Acquisitions Are Driving A Shake-Up In Payments in 2023

The world of payments has been in a state of constant change over the last decade, as new technologies have given rise to fresh challengers, consumer shifts have prompted market refocuses and digital capabilities have raised expectations.

But over the past year, that continuous evolution of the industry has been reshaped by a new economic environment due to geopolitical sanctions, rising inflation and shifting supply chains. Companies in the sector have faced rising costs, reduced volume and a tougher financial landscape in which to do business. In short, payments is facing a squeeze the likes of which it has not seen in many years.

This has, as with many companies in other sectors such as tech, led to significant layoffs – particularly in organizations facing pressure from activist investors. However, it is also prompting a reshuffle in terms of business strategies, in particular through acquisitions.

Payments acquisitions are on the rise

In payments, particularly on the cross-border side, many companies are increasingly looking to broaden their revenue streams in order to weather the increasingly challenging environment they face.

For those serving either consumer and B2B markets, this has typically involved increasing revenue per customer – often aided by growing the range of services offered – or by broadening the company’s geographic reach. Given the economic climate, this needs to be done quickly, efficiently and with a measure of guaranteed success, and in those circumstances acquisitions are a common solution.

The payments press is rarely short of such acquisitions. This week alone, Fifth Third Bancorp announced it was acquiring embedded payments platform Rize Money; e-money player Paynetics announced the acquisition of digital payments app player Phyre; and OFX announced the acquisition of automation and spend management player Paytron.

Other notable recent examples include Remitly’s purchase of Rewire and Fleetcor’s acquisition of Global Reach, both of which were completed in January.

Major companies are jettisoning non-core divisions

However, there is also a push factor to the rise in acquisitions, in that major players are increasingly looking to sell business divisions in order to streamline their operations. Units that were purchased in a very different economic landscape are looking increasingly at odds with today’s operating reality, and so some companies are offloading segments that may fare better either on their own or within the context of a different organization.

Recent examples of this approach include Global Payments
GPN
, which announced it was selling its gaming solutions business to private equity firm Capital Partners, and Spanish bank Sabadell, which said it was selling its retailers’ payments business to Nexi, both in February.

There are also reports of other players currently putting business divisions up for sale – although without official confirmation from the companies themselves. Amid a breakup, ATM and financial software player NCR
NCR
Corp is reportedly considering selling its digital banking unit, while PayPal
PYPL
is reportedly looking to sell its remittance player Xoom.

The potential sale of Xoom is fairly typical of this type of move because while the company was acquired in 2015 with much discussion of how it would provide synergies with PayPal, its parent has moved on. The pandemic prompted a shift into ecommerce for PayPal, and Xoom has become increasingly unimportant to its core business areas. Analysis by my own company, FXC Intelligence, found that Xoom had not been mentioned once in a PayPal earnings call since 2020, and was mentioned in less than 5% of press releases in 2022 – down from 100% in 2018.

Investors are looking to payments for opportunities

While a desire to offload business units that are at odds with a company’s strategy may be a key push, investment firms are also seeing payments as an area where money is to be made. With such a rapidly evolving market, and a growing TAM, there is the potential to turn a struggling payments division or company into an innovative player through the right investment.

The 2021 sale of Western Union
WU
Business Solutions to Goldfinch Partners and The Baupost Group has seen it rebranded as Convera, one of the largest non-bank B2B payments players globally. Global Payments’ sale of its gaming division will similarly see it become standalone company Pavilion Payments.

But this is not a practice exclusive to divisions. Money transfers major MoneyGram is currently in the process of going private through an acquisition by Madison Dearborn Partners, which will enable it to refocus on innovation without the restrictions of a quarterly reporting cycle. Valuing the company at $1.8 billion, the deal is set to be completed in June, and may ultimately see the company return to the public markets several years from now after a period of rejuvenation.

The impact for payments

While acquisitions have long been commonplace for the payments industry, the challenges of the current economic climate are driving interest in them as a means to both grow businesses and streamline them. As a result, the industry is facing significant ongoing consolidation across many areas.

This is changing the face of payments, providing companies with new competitive advantages and resulting in synergies that others have to redouble their efforts to respond to. It is also introducing standalone players with strong incentives to provide their investors with a good return, helping to stoke the fires of competitiveness and innovation within the industry.

How payments will be reshaped over the next year, five years and decade remain to be seen – but it’s clear that it is going to become a very different landscape as time goes on.