestic roster of clients.
“It doesn’t change our focus, but one thing that will be important is that they really want to leverage this technology for Brazil, from a transactional standpoint and especially giving those merchants access to our Web-based reporting,” he said. “Enabling our platform to support everything they’re doing in Brazil will be a little different. But, as it relates to the U.S. and other areas, there isn’t really any change in focus.”
Ability to Evolve
MeS will continue to innovate, Gallagher said, and the platform that attracted Cielo will continue to evolve as the company expands globally.
One of the ways MeS’s spirit of innovation and willingness to be flexible manifested itself in the CNP space was a development in the way it handles tokenization, which the company has been offering for free to its merchants for years. While most merchants understand the value of not storing data, even if they’re using tokenization there is still the matter of transmitting the data, which keeps the merchant in scope relative to PCI compliance.
Gallagher noted many merchants are still uncomfortable with hosted pay pages—they don’t want customers leaving their site no matter how seamless the transition may seem. To address their concerns while alleviating them of the burden of data transmission, MeS developed what it calls iFrames. Instead of sending customers to a hosted payment page, the merchant is able to gather customer details on their own checkout page, but the one field in which customers enter a credit-card number is hosted on MeS servers.
“[Customers] hit submit and the merchant passes all the data they collected,” he explained. “We marry that with the card number, get an authorization and pass back a token with the authorization response data. The merchant is not transmitting the card data so they’re completely out of scope. That is huge. We’re getting to the point where tokenization is the norm and within the next year or two all merchants will be doing it in some form. But the next evolution involves the transmitting as well.”
MeS is active in the mobile space as well, but Gallagher said he prefers to think about mobile payments in the context of a multi-channel strategy for merchants and how his company can enable simple implementation.
“We have one API, one connectivity into our platform, no matter how you take transactions. You might have a Web store, a call center, a retail store and mobile capability, but they’re all implemented via the same API. It’s one platform with one set of reporting. If a merchant has an account with us, implementing a different channel is no problem.”