Close observers of the payment-processing industry predicted Fiserv Inc. would start a merger wave when it announced its $22 billion deal to acquire First Data Corp. in January. That prophecy seems to have come true with the even bigger $43 billion FIS-Worldpay merger announced Monday, and the consolidation wave probably hasn’t crested, analysts say.
The roster of potential buyers—or sellers—includes Total System Services Inc. (TSYS), Global Payments Inc., U.S. Bancorp, which owns the big merchant acquirer Elavon Inc., and Jack Henry & Associates Inc.
“Do I think another one is coming in the future?” asks Jared Drieling, senior director of business intelligence at Omaha, Neb.-based payments consulting firm The Strawhecker Group. “Of course.”
The trend is for processors with big but slower-growing services for credit and debit card issuers to move into the faster-growing merchant-acquiring space, he tells Digital Transactions News. That was the case with Fiserv and now FIS, both of which will become big-league acquirers when their deals close. “We’re kind of seeing the flip of these other processors in terms of getting into the acquiring community,” says Drieling.
Aaron McPherson, vice president of research at Maynard, Mass.-based Mercator Advisory Group Inc., says by email that “we did foresee something like this coming, and predict that there will be more mergers and acquisitions as other players seek to bulk up in order to remain competitive.”
Minneapolis-based U.S. Bancorp’s next move, if any, could be interesting. It is one of the very few banks with a heavy direct investment in payment technology—JPMorgan Chase & Co. has pursued a similar strategy—and gets about a fifth of its revenues through payment services. Thus, it couldn’t be ruled out as a buyer seeking to enhance those services. At the same time, now might be the time to put a “for sale” sign on Elavon.
“I would not be surprised to see U.S. Bancorp shopping Elavon, as it is now a good market for selling acquirers,” says McPherson. A U.S. Bancorp spokesperson declined comment.
After the Fiserv-First Data deal was announced, some observers thought TSYS might be the next acquisition target. But TSYS is still skewed more toward issuer processing, though it does have a big merchant-processing division, much of which originated with First National Bank of Omaha. Still, “they’re not in that same realm as a First Data” on the merchant side, says Drieling.
Worldpay’s bigger presence in acquiring made it more of an attractive takeover target than TSYS, echoes Larry Berlin, a senior vice president at Chicago-based First Analysis Securities Corp. Thus, while some people think FIS’s acquisition of Worldpay is a surprise, “when you think about it, it’s not,” he tells Digital Transactions News.
Atlanta-based Global Payments has been quiet since the Fiserv-First Data merger was announced. Global Payments has been a pioneer in the move by merchant processors into the independent software vendor market, having made several major acquisitions in a tech-oriented niche many processor executives covet.
And Monett, Mo.-based Jack Henry & Associates Inc., which focuses mostly on small financial institutions, might find its business enhanced by the merger wave, should it remain independent.
“Small to medium-size issuers and merchants are weary of the large consolidations because they feel like they get lost in the fray,” Krista Tedder, director of payments at Pleasanton, Calif.-based Javelin Strategy & Research, says in an email. “Smaller processors, group service providers, and gateways could come away as the winners in the payment-world consolidation.”