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Can Legacy Payments Players Save Their Ground Through M&As?
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The global payments industry, which has been expanding at a fast clip in recent years, is witnessing a slew of mergers and acquisitions. These deals will consolidate the industry, which has been invaded by many fintech startups, and have stiffened competition for the legacy players.
Technology and E-commerce Wave
The proliferation of technology has swayed the payments industry with digital transactions, taking over the physical mode. Many fintech startups have found the industry appealing due to its high profitability and asset light operating model.
Growth of ecommerce has also increased business volumes, encouraging new entrants to explore growth opportunities. These fintech stratups, with their cutting-edge technology, and comprehensive portfolio of products and services, are eating into the market share of the incumbent players, who till now have faced little or no external pressure to change.
New Players Gaining
Investors have also sensed high business growth clocked by some new players like Square, Inc. (SQ - Free Report) and PayPal Holdings, Inc. (PYPL - Free Report) — which carry a Zacks Rank #2 (Buy) each and have gained 200% and 120%, respectively, over the past two years. This is in comparison to gains of 76%, 114% and 41%, respectively, by more established players like Global Payments Inc. (GPN - Free Report) , Total Systems Services Inc. and Fidelity National Information Services. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Small Deals Not Enough
Even though the industry participants engage in a number of small and bolt-on deals, these have proven insufficient to counter stiff competition. Advances in technology and the fast growth of digital commerce are rapidly reducing the viability of legacy systems. The best course of action is to snap up companies that can be integrated vertically or horizontally for a viable and scalable payments ecosystem.
The incumbents are seeking to optimize resources, expand geographically, gain access to new technology and gain market reach through value-added services in order to remain relevant.
Recent Deals
In this vein, the industry has witnessed three big mergers in the payments space year to date. In 2018, M&A of $48.2 billion was recorded. The amount has ballooned to nearly $96 billion in 2019, including Fiserv's acquisition of First Data for $22 billion, Fidelity National Information Services' $43 billion agreement to buy Worldpay and the $21 billion deal of Global Payments to acquire Total Systems.
Consolidation to Continue
Experts believe that open banking regulations, (designed to open financial-services markets to more competition) and EU Payment Services Directive may catalyze further acquisitions in the global payments industry.
Also, the use of crypto currency and digital wallets (though not much evident in the near term) might usurp the payments space, leaving the players seeking inorganic growth. So unless, the players become more proactive in addressing the competition, they may be swayed away by this wave of change.
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Can Legacy Payments Players Save Their Ground Through M&As?
The global payments industry, which has been expanding at a fast clip in recent years, is witnessing a slew of mergers and acquisitions. These deals will consolidate the industry, which has been invaded by many fintech startups, and have stiffened competition for the legacy players.
Technology and E-commerce Wave
The proliferation of technology has swayed the payments industry with digital transactions, taking over the physical mode. Many fintech startups have found the industry appealing due to its high profitability and asset light operating model.
Growth of ecommerce has also increased business volumes, encouraging new entrants to explore growth opportunities. These fintech stratups, with their cutting-edge technology, and comprehensive portfolio of products and services, are eating into the market share of the incumbent players, who till now have faced little or no external pressure to change.
New Players Gaining
Investors have also sensed high business growth clocked by some new players like Square, Inc. (SQ - Free Report) and PayPal Holdings, Inc. (PYPL - Free Report) — which carry a Zacks Rank #2 (Buy) each and have gained 200% and 120%, respectively, over the past two years. This is in comparison to gains of 76%, 114% and 41%, respectively, by more established players like Global Payments Inc. (GPN - Free Report) , Total Systems Services Inc. and Fidelity National Information Services. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Small Deals Not Enough
Even though the industry participants engage in a number of small and bolt-on deals, these have proven insufficient to counter stiff competition. Advances in technology and the fast growth of digital commerce are rapidly reducing the viability of legacy systems. The best course of action is to snap up companies that can be integrated vertically or horizontally for a viable and scalable payments ecosystem.
The incumbents are seeking to optimize resources, expand geographically, gain access to new technology and gain market reach through value-added services in order to remain relevant.
Recent Deals
In this vein, the industry has witnessed three big mergers in the payments space year to date. In 2018, M&A of $48.2 billion was recorded. The amount has ballooned to nearly $96 billion in 2019, including Fiserv's acquisition of First Data for $22 billion, Fidelity National Information Services' $43 billion agreement to buy Worldpay and the $21 billion deal of Global Payments to acquire Total Systems.
Consolidation to Continue
Experts believe that open banking regulations, (designed to open financial-services markets to more competition) and EU Payment Services Directive may catalyze further acquisitions in the global payments industry.
Also, the use of crypto currency and digital wallets (though not much evident in the near term) might usurp the payments space, leaving the players seeking inorganic growth. So unless, the players become more proactive in addressing the competition, they may be swayed away by this wave of change.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>