Visa, Mastercard, NCR and WEX are all snatching up payment technology providers, and special purpose acquisition companies and private equity firms are getting in on the action. Mergers & Acquisitions takes a deep dive into the sector.
Facing a federal antitrust suit, Visa Inc. and fintech startup Plaid recently called off their proposed $5.3 billion merger. In the digital payments realm, the news was greeted by cheers and jeers. Sure, some unicorn dreams got dashed with follow-on floodgates now seemingly switched off. But ultimately competition should flourish.
And even assuming Visa, MasterCard, American Express, PayPal and Square collectively capture the lion’s share of the transaction facilitation market, its sheer enormity still commands attention.
Take B2B payments: an estimated $120 trillion changes hands per year globally. With sums like that at stake – and considering the momentum of the past two years – fintech’s payments-related realms should expect to experience a flurry of activity in 2021.
“Within B2B there’s a continuing shift as constituents realize the value proposition of digital adoption,” said Ryan Goldenberg, Principal, LLR Partners, a private equity firm that actively invests in fintech.
NCR Corp.’s announcement in January that it is buying Cardtronics for $2.5 billion demonstrates the continued high level of interest.
Momentum Keeps Building
At the start of 2020, with Visa declaring it was engaged to Plaid, the payments sector seemed to pick up where it left off in 2019 – on a spree.
It was quite the banner year indeed: Global Payments had acquired Total System Services for $21.5 billion; Fidelity National Information Services bought Worldpay for $43 billion; and Fiserv acquired First Data for $22 billion.
One Visa deal in 2020 that did not get scuttled was its acquisition of YellowPepper, a platform of Application Programming Interfaces, or APIs, which are software intermediaries allowing two applications (say, a mobile banking app and a securities trading platform) to communicate.
Between proprietary technology and partnerships, YellowPepper has carved a niche providing financial APIs to institutions in the Caribbean and Latin America. Visa has not been shy about telegraphing its ambition to build a “network of networks” strategy; cross-selling into Plaid’s customer base would have been nice for Visa but the credit card behemoth can still continue to develop software solutions for financial apps seeking to connect with users’ bank accounts.
On its own, Plaid remains a fintech juggernaut. It garnered more than 4,000 clients as of the end of 2020. That’s an increase of 60% compared to 2019, the company said. Customers include Venmo and Robinhood as well as crypto exchanges such as Coinbase and Gemini.
Plaid’s success helped fintech take flight in 2020 as locked-down masses embraced trading apps and virtual banking.
Uncertainty tied to economic restrictions owing to the pandemic continues to roil some consumer expenditures more than others (i.e. day trading is up, flight and hotel bookings, not so much).
“Fintech companies that help their customers embrace digitization are best positioned right now,” LLR’s Goldenberg said.
This past December saw the completion of a noteworthy transaction: Portland, Maine-based fintech services provider WEX, Inc. acquired eNett, a provider of B2B payments solutions, and Optal, a company that specializes in optimizing B2B transactions. It had been a fraught path to fruition, with WEX shareholders objecting in court, leading to a revised price (and thus some settled legal claims). All told, WEX spent $577.5 million on this pair of new parts that will aid a bold long-term expansion into digital payments within consumer travel.
Near-term opportunities remain limited, said fintech analyst Sanjay Sakhrani of Keefe, Bruyette & Woods, Inc., part of Stifel. He predicts consumer travel will resume, “which could lead to potential for accretion from the deal post-2021.”
The pandemic put a lot of deals on hold last year but the payments sector was seemingly immune. Remarkably, in just the second quarter, with the world changing before our eyes (on Zoom), there were 420 deals that could be categorized as tying into payments technology, according to Anton Ruddenklau, co-head of KPMG’s Fintech practice.
These were small deals, totaling $12 billion. They included a wide range of payment-related areas: payment platforms themselves, involving the likes of Kyash, ADDI, Karma; ecommerce platforms (Stripe, Finix, AirWallex); the software that supports them (SpotOn, Bill.com); online payment services (Klarna, EVO, Worldline); business service management (OrthoFi, Apsiyon); and content management and identity authentication solutions (Fundbox, Red Flag, Asensys).
“That there have been so many deals when we are supposed to have been in a crisis is truly striking,” Ruddenklau said.
Mastercard, FISV Forge Ahead
In June, Mastercard announced it would acquire Finicity for $835 million. A provider of real-time financial data, Finicity was a valuable partner of Rocket Mortgage during the mortgage industry’s technological transformation. With this deal having been completed, Mastercard would seem to have a leg up on rival Visa in terms of digital payments. However, as mentioned, Finicity’s focus has been more on lending related data services.
At the same time, FISV’s recent acquisition of OnDot accelerates the former’s ongoing push into digital banking, KBW’s Sakhrani said.
OnDot currently processes more than one billion transactions per month and provides digital capabilities for over 30 million cards. “This bolt-on helps advance FISV’s digital capabilities across its card and integrated solution bundles,” he said.
Meanwhile, Visa’s network-of-networks strategy positions the company favorably to pursue other avenues of growth with fintechs globally, Sakhrani said. “Visa continues to have the flexibility to partner with Plaid and other data networks to pursue incremental opportunities,” he said.
Fintech IPO Flurry
Despite the market interruption caused by the Covid-19 lockdown, the past 12 months brought more than a dozen significant U.S. fintech initial public offerings as equity markets came roaring back, supercharged by the checkbooks of Special Purpose Acquisition Companies (SPACs).
Banking software provider nCino raised $250 million in an IPO over the summer as pandemic-roiled banks and credit unions raced to get their virtual game on.
Chinese fintech company Lufax raised more than $2 billion in an IPO on the New York Stock Exchange this past November.
Lufax partners with financial institutions to offer small business loans and wealth management products via its platform.
Some 15 fintech “unicorns” are now waiting in the wings. These include Stripe, Chime and Robinhood (which says it will continue to pursue an IPO despite coming under recent pressure for limiting trading of GameStop). Public debuts likely will continue in 2021 with a focus on financial services. In addition to payments and banking, some other major growth areas include the fund administration space and lending.
“Lending technology is still its early days,” said LLR Partners’ Mitchell Hollin. “Digital adoption is here, and we believe some of the greatest opportunities are yet to come.”
No Sign of Slowing in 2021
Despite antitrust roadblocks ahead for fintech megadeals, the momentum of mergers in the payments segment remains strong. 2021 kicked off with the announcement that payments technology giant NCR Corp was buying Cardtronics, the largest global non-bank ATM operator, with more than 285,000 machines.
The deal was priced at $39 dollars a share for a total price tag of roughly $2.5 billion, including debt. BofA Securities advised NCR, and Goldman Sachs advised Cardtronics.
For NCR, the move provides a strong foothold in the brick-and-mortar realm to distribute products and recurring-fee services outside the control of major banks. For the payment tech field, the deal promises continuing activity.