A $10 billion combination of two back-office processors whose roots date to the 1970s might seem unusual in the world of financial technology, where startups are the focus of M&A chatter.
But bankers and analysts said that some of the legacy players are more interested in buying one another than newer rivals due to their sheer size and the inertia of their customers and this has been exhibited by Vantiv Inc's plan to acquire Worldpay Group PLC. By linking stores to customers' bank and credit-card accounts, the two companies facilitate payments.
"It's a pretty sticky product," said Thad Peterson, an analyst at Aite Group. "Once merchants find a processor that works for them, they are unlikely to change. Merchants aren't in the business of payments, they are in the business of selling stuff."
During the Nixon era, within a Cincinnati-based regional lender Fifth Third Bancorp, Vantiv started as a project. On the other hand, ultimately getting absorbed into Royal Bank of Scotland, Worldpay, headquartered in London, was launched by a British lender in 1989.
Both companies thrived on their own continents after they were spun out of their banks after the financial crisis. And now, according to data from The Nilson Report, and based on the $1.3 trillion worth of transactions they handled in 2016, both the companies are poised to become the singular middleman for more sales globally than any other wholly-owned merchant payments processor.
a spokesman said that Worldpay had been looked at by the next largest, JPMorgan Chase & Co, but a bid was not ultimately not put in. Expanding outside of its home country where it has been getting about four-fifths of its merchant business would have been possible for JPMorgan, the biggest U.S. bank by assets, by buying Worldpay.
This is a time when the payments industry - long considered a backwater of banking - is facing fresh competition and when more purchases are being made online and the Vantiv-Worldpay deal comes at such a time.
Among the newcomers trying to disrupt the way merchants get paid are San Francisco-based Stripe Inc., Amsterdam-based Adyen and PayPal Holdings Inc's Braintree. Including video-on-demand platform Netflix Inc, ride-hailing app Uber and streaming music service Spotify, these new companies have managed to secure deals with high-profile technology companies.
But they represent a small slice of the market despite the buzz surrounding these companies.
For example, according to estimates from Mizuho Securities, about 90 percent of transactions in the United States is accounted for by the top 10 processors. Such players include companies like First Data Corp, which also grew out of the banking industry or big banks.
One investment banker to the industry said that in order to gain economies of scale, big players want to get bigger even with that much concentration. While newcomers remain independent because their stocks are much more highly valued, more traditional companies will combine, the banker predicted.
Analysts and executives said that allowing merchants to sell products through any channel to customers anywhere in the world creates the real competitive advantage once processors have the scale of big banks.
The banker said that similar to the rationale behind Vantiv buying Worldpay, future mergers could be driven by a need to access new geographies or improve digital offerings.
(Source:www.reuters.com)
But bankers and analysts said that some of the legacy players are more interested in buying one another than newer rivals due to their sheer size and the inertia of their customers and this has been exhibited by Vantiv Inc's plan to acquire Worldpay Group PLC. By linking stores to customers' bank and credit-card accounts, the two companies facilitate payments.
"It's a pretty sticky product," said Thad Peterson, an analyst at Aite Group. "Once merchants find a processor that works for them, they are unlikely to change. Merchants aren't in the business of payments, they are in the business of selling stuff."
During the Nixon era, within a Cincinnati-based regional lender Fifth Third Bancorp, Vantiv started as a project. On the other hand, ultimately getting absorbed into Royal Bank of Scotland, Worldpay, headquartered in London, was launched by a British lender in 1989.
Both companies thrived on their own continents after they were spun out of their banks after the financial crisis. And now, according to data from The Nilson Report, and based on the $1.3 trillion worth of transactions they handled in 2016, both the companies are poised to become the singular middleman for more sales globally than any other wholly-owned merchant payments processor.
a spokesman said that Worldpay had been looked at by the next largest, JPMorgan Chase & Co, but a bid was not ultimately not put in. Expanding outside of its home country where it has been getting about four-fifths of its merchant business would have been possible for JPMorgan, the biggest U.S. bank by assets, by buying Worldpay.
This is a time when the payments industry - long considered a backwater of banking - is facing fresh competition and when more purchases are being made online and the Vantiv-Worldpay deal comes at such a time.
Among the newcomers trying to disrupt the way merchants get paid are San Francisco-based Stripe Inc., Amsterdam-based Adyen and PayPal Holdings Inc's Braintree. Including video-on-demand platform Netflix Inc, ride-hailing app Uber and streaming music service Spotify, these new companies have managed to secure deals with high-profile technology companies.
But they represent a small slice of the market despite the buzz surrounding these companies.
For example, according to estimates from Mizuho Securities, about 90 percent of transactions in the United States is accounted for by the top 10 processors. Such players include companies like First Data Corp, which also grew out of the banking industry or big banks.
One investment banker to the industry said that in order to gain economies of scale, big players want to get bigger even with that much concentration. While newcomers remain independent because their stocks are much more highly valued, more traditional companies will combine, the banker predicted.
Analysts and executives said that allowing merchants to sell products through any channel to customers anywhere in the world creates the real competitive advantage once processors have the scale of big banks.
The banker said that similar to the rationale behind Vantiv buying Worldpay, future mergers could be driven by a need to access new geographies or improve digital offerings.
(Source:www.reuters.com)
Homepage
Send to a friend
Printable version
Share
