According to The Nilson Report, personal consumption expenditures in the U.S. using credit and debit cards and other electronic payments amounted to $4.48 trillion in 2009. Consumption is projected to grow annually at 8% over the year to $7.23 trillion in 2015. Payment processing firms are intermediaries that help complete electronic transactions between the merchant and the financial institution in return for a transaction fee.
Electronic payments processor Vantiv has been around for more than 40 years as a business unit of Fifth Third Bank. In 2009, the unit separated from the bank and began operating independently. Today, Vantiv is an integrated payment processor that offers a single, proprietary technology platform. Their services help merchants and financial institutions to accept and process credit, debit, and prepaid payments both at stores and through online tools. Unlike other vendors that use multiple architecture for payment processing, Vantiv’s solutions are based on a single system. The single platform solution not only simplifies use for their customers, but it also helps Vantiv to offer better data analysis to their customers. The platform addresses payment needs for prepaid, e-commerce, and mobile payment offerings. Besides access to their platform, Vantiv also offers customers support services in the form of data analysis and fraud management.
Vantiv’s customer base ranges from small and mid-sized clients to large merchant and financial institutions and includes more than 200,000 small and mid-sized merchant locations and 1,300 financial institutions. Last summer, Vantiv decided to go public and priced an offering of 29.4 million shares for sale at the NYSE at $17.00 each. Last December, they announced plans to launch a secondary offering of 12.5 million shares at a price of $20.10 each.
Vantiv earns revenues through a transaction fees paid by customers on the transactions processed through their system. Gross revenues grew from $884.9 million in 2008 to $1.2 billion in 2010. Net revenues, which they define as revenues less network fees and other costs, grew from $451.4 million to $566.1 million during the same period. Adjusted EBITDA during the period grew from $278.7 million to $400.5 million. In 2011, Vantiv reported gross revenues of $1.6 billion.
For the quarter ended September 2012, Vantiv’s revenues grew 14% to $466.7. Net revenues in the quarter grew 19% to $258.5 million. EPS grew from $0.13 a year ago to $0.19. By segment, net revenues from merchant business grew 26% to $177.0. Net revenues from financial institutions grew 7% to $81.5 million during the quarter.
Vantiv’s E-commerce Growth
Vantiv continues to focus their offerings to cater to the growing number of e-commerce options. Last December, they completed the acquisition of Litle & Co., an independent online payment processor that offers a fully-integrated payments solution for companies that retail over the Internet or through direct marketing. Litle & Co.’s client list includes e-commerce portals such as Overstock.com, Ancestry.com, Gilt Groupe, Guthy-Renker, ShopNBC and Wayfair.com. Vantiv plans to leverage the acquisition to increase their capabilities within the online retail segment. Vantiv acquired Litle for $361 million.
To expand their presence in mobile commerce, last quarter Vantiv tied up with Paydiant, a provider of a cloud-based mobile payment platform, to release Vantiv Mobile Wallet. The Mobile Wallet is a contactless wallet and payment platform that will let Vantiv’s customers deploy mobile payment and offer deals to their customers. Unlike other mobile wallet offerings, Vantiv Mobile Wallet works with existing smartphones, and it does not require any hardware upgrades to the merchant’s point-of-sale systems or payment terminals.
The growing adoption of both e-commerce and m-commerce along with an increase in per capita disposable income worldwide makes the electronic payment processing industry a high-growth one. Research firm IBIS World estimates that the global electronic payment processing industry was worth $12 billion last year, reporting annual growth rates of more than 20% over the five-year period since 2007. The industry is estimated to grow 28% annually till the year 2017. Vantiv’s stock is trading at $21.09 with a market capitalization of $4.48 billion. It touched a 52-week high of $24.43 in June 2012.