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The North American Market for Third Party Payroll, Payment, and Healthcare
Transaction Processing, 3rd Edition
August 1, 2009
The North American market for third party processing (TPP) services continues to
perform well despite the global recession, with 2008 sales at $62 billion based on
exceptionally strong growth during the past five years, and with 9%-10% average
annual gains forecast through 2013. Seeking to offset the impact of lower employment
figures in the payroll space and reductions in consumer use of credit in the payment
space, third party processors continue to bank on the ongoing move from paper to
electronic processing while waiting for government stimulus initiatives to kick in,
especially in the healthcare arena. During the down economy major TPPs are also
promoting new technologies to give their businesses a boost, working to increase
revenues from existing clients, and tapping into related growth areas such as human
resources outsourcing in the payroll space and mobile transactions in the payment
space. At the same time, the market continues to see competitive upheaval, including
Heartland’s 2008 purchase of the TPP business of Alliance Data Systems, and Fidelity
National’s 2009 acquisition of Metavante in the payment market; and Emdeon’s 2008
emergence as an independent company and McKesson’s purchases of Per-Se (2007)
and RelayHealth (2008) in the healthcare space.
This fully updated report critically and quantitatively assesses the market for data and
payment-related transaction outsourcing. The report focuses particularly on three key
segments—electronic payment processing, payroll processing, and healthcare
transaction processing—with separate chapters tracing the service trends, market
trends and competitive strategies driving market growth and competition within each of
these industry segments. The report also examines third party processing as it relates
to the Internet, as well as the development and expansion of Internet processing
applications. In addition, it identifies and assesses the economic drivers and regulatory
changes shaping each segment of the industry, as well as the trend whereby major
competitors are adopting technologies and leveraging their massive infrastructures to
expand beyond their traditional core businesses. Helping to illustrate these trends are
competitive profiles of leading market participants including payroll processors
Automatic Data Processing, Inc. (ADP), Paychex and Ceridian; payment processors

2. First Data Corp., Fiserv and TSYS; and healthcare transaction processors Emdeon
Corp., SSI Group and Availity.
Table of Contents
Chapter 1: Executive Overview
Scope & Methodology
Market Definition
Report Methodology
Market Overview
Market to Near $100 Billion in Next Five Years
Figure 1-1: North American Market for Third Party Processing, 2004-2013 (in
billions of dollars)
Figure 1-2: Share of North American Market for Third Party Processing: By
Segment, 2004, 2008 and 2013 (percent)
Major Companies Lead, But Plenty of Smaller Players
Little Competitive Overlap
A Move to the Web
A Period of Retrenchment
Impact of Recession—Moving Forward
Payroll Processing
The Basics of Payroll Processing
Payroll TPP Revenues Top $30 Billion in 2008
Market Penetration at Less Than Half
Negative Employment Trends
Payroll TPP Organizations Growing in Number
Figure 1-3: Number of Payroll Processing Establishments, 2002-2008
The Market Leaders
Scope of Payroll Processing Expanding
Looking Ahead
Payment Processing
Overview of Services
Double-Digit Growth Continues But Tempers
Credit Card Cutbacks, Shift to Debit
Figure 1-4: Annual Percentage Change in Revolving Consumer Credit, 2004-
2008
Bank Mergers Could Mean Smaller TPP Market
Competitive Landscape
Pool of Competitors Consolidates Further
Looking Ahead
Healthcare Transaction Processing
Overview of Services
Healthcare Transaction TPP Charting Steady Growth
Increasing Costs a Major Concern in Healthcare Business

3. Healthcare System Turns to TPPs for Cost Efficiencies
Upheaval Among Market Kingpins
Moving to Electronic Fund Transfer
Looking Ahead
Chapter 2: Payroll Processing
Introduction
The Basics of Payroll Processing
The Rationale for Payroll Outsourcing
Drawbacks to Payroll Outsourcing
Market Trends
Market Sizing Methodology
Payroll TPP Revenues Top $30 Billion in 2008
Figure 2-1: Revenues for Firms Providing Payroll Services, 2003-2007 (in
millions of dollars)
Table 2-1: North American Market for Payroll Third Party Processing, 2004-2008
(in billions of dollars)
Potential Client Base Over 5 Million Strong
Table 2-2: Number of Firms, Establishments, Employees and Annual Payroll of
U.S. Employer Firms, 2006
Market Penetration Less Than 50% of Potential Market
Negative Employment Trends Bad News for the Industry
Table 2-3: Number of Employees on Non-Farm Payrolls, 2003-2008
Table 2-4: Annual Percentage Change in Non-Farm Employment by Month,
2003-2009
ADP National Employment Report Also Paints Negative Picture
Avenues for Growth
Small Business Health Another Key Barometer
Projected Market Growth
Table 2-5: Projected North American Market for Payroll Third Party Processing,
2008-2013 (in billions of dollars)
Competitive Overview
Core Payroll TPP Services
Payroll TPP Organizations Growing in Number
Figure 2-2: Number of Payroll Processing Establishments, 2002-2008
Plenty of Small Firms, But Largest Ones Dominate
Table 2-6: Payroll Services Enterprises: By Employment Size and Annual
Payroll, 2006 (number and dollars)
The Market Leaders
Table 2-7: Leading Payroll Third Party Processors, 2008 (in millions of dollars)
Other TPPs in the Payroll Space
The Role of Business Process Outsourcers (BPOs) and Human Resources
Outsourcers (HROs)
The Role of Application Service Outsourcers (ASOs)
The Rise of Professional Employer Organizations (PEOs)
Competitor Profile: Automatic Data Processing, Inc. (ADP)
The World’s Largest Payroll/Tax Filing Processor

4. Figure 2-3: ADP Revenues, 2006-2008 (in millions of dollars)
Growth and Outlook
New Offerings Point to In-House Strategy
Competitor Profile: Paychex, Inc.
Building a Big Business on a Small Business
Figure 2-4: Paychex Revenues, 2006-2008 (in millions of dollars)
Payroll Is Key to Paychex’s Success
A Unique Business Culture
Small Businesses’ Problems Pose Problems for Paychex
Competitor Profile: Ceridian
Payroll Is Just the Beginning
Figure 2-5: Ceridian Revenues, 2006-2008 (in millions of dollars)
Payroll and Payment Kept Separate
Wellness and the Web
Marketing and Service Trends
Scope of Payroll Processing Expanding
Move to the Web
SurePayroll Exclusively Online-Based
Ultimate Software and UltiPro
Banks Pushing into TPP Payroll Market Through Proprietary Online Platforms
“Branded Payroll” Appeals to Accountants
Accountants as TPPs
CompuPay Hones in on CPAs
Increasing Interest in Payroll Cards
Table 2-8: Payroll Costs for Unbanked Consumers (in dollars)
Payroll Cards Not a Sure Thing for TPPs
An Attractive Market for PEOs
Looking Ahead
Deploying Technology and Allocating Resources
Waiting Out the Downturn
Branding Options at the Small Business Level
More Companies Vying for Business
Table 2-9: Number of U.S. Companies Providing Payroll Processing Services,
2002-2012
The Effect of Foreign Outsourcing
Payroll Cards’ Expanding Niche
Evolving Payroll Methods
Chapter 3: Payment Processing
Introduction
Overview of Third Party Payment Processing
The Appeal of Non-Cash Transactions
Credit Card Processing
Debit Transaction Processing
Consumers Increasingly Prefer Electronic Payments
Table 3-1: Distribution of Number of Non-cash Payments, 2003-2006 (percent)
Table 3-2: Number of Non-cash Payments, 2003-2006 (in billions)

5. Size of the Electronic Transaction Market
Figure 3-1: Estimated Number of U.S. Credit/Debit Transactions Among Top
Four Card Issuers, 2008 (in billions)
Trends in Transaction Fees
Fee Structure
Variance in Fees
How the Discount Rate Is Divided
Market Trends
Double-Digit Growth Continues But Tempers Under Market Pressures
Table 3-3: North American Market for Third Party Payment Processing, 2004-
2008 (in billions of dollars)
Healthy Growth in Credit and Debit Transactions
Table 3-4: Number of Electronic Payment Transactions by Type, 2003 vs. 2006
(in billions)
Gift Cards: A Growth Area
Table 3-5: Projected Growth in U.S. Gift Card Volume, 2007-2012 (in billions of
dollars)
Credit Card Cutbacks, Shift to Debit
Figure 3-2: Annual Percentage Change in Revolving Consumer Credit, 2004-
2008
Bank Mergers Could Mean Smaller TPP Market
Public Backlash Against Credit Card Industry
High Interchange Rates May Hurt TPPs
The PIN- vs. Signature-Based Debit Tug-of-War
Healthy Growth Through 2013
Table 3-6: Projected North American Market for Third Party Payment Processing,
2008-2013 (in billions of dollars)
Competitive Overview
Competitive Landscape
Table 3-7: Revenues of Leading Third Party Payment Processing Companies,
2005-2008 (in millions of dollars)
Pool of Competitors Consolidates Further
Across the Border
Online Payment Providers
Table 3-8: Fee Structure for PayPal and Google Checkout, March 2009 (dollars
and percent)
Companies Moving into Cell Phone Payment Processing
Future of Biometrics More Uncertain Than Ever
Competitor Profile: First Data Corp
A Market Goliath
Figure 3-3: First Data Revenues, 2005-2008 (in millions of dollars)
Company Background
KKR Takes Over First Data
Split from Chase Paymentech, Partnership with Bank of America
Consolidation, Cost-Cutting and Acquisitions
New Payment Options

6. Competitor Profile: Fiserv, Inc
The Largest Nonbank Check Processor
Figure 3-4: Fiserv Revenues, 2005-2008 (in millions of dollars)
Popular with Smaller Clients
Acquisitions and Sales
Adventures in Technology
Competitor Profile: Total System Services, Inc. (TSYS)
Newly Independent
Figure 3-5: TSYS Revenues, 2005-2008 (in millions of dollars)
Shifting Customers
International Outreach
TSYS Enters N>Gen
Competitor Briefs
Alliance Data Systems Corp
Fidelity National Information Services, Inc.
Figure 3-6: Fidelity National Information Services Revenues, 2005-2008 (in
millions of dollars)
Global Payments, Inc.
Figure 3-7: Global Payments Revenues, 2005-2008 (in millions of dollars)
Heartland Payment Systems, Inc.
Figure 3-8: Heartland Payment Systems Revenues, 2005-2008 (in millions of
dollars)
Metavante Technologies
Figure 3-9: Metavante Technologies Revenues, 2005-2008 (in millions of dollars)
Looking Ahead
TPPs Aiming for Reinvention
Mobile Banking and Payments
Contactless/RFID Payments
Chapter 4: Healthcare Transaction Processing
Introduction
The Basics of Healthcare Transaction Processing
Core Healthcare Transaction TPP Services
The Health Insurance Portability and Accountability Act
Market Trends
Healthcare Transaction TPP Charting Steady Growth
Table 4-1: North American Market for Healthcare Transaction Third Party
Processing, 2004-2008 (in billions of dollars)
Increasing Costs a Major Concern in Healthcare Business
Healthcare System Turns to TPPs for Cost Efficiencies
U.S. Medicare Leads in Electronic Processing
Table 4-2: Electronic Media Claims Rates for Medicare Carriers, 2000-2007
(number and percent)
Private Sector Lags in Electronic Processing
Figure 4-1: Electronic vs. Paper Based Transactions, 2009 (percent)
Table 4-3: Paper vs. Electronic Billing and Payment Transactions, 2009 (percent)
Obstacles to Electronic Transaction Adoption

7. Seeking Industry Standards
Market Growth to Pick Up Steam
Table 4-4: Projected North American Market for Healthcare Transaction Third
Party Processing, 2008-2013 (in billions of dollars)
Competitive Overview
Market Involves Myriad Participants
Market Leaders and Competitive Upheaval
McKesson Acquires Per-Se and RelayHealth
MedAvant Regroups as Capario
Third Party Administrators (TPAs) Manage Healthcare Programs
Competitor Profile: Emdeon Corp.
A Newly Independent Company Looking to Go Public
Emdeon’s Range of Services
Eager for Growth
A Strong Voice for the TPP Industry
Changes in Industry May Challenge Emdeon’s Lead
Competitor Profile: The SSI Group, Inc.
A Stalwart Among Healthcare TPPs
Services and Offerings
A Partnership Strategy
Competitor Profile: Availity
A Web-Based Portal for Physicians
Expansion Beyond Florida
Growing Its Services
Marketing and Service Trends
Expanding Existing Networks
Speeding Up Provider Cash Flow
Shift from Clearinghouse Model to Web-Based Systems
Moving to Electronic Fund Transfer
Closing the Transaction Loop Will Help Lower Costs
Creating Standards for Patient ID Cards
Consumer-Driven Healthcare, Debit Use Will Spur More TPP
Combining ID Cards and Debit
Industry Must Comply with HIPAA Regulations
Looking Ahead
Federal Support Likely Means Bright Future for Healthcare IT Firms
U.S. Healthcare Costs Expected to Rise Substantially
Table 4-5: Healthcare Spending by U.S. Consumers and Businesses, 2003-2018
(dollars and percent)
Greater Consumer Involvement in Own Healthcare Necessitates More Flexible
TPP
A Whole New Universe of Transactions
Electronic Medical Records Promise Efficiency, Savings and Improved Care
EMRs in Early Stages of Adoption
Government Incentives Will Spur EMRs
Appendix: Company Addresses

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