The $43 Billion Payoff

The FIS-Worldpay merger not only created a processing behemoth, it set the stage for an operation with diverse revenue streams that can withstand shocks like Covid-19.

A year later, the FIS/Worldpay merger—one of three giant processor combinations in 2019—appears to be reaping the promised benefits.

If a company that created itself in a $43 billion merger and that processed a combined $1.34 trillion in volume in 2019 can be summed up in one word, “agile” may not come to mind straight away. But, that is the word most apt for FIS, which closed on its merger with Worldpay Inc. last summer.

It was the largest of the three giant 2019 deals. Fiserv Inc. and First Data Corp. was valued at $22 billion and the Global Payments Inc./Total System Services Inc. (TSYS) combination was a $21.5 billion transaction.

While every payments company can pride itself on being attuned to change and having the flexibility to adapt, FIS—legally Fidelity National Information Services Inc.—has been rash enough to make these characteristics part of its overall strategy.

Where some processors developed or bought a point-of-sale system, FIS opts to provide the payment processing and related services to a variety of providers. It’s a partnership model that preceded both companies. Harking back six years ago, Vantiv Inc., a predecessor to Worldpay, bought Mercury Payment Systems LLC, which created a strong demand for integrated payments by working with software developers. Even before Worldpay, FIS had completed its share of acquisitions, such as the 2009 deal to buy Metavante Technologies Inc.

Now, the integration of FIS and Worldpay is essentially realized. “From an integration standpoint, things are going extremely well,” says Jim Johnson, executive vice president and head of merchant solutions at Jacksonville, Fla.-based FIS. “I’ve been with FIS for 20 years. I’ve been through a few of these.”

‘Blurring the Lines’

The combo already has notched some notable wins. Likely drawing on Worldpay’s e-commerce capability, a global retailer is consolidating agreements with some 40 providers exclusively with FIS, Gary Norcross, chairman, president, and chief executive said during the company’s most recent earnings call in May.

Johnson lists other recent accomplishments, such as developing a corporate-payments service that takes advantage of Worldpay’s accounts-receivable expertise and FIS’s legacy accounts-payable business. FIS is consolidating its data operations under a chief data officer to tap into insights from each legacy company and shape them into an improved service. The post-merger FIS now operates in 100 countries and has had success in its cross-sales efforts, Johnson says.

The international expansion was a major opportunity made possible by the merger. “We’ve done extremely well with our loyalty as a currency product with some marquee wins we talked about publicly,” Johnson says. In February, FIS said consumers at financial institutions enrolled in its FIS Premium Payback network can use rewards points to pay for purchases at PayPal-accepting merchants globally.

The ability to cross-sell into client portfolios is continuing to shape new product development, Johnson says. Everything in development is done with an eye to cross-selling capabilities, he adds.

“People are reaching out to new places for financial capabilities,” he says. “Financial institutions have to compete against the likes of Amazon Pay and Apple Pay more so than in the past.” Competition is driving some of that. New technology companies are blurring the lines between the types of products a retailer might want and the needs of financial institutions, he says.

Making cross-selling capability a paramount element will be essential for growth. “Growth in the merchant section for FIS/Worldpay will be in cross-selling services,” says Krista Tedder, director of payments at Javelin Strategy & Research, a Pleasanton, Calif.-based advisory firm.

“Some solutions available to U.S. financial services will prove valuable to FIS merchants, specifically around the areas of protecting digital assets,” she says. “The experience of protecting online and mobile banking will help merchants. Identity fraud [involving] merchant accounts is growing with fraud spiking to 39% of all new account fraud in 2019 compared with 24% in 2018. Account-takeover tools would also benefit merchants. Merchant-account takeover fraud and email payments such as PayPal also saw significant spikes in 2019.”

Cohesive Products

Analyst Jared Drieling views the cross-sale opportunity as a chief tactic for FIS. “They’re not trying to own the whole cycle,” Drieling, senior director of consulting and market intelligence at Omaha, Neb.-based The Strawhecker Group, tells Digital Transactions. “First and foremost, they will focus on cross-selling opportunities.”

What will materialize, Drieling says, are more cohesive products that can tap the assets of each side of FIS, merchant processing and bank technology. “They’re utilizing both sides,” he says. “As you weave in some of these solutions into the banking operations, there’s a lot of synergies. Over time we will see more products and services that take on an FIS flavor or Worldpay flavor, from a single standpoint. That’s clearly unfolding with their recent announcements.”

Just in June, FIS announced Open Banking Hub, which enables Worldpay merchants to enable digital bank-account payments as an option in their online stores. Starting in the United Kingdom, the service enables consumers to pay directly from a bank account and get real-time balance updates during the checkout process.

Like any large player in payments—FIS had $935 million in revenue in its merchant-solutions segment in its 2020 first quarter—FIS faces competition from like-size peers and small organizations. By comparison, Fiserv, the Brookfield, Wis.-based processor that bought First Data, counted $1.25 billion in revenue for its merchant acceptance unit in its first quarter.

“When you think about merchant acquirers that have really dominated, there’s pros and cons of that model,” Drieling says. “When First Data was the 800-pound-gorilla, that left the door open to entities that could specialize.”

But FIS says its model has the flexibility to serve a broad swath of merchants. FIS doesn’t have to provide its own point-of-sale system if it can partner with those who do. “Any part of the supply chain is not out of scope for us,” Johnson says.

In the small-merchant space, it partners with independent sales organization, independent software vendors, and payment facilitators in multiple verticals, he says. “We partner and integrate tightly with them,” he says. “We’re very focused on the customer experience.”

More to Come

The full implications of the FIS/Worldpay merger have still to play out, suggests Javelin’s Tedder. “The merchant market has not yet seen the most impactful changes that will come from the FIS/Worldpay merger,” Tedder says.

“The coronavirus impacts to commerce will most likely accelerate the changes needed to … build an interoperable issuer and merchant platform–leveraging consumer payment habits that can be gleaned from understanding the financial-services relationship, and building payment strategies for merchants,” she adds.

And there’s no discounting the impact of the Covid-19 pandemic. Tedder expected 2020 to be rife with requests for proposals for new processing agreements, but that has not happened as the pandemic suspended much of this activity. FIS’s diversification will help it weather the pandemic.

“Out of the three mergers (Fiserv/First Data, Global Payments/TSYS, and FIS/Worldpay), the most diverse company will come out of the coronavirus stronger,” Tedder says. “FIS/Worldpay, balancing merchant and financial-service providers, will have the most diverse client base and revenue diversification.”

Johnson says the short term goal for FIS is to continue to focus on cross-selling opportunities by bringing more products to the merchant and financial-institutions spaces. In the long term, “we’re going to continue very much on new product development,” he says. “We will continue on the modernization to improve self-service in the client experience and continue to use data insights to reduce fraud.”