By Elena Malykhina
Recent trends in global e-commerce like the growth of fintech companies, the shift from cash to electronic payments, and the adoption of mobile payments are all contributing to high levels of digital payments M&A activity. Many established, incumbent payments companies are jumping on opportunities to merge with or acquire newer fintechs and other non-traditional payment solution businesses, according to Deloitte’s Payments Trends 2019 report.1
These M&A deals could help payments companies better face modern challenges like cross-border and B2B payments, and increase ubiquity of faster/real-time payments—both of which could benefit small-to-midsize enterprises (SMEs)
Referred to as “serial M&A” by McKinsey & Co., many global payments providers are doing multiple deals quickly in attempts to compete and grow in today’s fast-changing financial industry—and it seems the deals are only growing.2 The two largest fintech deals of all time each took place in the first half of 2019.3 In the first deal, one global fintech provider acquired a credit card processor for nearly $22 billion, setting off a wave of mergers and acquisitions in order to contend with a new industry heavyweight, experts say.4 A few months later, another fintech firm agreed to purchase a payments processing company for about $35 billion—reportedly the largest fintech acquisition ever.5
A third major deal occurred in 2019, in which another global fintech firm combined with a payments processing company, creating a payments giant serving 3.5 million SMEs and 1,300 financial institutions in over 100 countries. The combined company could allow each company to bypass payments networks by routing purchases directly to banking systems.6
The list goes on, as dozens of smaller deals have come in response to modernization efforts across the global payment services industry.7
SMEs have consistently held a lower share of cross-border payments, but could gain more access to affordable international payments thanks to recent M&A activity and associated technological innovation.8
According to another McKinsey report, one major benefit would be the convergence and simplification of cross-border payments.9 This could provide SMEs with easier access to international payments. M&A deals can also introduce flexibility, omni-channel features, and innovative payment methods—all of which SMEs consider to be the best way to keep their competitive edge, according to a survey conducted by PYMNTS.com.10
Overall, these new technologies could provide SMEs with a seamless experience that enables payments on any device, incorporates built-in fraud protection, and introduces other features.
Across the globe, 25 percent of SMEs have adopted fintech services, according to EY’s Global FinTech Adoption Index 2019.11 China leads with the highest fintech adoption rate, at 61 percent, followed by the U.S. at 23 percent. What’s more, the same report found that the adoption rate among SMEs is expected to rise in the next year, jumping from 25 percent to 64 percent worldwide.12
The EY report noted that SME fintech users share some common characteristics across different markets. For example, they tend to have a global outlook and rely heavily on internet sales, with nearly all fintech adopters (96 percent) prioritizing online and mobile sales channels. These adopters are also heavy users of online payment processors and online invoice management solutions.
But despite the fact that 79 percent of fintech adopters are mostly satisfied with the services provided by their banks and insurers, more than half (57 percent) haven’t found a one-stop-shop provider available to SMEs or services that meet all their needs, according to EY. The firm suggests more comprehensive providers that combine many financial and non-financial services could begin cropping up in the future.
KPMG’s experts anticipate increasing levels of consolidation in global payments solutions, and more partnerships forming due to the rise of open banking regulations.13
Open banking and the EU’s Payment Services Directive 2—regulations that require banks to give third-party access to account data with customers’ permission—have many implications for SMEs, particularly for the way they make and receive payments. Open banking could promote the sharing of SME bank transaction data and encourage partnerships that yield new payments solutions, which could address SME pain points.14
M&A activity shows no signs of slowing down in the global payments solutions landscape. As fintechs and traditional payments companies continue to join forces, underserved SMEs may begin to find faster and more cost-effective solutions in cross-border digital payments.
Elena Malykhina is professional writer who has covered science, technology and business for more than 10 years. Her work has appeared in InformationWeek, Scientific American, Newsday, The Wall Street Journal and Adweek, as well as through the Associated Press.
1. Payments Trends 2019, Deloitte; https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/usi-fsi-infocus-payments-trends-2019.pdf
2. 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
3. “The Biggest Deals in Fintech History Are Happening Right Now,” The Motley Fool; https://www.fool.com/investing/2019/04/14/the-biggest-deals-in-fintech-history-are-happening.aspx
4. “Analysts see largest fintech merger of all time as 'defensive' play,” S&P Global Market Intelligence; https://www.spglobal.com/marketintelligence/en/news-insights/trending/htd0MmoPYs2Wlt3melG8Gg2
5. “U.S. firm FIS buys Worldplay for $35 billion in payments deal bonanza,” Reuters; https://www.reuters.com/article/us-worldpay-inc-m-a-fidelity-ntl-inf/u-s-firm-fis-buys-worldpay-for-35-billion-in-payments-deal-bonanza-idUSKCN1QZ0ML
6. “Fintech arms race heats up with $21.5 billion takeover,” CNN; https://www.cnn.com/2019/05/28/investing/global-payments-merger-total-system-services/index.html
7. “The Biggest Deals in Fintech History Are Happening Right Now,” The Motley Fool; https://www.fool.com/investing/2019/04/14/the-biggest-deals-in-fintech-history-are-happening.aspx
8. A vision for the future of cross-border payments, McKinsey & Company; https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/A%20vision%20for%20the%20future%20of%20cross%20border%20payments%20final/A-vision-for-the-future-of-cross-border-payments-web-final.ashx
9. A vision for the future of cross-border payments, McKinsey & Company; https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/A%20vision%20for%20the%20future%20of%20cross%20border%20payments%20final/A-vision-for-the-future-of-cross-border-payments-web-final.ashx
10. “Why Two-Thirds Of Small Merchants Struggle To Innovate,” PYMNTS; https://www.pymnts.com/news/retail/2018/small-business-innovation-omnichannel-payment-methods
11. Global FinTech Adoption Index 2019, Ernst & Young; https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/banking-and-capital-markets/ey-global-fintech-adoption-index.pdf
12. Global FinTech Adoption Index 2019, Ernst & Young; https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/banking-and-capital-markets/ey-global-fintech-adoption-index.pdf
13. “Fintech predictions 2019,” KPMG; https://home.kpmg/xx/en/home/insights/2019/02/fintech-predictions-2019.html
14. The Impact of Open Banking on SMEs,” A.T. Kearney; https://www.atkearney.com/financial-services/the-open-banking-series/the-impact-of-open-banking-on-smes