Total System Services on China UnionPay, Credit and Debit Cards in China (TSS)

Includes: MZBYE, TSS

From Total System Services' (ticker: TSS) Q4 2005 earnings results conference call:

Philip Tomlinson, Chief Executive Officer:

As you know we purchased a 34% equity stake in China UnionPay. And we will increase that ownership up to 45% here in the near future. I am confident we’ll have it done no later than in end of the first quarter. We’ve been working with CUP Data over the past several years to get this deal put together and CUP is sanctioned by the China Union Pay, sanctioned by Peoples Bank of China, which is their equivalent to the Federal Reserve of China Central Bank. And it has quickly become one of the world’s largest and fastest growing payment networks. The PBOC, the People’s Bank of China has mandated that all banks must adapt the CUP brand for domestic transactions. That’s good for CUP Data. CUP today has 166 member banks and they are responsible for operating the only national bank card network that accepts bank cards in China.

So you can imagine the feeling that we have, as best we can tell according to our G2 there are about 875 million general purposes cards that carry the CUP brand today in China. Only 35 million of those cards are credit cards. Our best estimates are that about 2008 that 35 million will go up to about 200 million. You have heard a lot about bank card penetration in U.S, it’s the 2.9 cards per person in the U.S. It’s about a half a card in China. The nationwide retail consumption on bank cards is only about 5% in China.

We have had people ask us why we didn’t, why we partnered up with some one and you heard me say for the last couple years, when we go to China we feel like we have to go with a right partner. It’s a, we found that the business is very relationship driven. The government has strong influence in this very complex process. And we feel, I say we will be very happy that a notable cause going in. I don’t think there is any doubt that they are clearly the best partner in the market place. They could currently provide transaction processing, the last recovery for other banks and bank card issues in China including debit processing. To-date in 18 months they have signed, they have secured contracts with 23 banks in 18 months of operation. We have about 5 more lined up. We believe it’s a great strategic fit that we would certainly have some long term impact on TSYS and absolutely I think it could be the next Vital or really even bigger Vital over the next 3 to 5 years. I described it to our people everybody that is in this business tried to do this deal with CUP Data and a lot of people that were not in this business and I think its like hitting a home run in the bottom of the seventh to win the world series, I mean it is a, it is a big, big deal and we are thrilled about it.

James Lipham, Chief Financial Officer

We are excited about that, you know, I keep saying 3 to 5 years in China because that’s really new ground for us. We — I would like to think it could — it could be faster than that. We have the Olympics coming to China in 2008. The government has mandated that the vast majority of merchants must accept credit cards. But there is a cultural issue there, were they are used to debit cards and a part of that is, is happening, same thing is happening in Japan. And some to degree in Europe, I mean, there is much more debit cards, and many more debit cards in Europe than there are credit cards.

Comment: You can read the rest of the TSS conference call transcript here.