How the massive FIS-Worldpay merger became key to its coronavirus survival

Jim Johnson paused for a moment, pondering what might have been had the coronavirus hit at another time — the time before modern data management, digital payment rails and remote connectivity. As bad as the crisis has been, it’s revealed a way forward that may not have been possible a decade ago.

“We’re talking about 40,000 people working from home overnight,” said Johnson, head of financial institutions, payments and wealth at FIS. “The work we had done to consolidate data centers, our work around firewall security, the new software: All of that has allowed us to pivot to that very quickly.”

A lot of that work was done to absorb Worldpay, which FIS acquired for $43 billion in 2019. It was one of a series of payment mergers in 2019 that were designed to combine bank technology and merchant acquiring across multiple markets and industries while warding off ascendant fintechs offering fast access to digital payments and working capital.

The primary work on the FIS/Worldpay conversion has been completed, so most of the effort moving ahead will focus on changing products to accommodate the crisis and develop new services. Complications will come from shifting payment needs for consumers and merchants that have to juggle temporary adjustments versus long-term strategy. Payment industry executives such as Visa CEO Alfred Kelly have said the shift to digital payments is likely permanent, but what’s less clear is whether increases in payments to certain product categories are permanent.

The companies now have more challenges than combining multinational companies and cultures.

There’s also dramatic dips in travel, gas and luxury payments, while e-commerce and online payments for essential goods soar. The crisis has also upended lending, small-business finance, government disbursements, and even staff supervision.

The newly combined FIS and Worldpay are now developing products to manage these challenges while playing existing strategies in different ways.
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“The way you monitor productivity in the office, for example,” Johnson said. “It used to be a manager walking around. How do you do that when everyone’s home? We have an internal software product, called Epic, that we’ve used internally. There’s now an opportunity to offer that to other companies.”

Much further afield from staff supervision is government payments. The stimulus package revealed just how hard it is for just the U.S. government to send $1,200 to every person in the country. With word of another stimulus, and governments around the world working on varied payroll programs for small businesses, there’s another opportunity for global payment processors to step up.

FIS processed about $15 billion in Paycheck Protection Program loans through its lending technology, while it also issued several million prepaid cards for supplemental nutrition programs, Johnson said. It’s also enabling these cards to support online payments for supermarkets, something Johnson said would not have been possible ten years ago.

“By having our ecosystem in the cloud we’re able to do things in 24 hours that used to take months to do,” Johnson said.

For example, the merger will allow the company’s “loyalty as a currency” product, which allows loyalty points to be accessed and redeemed in real time, to reach a broader set of merchants given Worldpay’s legacy merchant network. The challenge is adjusting the incentive marketing to sudden shifts in spending habits, which may or may not be permanent. The crisis has shuttered travel, for example, but it’s unlikely to be shut for years. “With loyalty you have to pivot almost every day,” Johnson said.

FIS is additionally combining its accounts payable business with a Worldpay business line that helps merchants manage accounts receivable to build an e-commerce product bundle that manages payments and supply chains.

“E-commerce is a good story/bad story thing,” Johnson said of the spikes in nondiscretionary spending while other categories plummet. “We can model and put all of the data analysis in that we want, but nobody really knows.”

As states and countries reopen businesses, FIS will continue competing with other large technology firms such as Fiserv and the Global Payments/TSYS combination, as well as Stripe, Square, PayPal and other fintechs.

Fiserv, which recently promoted Frank Bisignano to CEO, has used First Data’s Clover point of sale system to help drive its virus response. Global Payments, which did not return a request for comment, offers Vital POS as a competitive alternative to Clover.

The payment industry has consolidated over the past few years, partly because the large companies have more difficult paths to growth, and partly to take advantage of innovation. That cycle has likely slowed or stopped for now, according to Chris Winship, a partner at FTV Capital, an investment firm with offices in San Francisco and New York. FTV’s portfolio includes Clearant, VPay, Credorax and Card Connect.

While the larger deals are slowing, there will be smaller investments from payment firms and outside investors in companies that can accelerate parts of the shift from physical transactions to digital forms, Winship said, calling the digital shift a “melting iceberg.”

“A lot of these big companies are stepping back to focus on internal strategies,” Winship said. “We’re probably not going to see a lot of big deals in the near term unless it involves distressed assets.”