Worldpay’s record $43 billion acquisitionOpens a new window by Fidelity National Information Services is the latest high-stakes gamble in the world of digital commerce, designed in part to fend off startup disruptors from entering the market.
Just 18 months ago, Vantiv purchased Worldpay, a major processor of payment transactions, for $10.4 billion, took its name, and moved its headquarters from London to Cincinnati, Ohio. The huge price premium that the FIS-Worldpay merger represents – it is the largestOpens a new window  deal in the international payments industry — underscores the intense activity taking place in the sector as e-commerce booms.
Processing payments for the new breed of mobile apps and online services from Uber to Amazon has driven up valuations and intensified mergers and acquisitions.
The deal brings together two sides of the payment ecosystem. Worldpay, which was spun off by the Royal Bank of Scotland during the 2008 financial crisis, provides terminals in retailers’ stores and payment systems for e-commerce and mobile sales transactions. The company is an essential link in the complex banking system that ensures money flows seamlessly from a shopper’s bank account into a retailer’s account.
FIS, based in Jacksonville, Florida, provides the backroom technology for financial transactions. Its software processes transaction requests from credit card companies and banks, while Worldpay acquires retailers’ transactions and connects them with the backend payment networks.
Gary Norcross, the FIS chief executive, says the merger will allow the combined companies to take advantage of rapid changes in the market. “The market is moving very, very fast and scale is going to matter,†he told CNBCOpens a new window .
The combined business will have revenues of about $12 billion a year with expected growth of 6-to-9% over three years. Earnings will reach about $5 billion a year, he says, and there will be room for $500 million in cost cuts from the merger.
Worldpay works with 400,000 merchants in 146 countries and handles over 300 payment methods. It is the largest merchant acquirer in the United Kingdom, accounting for 42% of the country’s transactions and also has wide coverage in the United States.
Norcross says the deal will help Worldpay achieve greater global coverage, offering it the chance to grow in Brazil and India, where FIS has a major presence.
Until a few years ago, merchant payments were an unexciting area of banking, the backroom technology that oiled the wheels of commerce. Some banks even spun off their payment divisions. But with the rise of digital technology and the growth of mobile services and e-commerce, payments have become one of the sexiest areas in financial technology.
At the beginning of the year, Worldpay’s rival, FirstData, was acquired for $22 billion by FIS rival Fiserv. So far this year 30 deals worth $85 billion have been inked in the payments industry, compared with $49 billion in deals for all of 2018.
In 2017, Worldpay was bought by U.S.-based merchant acquirer Vantiv for $10.4 billion. For it to be sold in 18 months for $33 billion in cash plus $8 billion of debt is evidence of how quickly the payments market is moving and the high expectations of investors.
Boosting digital commerce depends on fast, seamless shopping and so-called invisible payments. Digital retailers are trying to emulate Uber, where riders order a cab and tap in their destination through a mobile phone’s app, take a ride and get out of the vehicle without ever coming into contact with cash or credit card slips, both e-handled separately from the transaction.
New seamless payment technologies are driving powerful e-commerce companies such as PayPal. China’s AliPay and WeChatPay firms have led the way in mobile payments, using a system of QR Codes to allow consumers to pay in shops and restaurants as well as online.
The payments revolution is likely to continue with the spread of the Internet of Things and artificial intelligence. IoT applications are already undergoing testing by Amazon and others, allowing consumers to simply press a button to order stuff. This is an invisible payment because the order is charged automatically. Meanwhile, AI-powered data analysis will allow retailers to predict when consumers want certain products and to buy them automatically.
Established companies are merging to stake their place in the payments industry and fend off digital disruptors.