Digital payment processing is an emerging, growing market, with China and the US leading the market in terms of volume. It is growing at a tremendous rate compared to other forms of payments and money transfers, as the following chart shows:
Source - Statista
In order to cash in on the running trend, major and minor technology and financial services companies have floated their own wallets. However, the processing of these payments is key, and here, a small company called Payment Data Systems Inc. (NASDAQ:PYDS) is making some splash.
Payment Data Systems is a key player in this segment as it provides integrated electronic payment processing services to merchants and businesses.
The company has been making progress with several of its plans. One of the most promising happenings in recent times is the company’s new collaboration with Applied Business Software Inc. The two companies plan to work together on various fronts including use of ACH module for the purpose of making electronic payments and for online payment processing of credit cards, debit cards and checks. The processing of checks, especially, is very important because it reaches an untapped segment of the market.
Applied Business Software develops software for loan servicing and other financial services. Its lead product, The Mortgage Office, is considered to be one of the leading software solutions in the lending industry. The deal helps in unlocking a new revenue market for Payment Data Systems.
CEO and President Louis Hoch said that PYDS can now explore the new market vertical of consumer mortgage loan servicing software and further diversify its customer base. With continued growth in the economy following the new President's accession, the consumer mortgage sector is expected to be on an upswing. With the increase in mortgage volume, the demand for more efficient processing systems is also expected to increase. Payment Data Systems can leverage the deal to gain more expertise in this booming sector, which may further help it in diversifying its revenue streams.
The company also saw some restructuring in its upper management. Habib Yunus, the CFO of Payment Data Systems, announced his departure from the firm. He was at the helm of the company for nearly 22 months. He was replaced with recently appointed board member Tom Jewell.
Prior to this reshuffling, the company had appointed its founder Hoch as its new CEO in November last year. Change in top management signals that the company is now ready to explore new areas and shake up its operations.
However, the shakeup also led to some legal issues as earlier this month, the company received a notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing from NASDAQ. The company reported that on January 11, 2017, it received a letter from the Listing Qualifications staff of The Nasdaq Stock Market LLC, notifying it that the company is not in compliance with Nasdaq Listing Rule 506.
According to that rule, the company is required to have a majority of independent directors on its board of directors and an audit committee consisting of at least three independent audit committee members, one of whom must have "financial sophistication," as evidenced by past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background.
On January 6, 2017, Tom Jewell resigned as a member of the company’s board of directors and audit committee as he was appointed the company’s Chief Financial Officer. Jewell was inducted in the board late last year. Consequent to his appointment as the CFO, as of January 6, 2017, the board of directors consists of two independent directors and two employee directors and the audit committee consists of two independent members.
Another board member Mr. Long resigned as the company’s Chief Executive Officer effective August 4, 2016. Though, he remained Chairman of the board of directors, he is not considered independent under the Nasdaq Listing Rules because of his recent employment with the Company.
The company notified NASDAQ of this shortcoming on January 6th, 2017. The company needs to make up the deficiency by the earlier of its next annual shareholders’ meeting or January 6, 2018; or if the next annual shareholders’ meeting is held before July 5, 2017, no later than July 5, 2017.
However, the issue should not cause much concern to prospective investors as the company seems to be fully capable of rectifying the situation within the given time frame. Payment Data Systems said that it is currently in the process of interviewing potential candidates.
The payment processing industry is fast evolving amid the introduction of new cutting edge technologies. The use of technology has also made this segment highly competitive. Payment Data Systems needs to remain nimble to make the best of its resources. Its new collaboration with Applied Business is expected to help the company in further sharpening its technological edge.
Payment Data Systems had suffered operating loss in its third quarter. The main reason behind the loss was the charging of one-time items. However, the company needs to remain cautious as its operating margin remains under pressure. The company’s stress on increasing its revenue may further strain the margin, however, this is expected to be made up through higher revenue received from new deals.
The company stock had a choppy start this year as it tumbled down to lose more than 10 percent of its value this year so far. However, with the latest happenings, it is expected to regain its upward momentum. The company hopes the new collaboration will help it in boosting its topline and the stock price.
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