MAG Insights

Announcements from the MAG & Featured Articles

Evolution in Payments & Commerce: Merger, Merger, Merger – What Does it Mean for the Merchant? (MAG Quarterly- Volume Seven, Issue Two)

Laura Townsend 2019 Headshot_small
By Laura Townsend, SVP Operations, Merchant Advisory Group

June 6, 2019

Should merchants expect upsides or shortcomings as a result of the ongoing merger activity across the payments industry?  Or will merchants feel little impact of the continued consolidation?  It is tough to decide how this will all play out but one thing we can be sure of is that this industry movement will continue.

It seems like a revolving door for new news about Mastercard’s and Visa’s continued investment activities in FinTech firms such as VocaLink, Ethoca, Vyze, Earthport, Klarna, Square, Stripe, and Transfast, whether they are acquisitions or basic funding.  In addition, the acquiring industry consolidation continues beyond the acquisition of Cayan by TSYS in 2017 and Vantiv by Worldpay in 2018 to include more recent announcements that FIS plans to acquire Worldpay and Fiserv plans to acquire First Data.  What is next?

Although there are many speculations on the rationale for these mergers and acquisitions in the acquiring space, I want to start the dialogue on what might be the effect on the merchant community?  Will the impact be advantageous or unfavorable to the retail industry?  There are a few ways to look at it, but it is clear the overall objective for all this activity is to secure dominance in the marketplace.

The Good?

Slow growth of issuer services is prompting interest in merchant acquiring platforms that continue to grow significantly.

Many of the acquisitions to date have been focused on amassing complimentary capabilities.  For example, the Fiserv acquisition of First Data combines a core issuer processor with a strong merchant acquiring platform, enabling the opportunity for some interesting issuer-to-merchant direct capabilities depending on the strategic direction of the combined organization. 

One might think that would raise concerns from a global network perspective of potential opportunity to reduce the dependence on the networks to deliver payment processing services to merchants and issuers.  JP Morgan Chase was one of the more recent examples of an issuer leveraging its capabilities to enable more direct relationships with merchants through Chase Merchant Services.  Although the network sentiment appears to reflect limited apprehension, some stakeholders would suggest that attitude is misdirected.  Any outcome that reduces the number of cross-stakeholders required to support the payments ecosystem could result in efficiencies which should ultimately reduce the cost of acceptance overall if done right. 

Another benefit of these recent acquisitions could be to smaller retail businesses through the extension of the more contemporary mobile POS platforms, as well as the collective processing capabilities to the SMB point of sale as an added service offering issuers can provide bundled among other lending or cash management services.

The Not so Good?

A concern might be the consolidation in the acquiring industry that could reduce competition within the traditional processing market such that economics increase, causing the overall cost of acceptance to the merchant to rise.  Over time, processing services for credit and debit card acceptance has become compressed such that processing costs are a marginal component of the overall cost of acceptance to the merchant.  The concern might be that decreased competition could reverse that trend.

At the same time, these acquisitions are playing out as the growth in digital commerce continues.  As a result, these traditional and large merchant acquirers need to continue to remain competitive in offering data analytics, cloud services, prepaid, and other proprietary capabilities that compete with contemporary digital first companies out there like Adyen, Square, PayPal, and Shopify, who can be more nimble in their services delivery since they don’t have the legacy architecture of historical acquisitions for which platform consolidations remain outstanding.  These more agile competitors should continue to keep the traditional merchant acquiring providers on their toes which will continue to keep processing costs at a minimum.

What’s Next?

Interesting possibilities remain for consolidation activity include Bank of America Merchant Services, TSYS, Elavon (owned by US Bank), Global Payments, and Jack Henry & Associates, to name a few, and the industry should keep a watchful eye.  As the market continues to evolve, it is important to think about the position you may be in with your current merchant acquirer/processor relationship. 

At the end of the day, we can all agree that every public company is interested in driving as much revenue as possible.  However, there may be opportunities these merger activities could offer to the merchant community.  It will take time for the impact of these mergers to be realized in regard to any efficiencies and additional value-added service offerings to merchants given the processing infrastructures for these companies are very complex and some are still working through their most recent merger. 

For that reason, one bit of advice is that now may not be the time to lock in on long-term commitments but instead, wait to see how the market develops. 

Who merges with whom is undetermined, but what is certain is that more announcements will come.