Behind the billions of dollars — OK, make that tens and tens of billions of dollars — in deal-making that has marked the payments space in the just the first few weeks of 2019, lies, of course … strategy.
And it’s grand strategy at that, with cross-border linkups that anticipate and facilitate (and, yes, spur) the move from cash to paying online or with cards.
As reported Monday (March 18), Florida-based Fidelity Information Services (FIS) has struck a $43 billion pact to buy Worldpay, based in the U.K. The spotlight thus shines brighter on financial services infrastructure, and regions where cashless is a trend, such as the U.K. As estimated by U.K. Finance, two-thirds of payments are made by digital means, a marked boost from the 40 percent tally seen in 2007.
The FIS-Worldpay deal comes on the heels of Fiserv’s January move to purchase First Data for $39 billion.
For the Monday announcement and for other deals that preceded it and will doubtless come after, it’s not just a case of, as they say, going big or going home.
It’s a mighty striving to push together the network, the platform and the use cases.
Looking beyond the eye-popping headlines, as Flywire CEO Mike Massaro told Karen Webster, there is need and desire for firms to fill in a puzzle with the pieces they lack. Each segment of the payments ecosystem must grapple with the fact that money is moving globally, and that, as Massaro put it, “tens of billions of dollars a year scale and volume is Utopia — and it’s what everybody wants.”
Against that backdrop, he said, infrastructure players like Visa and Mastercard are looking to get rails and deals in place that supplement or enhance what’s already on offer. No doubt you are familiar with recent announcements such as Mastercard’s buy of Transfast earlier this month to boost cross-border efforts, leaving Visa to its bid to buy Earthport, which in turn has a presence in B2B payments processing.
“I think they are just doing that,” Massaro said of card giants’ acquisitions, “to enable others to [tackle] the apps and use cases — banks and everybody else,” spanning both consumer and B2B payments.
For Visa and Mastercard, he said, such acquisitive strategy can be viewed as being defensive in nature, eyeing Adyen, Stripe and others, along with what might happen a decade from now as, for example, cards and cashless payments gain consumer acceptance, and are less prevalent on the B2B side of the equation (but may gather steam).
The simple fact is that is the card companies must figure out a way to be less reliant on interchange fees, and advantage lies, said Massaro, in having global infrastructure in place, and operating relatively efficiently.
“They also have good fraud controls,” said Massaro, with a nod toward Mastercard’s deal last week to buy Ethoca for an undisclosed sum, helping issuers and merchants cut down on false positives and chargebacks. “There’s trust in the system,” he added, which lends itself well to taking on banking infrastructure.
The banks missed the boat, he said, on acquiring processing services. An example that stands out is Worldpay, formerly owned by RBS, which was poorly managed, and then became a “rocket ship” (and, we note, was acquired Monday).
“That’s one piece of the puzzle,” he said, noting the rise of digital and alternative payments and of course the need to process those payments (right along with debit and credit payments). “When I think of what a company like an Airbnb or an Uber or Expedia or TripAdvisor must do,” he said of the pan-payment needs of some of the biggest tech names, “those companies have to collect money all over the world in all different types of ways and methods. They collect 100 percent of it [on one side of the transaction] and then they have to pay 80 percent of it … that’s a huge burden that those companies now have to figure out.”
And, “There isn’t one player [to which] these firms can go to do that,” he said, adding that as it stands now, such platforms must “string together bank accounts, many processors and acquirers and FX companies.”
Massaro noted that a connected approach that marries network, platform and use cases might be viewed through the prism of his own company, where several apps are connected across Flywire’s network and rails, cross borders and currencies and verticals. The fact that the apps leverage the same set of payment services, he said, delivers value to both the payer and receiver. Simply stated, he said, “consumers want to ‘push that button’” when it comes to tuition and payment plans, and he said, too, that in another use case consumers want to be alerted to what’s being taken from their accounts before the fact.
“The Holy Grail,” he told Webster, “is having software that actually delivers value.”
For the moment, too, the movement toward real-time payments has some wrinkles to be ironed out, as bank infrastructure still is set up to be run in batch processes and moving systems to real time is a risk. The use case and demand from the consumer, though, he said, as Zelle has shown, has traction amid different prices charged for different transaction speeds.
What lies ahead? Perhaps more of the same. Massaro said the rest of the year will be marked by consolidation, spurred in part by interest in some firms to offload payments-centered assets amid a favorable pricing environment.
Visa and Mastercard, he said, will continue to be aggressive and defensive, as noted above. “I wouldn’t be surprised if you start seeing some big deals around the Adyens and the Stripes, where the valuations keep going up and they have not done a lot when it comes to the acquisition game … people are missing some pretty big pieces and there are not many assets out there,” he said of the broader landscape. He added, “the opportunity is so massive that there’s not only one winner.”