So now we know. As EPI goes to print comes confirmation that the Global Payments-TSYS rumours were true: Global Payments is to acquire TSYS for $21.5bn in an all-stock deal.
We are not yet through May, and already this year has witnessed three mega-mergers in the payments sector. First off, Fiserv agreed a $39bn deal to acquire First Data in January. That deal ranked as the largest payments acquisition since the spin-off of PayPal from eBay in 2015. But not for long: along came FIS to snap up Worldpay for $43bn in March.
There is little chance that this third mega-deal represents the last major acquisition in the sector. Jack Henry next up? One wonders just how long core processing provider Jack Henry will retain its independence?
On a personal level, there is a tinge of sadness at the wave of consolidation. In my teens of years experience across cards, banking and payments, few vendors have been as media-friendly or helpful as TSYS and First Data. The reasons for the sector consolidation make perfect sense: payments is a scale business.
With the acceleration of innovation in both mature and emerging markets, the deals look attractive on paper. In particular, the combination of Global Payments and TSYS brings together strength in cards processing, mobile and online payments, with TSYS’s focus on helping banks and card issuers accept and clear payments.
TSYS is especially strong in digital P2P payments and B2B payments via its NetSpend unit. GlobalData’s online consumer payments analytics show that since 2011, card-based online payments have been declining in terms of share of online payments in favour of alternative tools, which exceeded 50% of the e-commerce market in 2018.
As GlobalData analyst Bhavika Shah tells EPI: “Due to these changes, payment processors and acquirers need to support payment transactions wherever in the world they take place, using whatever payment tools the customer wants to use. In order to do that, many merchant acquirers and processors are entering into mergers that will allow them to offer truly end-to-end global payment acceptance services to their clients.
“Global Payments and TSYS as a combined company makes strategic sense. It will be able to provide merchants with fully end-to-end payment acceptance services, as well as offering merchant services at a larger global scale.”
Shah continues: “Consumers will benefit from these consolidation deals by being provided more choice at checkout, as the new giants of processing leverage their global scale to enable merchants to accept a wider range of payment tools.
“We can expect these new giants to start pushing smaller players out of the global payment acceptance market – and as globalisation filters down to smaller merchants, out of domestic markets too. This will not be the last merger we see in this space.”
Taking on the challenge of Square The tie-up also helps in taking on the growing challenge of the likes of Square which, on the merchant acquiring side, has been winning market share in the retail and restaurant sectors.
Now comes the tricky bit for Global Payments, Fiserv and FIS: to execute the deals, wring out the forecast cost savings and benefit from enhanced cross-sell opportunities from combined client bases. It also begs the question as to the value of Square: its share price is ahead by a modest 12% for the year to date. Indeed, the Square share price, currently $64, is down a whopping 34% since it peaked at $100 last September.