Big deals altering the payments landscape

Glen Sarvady July 2nd, 2019

There’s a decent chance we’ll look back at the first half of 2019 as the period when the US payments landscape changed permanently. The chain of events began in January with Fiserv’s surprise announcement that it was acquiring First Data in a $22 billion merger. Speculation quickly followed on how other leading financial services technology providers would respond. Two months later FIS answered that question with an even bigger combination by purchasing Worldpay, which had recently gained the title of the US’s largest merchant card acquirer in terms of processing volume. Then in May, card processors TSYS and Global Payments announced they would join forces in a “merger of equals.” Our webinar explores the dynamics of these three acquisitions and their various implications for banks and credit unions in greater detail.

Taken together, these three deals rolled up the two largest US bank software providers and every top ten player in card acquiring, not already affiliated with a major bank—all within the space of five months. During the same period, the country’s #11 and #12 largest banks announced their own merger of equals—the first major move by a Top 20 bank since the financial crisis. In providing their rationale for the deal to the investment community, the leaders of SunTrust and BB&T cited the need for greater technological scale. If this is the case, what does it imply for the over 11,000 US banks and credit unions smaller than this newly combined entity?

Each of these deals has its own unique characteristics—Global Payments/TSYS, for instance, is being touted as the “payments pure play” because its portfolio does not include the software and adjacent banking services offered by FIS and Fiserv. A few unifying themes emerge, however. One is the need for even greater economies of scale in order to preserve operating margins in a competitive payments environment. Another is the continued convergence of various payments models, leading providers to strive to deliver a unified, one-stop-shop experience. The servicing of merchants and card issuers is also moving toward a common set of providers.

The mergers also mean financial institutions will have fewer providers to choose from—just as these companies have had a shrinking population of banks and credit unions to service. The emerging trend of Open APIs injects another variable into the equation, potentially making it easier for banks to assemble best-in-class product suites on an à la carte basis. Open banking enablement is now mandated in the UK by regulatory authorities; although it’s hard to envision a similar legislative path in the US, the end result may be very much the same.

Despite all the press, these deals are not expected to become official until the closing months of 2019 and even then, their impact on clients will be gradual. After all, it’s easier to change the signs on buildings than it is to integrate the underlying systems. This means financial institutions have a limited amount of time to devise strategies and adjust existing plans to address these shifts in the landscape. We hope you’ll take the time to listen to our webinar for additional information!

This content is accurate at the time of publication and may not be updated.