Global Payments Inc. (NYSE: GPN) provides services that allow small businesses to process credit and debit cards. The company also insures checks these small businesses accept from customers against bouncing or default. The firm's focus on small business helps it build its margins, as small companies have less leverage when negotiating processing fees and GPN can take a larger cut of the transaction.
GPN is the second largest independent merchant processor in the U.S., behind First Data, a much larger firm which processes 15 times as many transactions as GPN. GPN also offers money transfer services in the U.S. and Europe, but this segment is dwarfed by card processing which accounts for 90% of GPN's operating income.
In the last decade, GPN has expanded into Central and Eastern Europe, as well as China, and these fast-growing regions have great potential for GPN as the credit card market is in its early stages in these locations (as opposed to the relatively mature market in the USA).
During credit transactions involving its clients (merchants), GPN acts as the middleman between the merchant (such as a store) and a card issuer (usually a bank). A transaction begins when a card-holder attempts to pay with a credit or debit card at a merchant. GPN processes the transaction by accessing information from the card issuer to confirm the payment. This process involves intermediaries, each of whom is compensated a certain percentage of the transaction value. Thus the final amount that reaches the merchant is less than the amount paid by the card-holder. GPN temporarily makes up this difference, but bills its client, the merchant, at the end of each billing cycle to compensate for its loss, as well as to produce a net profit. 
Many of GPN's clients accept checks as well as cash and credit in payment, and are thus exposed to the risk of check bouncing. To alleviate this risk, GPN offers a check guarantee service. Each time a client merchant receives a check, GPN decides remotely, through its electronic check-readers, whether or not the check should be accepted. If accepted, GPN earns profits as a percentage of the check's value, but must reimburse its client the full value of the check if it bounces. To achieve this, GPN operates its own internal check verification and collection services. This service is attractive to merchants because it allows them to accept checks less stringently. 
Fourth Quarter 2010 Results (ended May 31, 2010)
For the full year, GPN's revenues grew 12% to $1,642.5 million compared to $1,462.3 million in the prior fiscal year. Normalized diluted earnings per share from continuing operations grew 21% to $2.54 compared to $2.10 in the prior year.
For the fourth quarter, revenues grew 16% to $425.1 million compared to $367.9 million in the prior year. Normalized diluted earnings per share from continuing operations grew 35% to $0.58 compared to $0.43 in the prior year quarter.
On a GAAP basis, the company reported full year diluted earnings per share from continuing operations of $2.52 compared to $2.10 in the prior year, and for the fourth quarter GAAP basis, diluted earnings per share from continuing operations of $0.56 compared to $0.43 in the prior year quarter. The fourth quarter and full year results include a one-time, pretax termination benefit of $2.6 million.
During the fiscal year ended May 31, 2010 (fiscal 2010), the North America Merchant Services represented 74% of the Company’s total consolidated revenues, and included operations in the United States and Canada. In the United States, the Company sells its services via ISOs, a direct sales force, trade associations, agent and value-added reseller (VAR) referral arrangements, as well as its telesales groups. The Company’s ISO channel targets a variety of merchant types with a typical annual bankcard volume of $150,000 or less. The ISOs contract with the Company to provide processing and other services depending on the ISOs requirements. These contracts are multi-year and priced by service on a per transaction basis. The ISOs act as a third-party sales group selling Global Payments-branded merchant acquiring products and services, with the majority of its ISOs marketing direct merchant acquiring. The Company’s direct sales channel receives qualified leads from its agent bank, VAR and trade association referral partners signing a variety of mid to large-sized merchants with annual bankcard volume on average above $300,000.
The Company’s United States revenue also includes check and gaming services and indirect merchant services. Its check products offer merchant customers risk management alternatives in the case of its verification and recovery offerings, or risk elimination in the case of its guarantee offerings, by using its internal and external databases of check writers to help decide whether the merchant should accept a check as the form of payment from a particular check writer. The Company’s check services products are part of its domestic direct service offering. Check guarantee services include check verification and guarantee services designed for a merchant’s specific needs and risk adversity. This service offering guarantees payment of all checks that are electronically verified. If a verified check is dishonored, the Company’s check guarantee service generally provides the merchant with reimbursement of the check’s face value, and then it pursues collection of the check through its internal collection services. In the specialized vertical market of gaming, the Company’s VIP LightSpeed software and VIP Preferred Advantage product provide the gaming industry with the tools necessary to establish revolving check cashing limits for the casino’s customers. The Company derives revenue from its gaming products primarily based on a percentage of the transaction value. In Canada, the Company sells its services primarily through its direct sales force using its bank referral relationships.
International merchant services represented 26% of the Company’s total consolidated revenues in fiscal 2010, and consisted of operations in Europe and the Asia-Pacific region. The Company’s business in Europe is primarily located in the United Kingdom, the Czech Republic and the Russian Federation. Its Asia-Pacific region includes 11 countries and territories: Brunei, China, Hong Kong, India, Macau, Malaysia, Maldives, the Philippines, Singapore, Sri Lanka and Taiwan. The Company has a direct sales force in the United Kingdom, the Russian Federation and the Asia-Pacific region, through which it primarily sells its direct merchant acquiring services, while using its bank referral relationships. In the Czech Republic and the Russian Federation, the Company also provides indirect merchant acquiring services.
The Company competes with First Data Corporation, Bank of America Merchant Services, Chase Paymentech Solutions, TD Merchant Services, Elavon, Moneris Solutions, berbank, Alfa Bank, VTB, Raiffeisen Bank, Russian Standard Bank, SiNSYS, Euronet and Merchant Solutions.
Paypal, Google Checkout and Amazon Payments bypass intermediaries such as GPN. As online shopping grows in volume, these alternative payment methods pose a threat to GPN as they gain a greater share of total transactions. GPN relies on the physical use of a credit card at a merchant's location, and has difficulties processing and profiting from other types of payments.
Consolidation within the banking industry may cause many financial institutions to take their credit and debit processing in-house, thus eliminating the need for a third-party processor such as GPN. In addition, larger banks possess greater bargaining power, and thus demand lower fees from GPN, to the detriment of its profits. 
GPN is indirectly influenced by the performances of its merchant customers, which may in turn be influenced by economic trends. Much of the company's profits are derived from fees as a percentage of credit transaction through these merchants. So trends in consumer spending greatly influence GPN’s revenues, and a decline in retail sales (as many analysts expect in 2008) could hurt the company’s balance sheet. Furthermore, in the event of a reversed payment (canceled payment by card holder), the merchant must reimburse the card-holder. However, GPN may be liable for this charge when is merchant is either unwilling or unable to pay this sum.
GPN competes in a populated arena of payment processors, and is smaller than most of its significant competitors. Although it cannot compete in raw transaction value with companies such as First Data (FDC), GPN has successfully secured a niche in the market by focusing on small businesses for clients.
GPN can only be considered as a small participant in the diverse money transfer segment, and possesses no significant market share compared to most competitors. As such, GPN has historically focused almost solely on immigrants sending back money to Latin America.