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M&A Sweeps Through Global Payments Industry

By Mike Faden

The rapidly changing global payments landscape is driving a record level of mergers and acquisitions in the payment industry. There were 102 transactions worth a total of $46 billion in the first six months of 2018, outstripping the 2017 full-year total of $32.9 billion, according to data reported in the Financial Times.1

A broad set of related trends is fueling the increased M&A activity, include continuing growth in e-commerce and a global shift from cash to electronic payments. Those trends are affecting both established players and newer financial-technology (fintech) firms, and making payments companies attractive acquisition targets.2 At the same time, global payments companies are also making acquisitions, aimed at building broader e-commerce product suites and increasing their geographic reach. Among the potential benefits for businesses: more-comprehensive omni-channel and e-commerce payment solutions, and new options for cross-border payments.

 

Global Payments Continue to Rise

 

Worldwide, the estimated number of electronic transactions increased nearly 11 percent to more than 522 billion in 2017, according to the World Payments Report 2017.3 While healthy growth in e-commerce was a contributing factor, so was the shift from cash to electronic payments in brick-and-mortar stores. This shift is attributed in part to the broader adoption of card payments in emerging economies, as well as the spread of newer technologies such as mobile and contactless payments.4

 

Global growth in so-called “cashless payments” is likely to continue, experts say. By 2020, emerging economies are expected to grow at three times the rate of mature economies, with the adoption of digital payments helping to propel Asian economies to an annual growth rate of nearly 31 percent, according to the World Payments Report. But some experts say there is also room for growth in mature economies such as Germany and Italy, where the penetration of electronic payments is still relatively low.5

 

This global payments growth is one factor that has made payments companies, especially those specializing in the fastest-growing sectors such as mobile payments, attractive acquisition targets. The global payments industry is also highly profitable, systematically outperforming other financial services sectors; revenue has been growing at 7 percent and profit at 30 percent annually in recent years, according to a McKinsey & Company report.6 Furthermore, payment companies’ high cash flow and relatively asset-light businesses have made them attractive to private equity groups, which have been particularly active buying units that were previously owned by banks, according to the Financial Times.7

 

At the same time, the industry has seen consolidation among existing payments processors, which are seeking economies of scale through global expansion, according to the McKinsey report.8 There have been several major cross-border M&A deals among payment processors in the last year. Some experts expect that consolidation to continue, driven by trends such as the growth of cross-border payments and global e-commerce.9,10

 

Deals to Build Omni-channel Global Payment Providers

 

Payment providers are also using acquisitions to build omni-channel global payment capabilities, increasing their ability to support businesses that sell both online and in stores. Two recent transactions involved companies whose products let small businesses use smartphones and tablets as point-of-sale devices. In one deal, a large U.S. fintech online payments firm acquired a European provider of mobile point-of-sale technology, thus increasing its international presence as well as gaining the ability to support brick-and-mortar purchases.11 In the other deal, a leading U.S. supplier of mobile point-of-sale technology acquired a firm offering website development tools, with the aim of creating a cohesive solution for entrepreneurs looking to build online and offline businesses.12

 

‘Serial M&A’ for Broader E-commerce Suites

 

Some fintechs are undergoing what McKinsey described as “serial M&A” to build broader solutions for SMEs and other customers. One large company’s acquisitions included a leading peer-to-peer mobile payments company, a merchant payment processing firm, an international money-transfer company, a company providing AI-driven personalized marketing, and a financial-services firm specializing in small-business lending.13,14

 

Established Financial Firms Dive In

 

Established financial institutions and global payment providers have also targeted smaller payments providers and other fintechs as they seek to expand and upgrade their services, and in some cases also to increase their international presence.15 One major French payment technology firm acquired a New Zealand-based payment service provider, thus continuing its expansion into the Asia-Pacific region, and it also purchased a technology provider that enables SMEs to accept online payments.16

 

Open Banking May Drive More Payments M&A

 

Experts say that “open banking” regulations designed to open financial-services markets to more competition may also catalyze further acquisitions in the global payments industry.17,18 Among them are the EU Payment Services Directive 2 (PSD2), which requires banks to open up consumer account data (with the account owner’s consent) to third-party providers of payment-processing and information services. Other countries, including the U.K., are also implementing open banking initiatives.

 

The

Takeaway:

The global payments industry is being transformed by trends such as the growth of e-commerce, the shift from cash to electronic payments, the adoption of mobile payments, and open banking regulations. These trends are contributing to a wave of mergers and acquisitions sweeping across the global payments industry. Businesses may benefit from a wider selection of omni-channel and e-commerce payment solutions as well as new options for cross-border payments.

Mike Faden - The Author

The Author

Mike Faden

Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.

Sources

1. “Dealmaking in global payments sector hits new high,” Financial Times; https://www.ft.com/content/93ed4628-812c-11e8-bc55-50daf11b720d
2. “Goldman predicts rise in payments M&A in 2018,” Reuters; https://www.reuters.com/article/us-payments-m-a-goldmansachs/goldman-predicts-rise-in-payments-ma-in-2018-idUSKBN1F715P
3. World Payments Report 2017, Capgemini and BNP Paribas; https://www.worldpaymentsreport.com/
4. “Dealmaking in global payments sector hits new high,” Financial Times; https://www.ft.com/content/93ed4628-812c-11e8-bc55-50daf11b720d
5. Ibid.
6. How Value Creation Is Reshaping the Payments Industry, McKinsey & Company; https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/How%20value%20creation%20is%20reshaping%20the%20payments%20industry/How-value-creation-Is-reshaping-the-payments-industry.ashx
7. “Dealmaking in global payments sector hits new high,” Financial Times; https://www.ft.com/content/93ed4628-812c-11e8-bc55-50daf11b720d
8. How Value Creation Is Reshaping the Payments Industry, McKinsey & Company; https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/How%20value%20creation%20is%20reshaping%20the%20payments%20industry/How-value-creation-Is-reshaping-the-payments-industry.ashx
9. “Few Payments Players Left Standing Amid Heavy M&A,” Forbes; https://www.forbes.com/sites/mergermarket/2018/07/03/few-payments-players-left-standing-amid-heavy-ma/#63abb4602949
10. “Payments sees flurry of M&A activity.” Euromoney; https://www.euromoney.com/article/b144ldl0r3z2fn/payments-sees-flurry-of-mampa-activity
11. Why PayPal bought a European start-up with IPO plans for $2.2 billion, CNBC; https://www.cnbc.com/2018/05/18/why-paypal-bought-izettle-for-2-point-2-billion.html
12. “Square is acquiring website builder Weebly for $365M,” TechCrunch; https://techcrunch.com/2018/04/26/square-acquires-weebly/
13. “PayPal to acquire fraud prevention company Simility for $120 million,” Reuters; https://www.reuters.com/article/us-simility-m-a-paypal-hldg/paypal-to-acquire-fraud-prevention-company-simility-for-120-million-idUSKBN1JH35Y
14. “A History Of PayPal Acquisitions In Fintech,” Forbes; https://www.forbes.com/sites/madhvimavadiya/2018/05/18/paypal-acquisitions-fintech/#13ab25362002
15. “Fintech Deal Landscape to Remain Active in 2018,” Skadden.com; https://www.skadden.com/insights/publications/2018/01/2018-insights/fintech-deal-landscape-to-remain-active-in-2018
16. #payments Volume 20, EY; https://www.ey.com/Publication/vwLUAssets/ey-payments-nl-vol-20/$FILE/ey-payments-nl-vol-20.pdf
17. “Poised for Next Payments Boom,” Latham & Watkins LLP; https://www.lexology.com/library/detail.aspx?g=0e62d919-e41e-4b3f-8e60-79a52d45269a
18. “Goldman predicts rise in payments M&A in 2018,” Reuters; https://www.reuters.com/article/us-payments-m-a-goldmansachs/goldman-predicts-rise-in-payments-ma-in-2018-idUSKBN1F715P

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