M&A in Payments in 2019

M&A in Payments in 2019

Volker Schloenvoigt
January 7, 2020

Another year has started and we will soon be looking at the most interesting M&A deals in the payments industry again; however, it is worth taking a step back to look at what happened in 2019 to try to predict what might be on the cards for 2020.

Whilst at the time of writing a final $ value for all M&A activity in payments during 2019 was not available, last year has seen for sure the largest total transaction value in M&A in Payments. The total 2018 deal value of approx. $50bn – which was the largest annual value ever seen at the time – has been exceeded by a mile. In fact, deal activity during the first half of 2019 alone stood at a record-breaking $67bn.

What has been the rationale behind all these deals and can we take any leads and predict what might happen in the next 12-18 months? We believe that there were (at least) three big trends in 2019 that will continue to play an important role going forward:

  1. Cross-border mega mergers – 2019 has seen quite a few high value M&A deals such as Fiserv/First Data, FIS/Worldpay, Global Payments/TSYS or Worldline/SIX Payments. The size of these deals has been the driver behind the high total deal value of 2019 but by the very nature of them, there is only a limited number of organisations that can pull off some of these consolidating moves. Increasing consolidation will remain an important rationale for future deals and we would expect another 2-3 deals in the North American or European region to happen (or be in the planning already). Whether this consolidation move will expand into the Asia-Pacific region remains more doubtful. However, it will be interesting to see whether Chinese players are continuing to look for more than operational or acceptance expansion in the coming year.
  2. Financial strength of the big payment schemes – Visa and Mastercard have continued to flex their financial muscles making investments in the payments ranging from smaller fintechs to larger well established businesses such as Earthport (Visa) or NETS’s account-to-account (Mastercard). Both schemes invested in at least 10 different businesses during 2019 and also made pre-IPO investments in two of the largest payment players in the Middle East and Africa, namely Network International and Interswitch. Whilst a number of industry observers have expressed some concerns about the impact that those deals may have on the competitive situation along the payment value-chain elements, one has to assume that schemes will continue to invest to expand their own capabilities.
  3. Capability extension – In addition to geographical expansion, making an acquisition to (quickly) enhance one’s capabilities and value propositions has always been a key driver for M&A. This was no different in 2019 and will most certainly continue going forward. What is different is the type of capability that is considered relevant or attractive? And that is largely driven by trends in the payments industry overall. Omnichannel has been a buzzword for many years now and the need to have payment acceptance capabilities for the e-commerce space has been a Must for many acquirers; consequently, payment gateways have been hugely attractive as acquisition targets. More recently, and possibly driven by regulatory developments, capabilities around biometrics, authentication and customer onboarding were very high up on the list. Going forward there is an argument that any solutions that provide integrated offerings or allow for platform economics will be of interest. Hardware or software solutions that leverage cloud technology but provide the end-customer with an integrated proposition that may go beyond payments are likely to be an attractive niche segment ready for external investment.

Undoubtedly, 2020 will continue to provide us with plenty of deals and material to comment on and we look forward to providing our reviews of some of the most attractive and interesting deals in the payment space. Happy New Year to everyone.

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