June 24, 2016
By Jim Daly
Shares of U.S. payments companies fell even farther than the general market Friday as the world absorbed the news from Thursday’s stunning “Brexit” vote in the United Kingdom in which British voters signaled they want to leave the European Union.
Whether today’s market carnage is a sign of future long-term problems is unclear, but initial reactions from payments analysts were largely gloomy. predicting slowdowns in transaction growth.
“Let the uncertainty begin” is how Omaha, Neb.-based merchant-acquiring consultancy The Strawhecker Group concluded a commentary piece on the vote, in which 52% of voters favored leaving the EU, the world’s largest trading bloc.
With the major stock-market indexes closing down in the 3% to 4% range Friday, shares of a number of U.S.-based payments companies with extensive European businesses fell even more. Euronet Worldwide Inc.’s stock closed down 8.3% from Thursday’s close. Other decliners included leading payment processor First Data Corp., off 7%; merchant acquirer Global Payments Inc., down 7.4%, and point-of-sale equipment and services provider VeriFone Systems Inc., down 7.1%.
Shares of Houston-based ATM network operator Cardtronics Inc., which plans to move its legal domicile to the U.K., fell 6.5%. ATM and point-of-sale equipment manufacturer and software developer NCR Corp., which generates about a third of its revenues in Europe, the Middle East, and Africa, took an 8.7% hit.
Summarized, the fears seem to be that by withdrawing from the EU, the U.K. might trigger a recession at home and a slowdown in income growth and economic activity throughout Europe. That scenario would translate into fewer revenue-generating transactions and sales of related products and services for payment companies.
“A slowdown or recession in the U.K./EU includes drops in consumer spending—the heartbeat of the payments industry,” the Strawhecker commentary says. “Less spending means less transaction volume for those in the payments ecosystem, including card brands, issuers/banks, processors, acquirers, and other technology providers. With 23% of global card purchase transactions occurring in Europe, the shockwaves will be felt.”
The global bank card networks Visa Inc. and MasterCard Inc. could feel a lot of pain. A report from investment firm Sandler O’Neill said “we do not see any silver lining from Brexit for the card networks,” according to Barron’s.
Shares of Visa, which just completed its acquisition of Visa Europe fell 4.1%, and MasterCard’s dropped 4.4%.
Other observers wrote of potential discordance in payments regulations as the U.K. writes its own rules.
“There may be an impact on regulation and payments harmonization in Europe,” senior analyst Ron van Wezel of Boston-based Aite Group LLC wrote in an analysis. “When the U.K. leaves the European Union, the pending EU regulation is officially no longer applicable to it, which will create uncertainty around the legal framework of payments between the U.K. and the EU. There is therefore a risk that the U.K. will in the future operate on different payments laws, making it more expensive to do business.”
On the optimistic side, he added that countries such as Norway and Switzerland, which are not part of the EU, have implemented most EU payments laws. And the U.K. has already translated the EU’s first so-called Payment Services Directive, which created a single market for payments, into its national law, so “the country should be expected to continue following EU payments legislation,” van Wezel said.
Press reports indicated that the U.K.-EU separation could take at least two years.
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