The Executive Interview Series provides readers with exclusive insights from movers and shakers in the payments industry. The Payments Industry is under continuous transformation, as such this series provides diverse perspectives on everything from strategy to payments technology and to the future of the industry.
In TSG’s first-ever podcast, Consulting team member, Zach Spellman, sat down with Senior Director, Peter Michaud, to learn more about his journey through the payments industry, M&A trends within the payments market, and how the team uses both qualitative and quantitative data to guide clients.
Background: Peter brings over two decades of extensive experience in the payment industry to TSG including payment processing for merchants and card issuers, product development, corporate strategy, account management, and acquisitions. Peter leads the consulting group at TSG, managing consulting projects, and provides subject material expertise in B2B payments, buy/sell consulting, ISV integrations, and strategic planning. Peter has presented to Fortune 500 companies and published industry leading white papers on the merchant acquiring bank channel, commercial card issuing, and B2B payment acceptance.
listen to the podcast or read the transcript below.
Hello everyone and welcome to TSG’s first-ever podcast. We are excited to launch this new avenue of content and we hope that you find it a convenient and useful resource for gathering market-leading insights in the payments industry. My name is Zach Spellman, a project manager here at TSG. I’m joined by my fellow colleague, Peter Michaud, who is Senior Director of consulting at TSG. Peter has an extensive amount of experience in payments and has been leading our consulting group for over four years now. Peter, thanks for taking the time. Why don’t you start off by telling everyone a little more about yourself and some of your background?
Thanks, Zach. I have been with TSG for the last four years, managing a lot of the consulting projects that go through our doors. Prior to that, I have had experiences in the consulting world back in the early ’90s. When I started Arthur Andersen, primarily as a staff auditor, but led to a lot of government contract consulting jobs as well. I spent about the first 15 years of my career in finance and accounting in various industries, including media and government contracting and real estate. But in the late 2007-2008 range, I entered back into payments by taking a position at TSYS Acquiring in Tempe, Arizona. When the subsequent acquisition of First National Merchant Solutions occurred, I moved out to Omaha to start running through an M&A program with the FNMS group that led to a market intelligence role. That lasted to about 2012, and then I moved up to a smaller company to take advantage of the emerging B2B space, the company was called Hap-x. That led to immersion into the commercial card space and brand closed-loop settlement agreements. So that led me right up my avenue in the accounting and finance roles, making payments out from hospitals to suppliers, and when that company was sold in 2016, I seized on an opportunity to work as a consultant for a little bit, and that led me to an opportunity with The Strawhecker Group.
Tell me a little bit more about your previous experience working in the B2B AP automation space, this continues to be a large interest with individuals in the payments industry. Why is that so? And what are some of the significant hurdles that companies have to overcome to achieve a successful AP automation strategy and or product offering?
To go back to where accounting and finance has always played an interesting role in most companies. There’s just a divergent of needs, right? Accounts receivable wants to collect payments as quickly as possible and accounts payable wants to defer payments as long as possible. So there’s always just an inherent conflict from whoever you’re dealing with from a supplier or vendor to a client or customer. That kind of inherent conflict, as I like to call it, really leads to just a battle to be able to make payments in a timely manner and efficient manner. So from that standpoint, my first exposure to this was a company called Leap Source back in the 2000-2001 time period, and they were trying to outsource accounting and finance for large organizations – did not go very well, because, at that time, there wasn’t a lot of electronic modalities to take advantage of, and that was the EDI, EDI10, EDI20. That’s the EDI10 is kind of the payment invoicing electronic invoice. An E20 was the electronic format of remittance. Although ACH was around, there still weren’t a lot of platforms to utilize the ACH, and that kind of languished. Then by the mid-2000s, they created the standard format and that really allowed companies like a Paymode-X to kind of enter the scene and a couple of ones, Comdata, for instance, and they started expanding into this space to kind of outsource AP payments and make payments more electronic instead of cheque. But this also happens to be a very big opportunity. I mean we’re talking about well over $20 [trillion] depending on who’s doing the estimate, it’s anywhere from $23 to $30 to $40 to $50 trillion in payments that are still processed in a non-electronic format, or processed in electronic format without electronic remittance. So there’s a large opportunity here to move these payments over to an electronic means, but also as electronic presentment and electronic payment method as well.
Interesting. Prior to joining the TSG team, you were a client of ours, how has that experience of being on both sides of an engagement with TSG shaped your perspective, and how do you manage and work with our clients today?
That is truly unique insight to be on both sides. Because to be on both sides, you have to understand how both parties are approaching the relationship. So from a client standpoint, we had specific needs that we weren’t able to fulfill; it might have been a resource, it might have been a relationship, it might have been knowledge, might have been all three that we just didn’t understand. So, we had to seek outside counsel to bring that in, and help us meet our initiatives, whatever they were. From a standpoint of being on this side, knowing that if the client has reached out to us, they have a specific need or want and they might not have the time, energy, or resources to address that need. So luckily, we have a lot of tools in our toolbox to kind of meet their needs. Some of them are quantitative, our AIM [Acquiring Industry Metrics] database, or GEM [Gateway Enterprise Metrics] management platform. It might be a resource to do research, not only domestically but internationally, on different products or services or offerings. From the group that I managed, the consultants, I bring in experts who understand really unique segments of the payments space. They bring very much a broad understanding of where the marketplace is and what companies are doing today. Some of that’s institutional knowledge or previous experience, and sometimes it’s just really having the energy to understand the market and comprehensively and not just within one company. So that kind of broad exposure really allows them a better perspective or a more developed perspective on where the marketplace is.
And kind of going off that a little bit – you also play a leading role in managing our Buy/Sell engagements, which can include: helping clients go to market, performing due diligence, as well as assessing valuations. With your experience in this subject matter, have you noticed any specific trends in the payments market relating to M&A activity in recent years?
There has been a keen interest in the payment space over probably though really the last 10 years, it’s been very much heightened within the last four since I’ve been with TSG. Most of these are people trying to generate revenue and value to their companies through the payment spectrum that is evolved mostly to the software companies and software companies who might have a consumer element or even a B2B element where they’re taking some form of electronic payment. Or they have a customer base that will be utilizing their software for management that also can accept payments on their behalf. So a lot of these companies are trying to meet some valuation goals or generate working capital and utilize and kind of what I call the “Mind/Body Business Case,” that’s been a real kind of big impact in our business. When we talk about Buy/Sell, it’s just not about “ISO A” selling to “ISO B” or a private equity group looking to purchase in the acquiring space. What we’re seeing now is a lot of private equity groups that are investing in software, and then there’s some payment element that’s going to be part of their valuation and what they’re willing to pay or invest in this company; and that’s where we’ve been involved with a lot of acquisitions, especially in the software space.
We’ve also seen some major consolidation efforts in just the past few years, including Fiserv’s purchase of First Data, as well as Global Payments’ acquisition of TSYS, just to name a couple. How have these significant deals affected the market so far, and do you see another major consolidation push just on the horizon?
There’s still a few opportunities out there for additional consolidation. You still worry about the 80%, have they captured 80% of the market, is there enough diversity, if there’s enough choice. You know, Fiserv buying First Data, were mostly complementary businesses that did not really consolidate within say one segment or the other. But when you look at Global [Payments] and TSYS that definitely impacted the merchant acquiring space significantly. But there are still other entities out there, and then you see some emerging players like RS2. Some other international processors, which we’ve also seen too, I would call them super ISOs or acquirers that actually have one element of the platform. So they might have a settlement platform, they might have a gateway with a direct connection to the card networks. So they’re taking a role in the processing that probably 10 years ago didn’t exist or weren’t as pervasive 10 years ago. The interesting part is, you’ve seen a lot of companies, Super ISOs, buy those platforms, so they’ve been gobbled up, and a lot of those were independently run and supporting smaller ISOs as well.
So here at TSG, we have a pulse on everything related to merchant acquiring and the payment acceptance space. One area that makes us truly unique in this industry is our analytic platforms AIM and GEM. Our AIM platform, for example, represents nearly 50% of merchant processing transactions in the U.S. Peter, tell me about how you’ve used these platforms in past engagements, and why are these tools a must-have resource for companies in this industry?
To answer your last question first, it’s always important for companies that are making decisions on how to grow and how to drive value, and provide the best service to their customers to get as much information as they can. If they can get that information in a really concise manner, so they don’t have to spend the time and energy to gather that data, and they get it presented to them in an Ad Hoc or Quarterly Report, or even just seeing how their portfolio is comparing to others of similar size or similar industry. They should be investing in something like this because this is well worth their investment. So they would have a very strong ROI, to invest in one of our platforms, especially AIM. I’m not sure how a merchant acquirer operates without it, except with some form of blinders on. From a GEM standpoint, if you have a gateway, and you’re going to rely upon the feeling that you get from it, or what it does internally, that’s always a good starting point. But to really get it from the perspective of a merchant, and how they’re connecting to you, that I think is invaluable. Seeing how well you perform timing-wise transaction speed, evaluating your APIs to see how they meet with the market. I mean, I figured those would be key elements, anyone who owns a gateway and wants to add merchants and sell the benefits they provide to their customers. You know, from our standpoint, in the consulting world, you’re basing a lot off of the information you’ve gathered and the experience that you have. But when I can actually provide the data, and that supports what the 30-year expert is saying. Now, I’m giving you both qualitative and quantitative, and that’s really something that it’s hard to find anywhere else, especially in the merchant acquiring space. So it’s one thing to have experience and knowledge, but it’s nice to say, not only can I solve it, but here’s the evidence behind my conclusion or my recommendation that’s going to help you go forward, and that’s just to me, it’s just invaluable.
Absolutely, and before we wrap things up here, Peter, I just have one last question for you. You’ve worked on a variety of different types of project engagements during your time so far at TSG. Some of these include payments monetization strategies for software companies, different product assessments, contract reviews, and much more. What sort of project engagements excite you the most to work on?
All the projects are interesting, right? All the clients have unique needs, and we provide a variety of different solutions to them. The most exciting are the ones that have an open mind, that are willing to listen, and utilize our expertise; if that allows them to drive the value of the company, that’s what we want. You know, we charge hourly rates for companies to earn millions of dollars, and I think the comment we use is, “We consult for $1,000’s, so you can earn millions.” And we’ve had one client actually say to us, “We asked for nickel, and we got a quarter.” It doesn’t sound like all that impressive when you put it into monetary terms. But when I can look at a software company that we helped out, probably about two years ago, through an RFP process, and we estimated that through our project, they increased the valuation of their company between $50 [million] and $70 million, and they were able to realize that through a subsequent transaction, that is what we work for. Those are the jobs that get me excited.
Absolutely, and Peter, thank you very much for your time and for providing some of your thoughts on the payments market. This has been a great discussion with a lot of interesting insights. I appreciate everyone for taking the time to listen to our podcast. If you have any questions related to anything that we discussed today, or would just like to chat about payments, please feel free to reach out to Peter or myself. We would love to keep this conversation going and to learn more about you and your business. Thank you all and have a great rest of your day.