Of late we’ve been reading headlines of players in the payments industry— big and small— coming together to form mergers. And a market specialist has a theory for this;
“The rapid shift to digital transactions and the search for high-end business software is driving most of these consolidations.” wrote Ian McDonald, a research analyst at Janus Henderson Investors in a report on Seeking Alpha.
This year alone, we’ve seen several acquisitions. Two of the most noteworthy saw;
- Fiserv Inc take over First Data Corp. in a deal worth a whopping $22 billion; and,
- Fidelity National Information Services Inc. acquire Worldpay Inc. in a transaction valued at twice the First Data deal.
These billion-dollar deals have left expert observers who used to view payments processing as a slow business watching in awe. However, payment is also going digital, more so e-commerce, which is changing payments from a postscript to a matter of concern, according the analyst.
“The retail market is digitizing at a faster pace with e-commerce slicing a larger share of the consumer wallet,” says McDonald. “This means that the sector can now generate more useful data that can be used to help get more clues into consumer behavior. What’s more, the data can be increasingly useful in the fight against fraud.” He says.
The payment sector is split into two groups
As a result, and in a bid to specialize in their various offerings, firms in the payments industry are grouping themselves into two categories, says McDonald;
- Group 1: Consists of processing firms looking to boost data analytics and expand their bottom line.
- Group 2: Companies like PayPal Holdings Inc. and Square Inc. eager to upgrade software and offer more user efficiency. Established companies e.g., Global Payments Inc., that have focused efforts into acquiring independent software sellers also fall here.
The main inspiration for both groups is the growth of digital processing and the cumulative trove of data payments processing can generate.
“The potential of an increasing amount of digital and online business transactions, as a portion of overall customer spending is magnified by the trove of data obtained from payments making it a possible revenue stream instead of a necessary expense.” Says the market specialist.
Hopefully these mergers will streamline the payment industry as a whole and lead to innovations and inventions that will help solve the various problems the sector still faces.
Author Bio: Electronic payments expert Blair Thomas is the co-founder of high-risk payment processing company eMerchantBroker. He’s just as passionate about helping retailers get high risk merchant accounts as he is with traveling and spending time with his dog Cooper