Financial institutions M&A sector trends: payments — H2 2019 and outlook for 2020

Megadeals, including Global Payments/Total System Services, Fidelity National/Worldpay and PayPal/iZettle, have dominated headlines, but both deal values and volumes keep smiles on deal-makers' faces.

Overview

CURRENT MARKET

• Very high activity levels

WE ARE SEEING

• Market participants scale up:
  • Established participants favour mergers, acquisitions, JVs and large-scale cross-border collaboration projects
  • First movers advance into new business lines and territories (e.g., PayPal's Chinese payments licence, Stripe's cash advancement service, Nets' Hungarian RealTime24/7 JV, etc.)
  • Europe's unicorns raise megabucks (e.g., Klarna's US$460 million Venture funding round, Rapyd's US$100 million Series C funding round, etc.)
  • Newer entrants stockpile expansion capital from financial sponsors as well as banks (e.g., OPay, Paysend, Payconiq, etc.)

KEY DRIVERS/CHALLENGES

• Market consolidation:
  • Building scale to compete and conquer (e.g., Global Payments/Total System Services, Fidelity National/Worldpay, PayPal/iZettle, etc.)
  • Quest for complementary technologies (e.g., Visa's acquisitions of Verifi and Payworks)
  • Defensive M&A strategies (e.g., Elavon's acquisition of Sage Pay)
• Investors with deep pockets believe in the depth of the payments market:
  • Financial sponsors—both late-stage PE (e.g., KKR's acquisition of Heidelpay) and early-stage VC (e.g., GVA Capital's participation in Paysend's £8.5 million Series B funding round)
  • Banks—attempting to recapture lost ground

TRENDS TO WATCH

• Banks continuing to make a comeback into the payments arena
• Fewer global but fully integrated service providers (e.g., FIS, PayPal, Global Payments, etc.), combining in-store and online offerings
• Regulatory scrutiny of payments processing, targeting continued innovation, market competition and consumer safety

OUR M&A FORECAST

High levels of M&A activity to continue, bolstered by financial sponsor confidence and growing consumer demand for convenient, on-demand and safe payment technologies.

Publicly reported deals & situations

Scaling-up of market players

Non-banks now account for ¼ of the institutions offering payment services or payment instruments, up from 14% in only 6 years (Finextra–November 2019)

Payments processing is driving the fintech venture market, with 3 mega-transactions accounting for US$87 billion in deal value during H1 2019 (Finextra–August 2019)

Market highlight:

20 European banks collaborate on the Pan European Payment System Initiative, a payment system to rival Visa, Mastercard and BigTech

Deal highlight:

White & Case represented Nets, a leader in the payments industry, on its acquisition of Finnish software developer Poplatek

Mergers:

• Payroc, Payscape, NXGEN and BluePay Canada: Merger (October 2019)
• Global Payments & Total System Services: Merger (September 2019)
• Payr & Hudya: Merger (July 2019)
• Fidelity National & Worldpay: Merger (July 2019)
• PayPal & iZettle: Merger (June 2019)

Acquisitions:

• Nets: Acquisition of Poplatek (December 2019)
• Nexi: Acquisition of Intesa Sanpaolo's retailers' payment business (December 2019)
• Payoneer: Acquisition of optile (December 2019)
• EML Payments: Acquisition of Prepaid Financial Services (November 2019)
• Visa: Acquisition of 20% of Interswitch (November 2019)
• Wirecard: Acquisition of AllScore Payment Services (November 2019)
• Elavon: Acquisition of Sage Pay (November 2019)
• Ebury: Acquisition of Frontierpay (October 2019)
• Mastercard: Acquisition of Nets' account-to- account payments business (August 2019)
• EML Payments: Acquisition of PerfectCard (July 2019)
• Worldline: Acquisition of remaining 7% in equensWorldline (July 2019)
• Mastercard: Acquisition of Transfast (July 2019)
• Visa: Acquisition of Verifi (July 2019)
• Visa: Acquisition of Payworks (July 2019)
• Access Group: Acquisition of Eazy Collect (June 2019)
• PPRO: Acquisition of allpago (June 2019)
• PayU: Acquisition of Iyzico (June 2019)

Funding rounds:

• OPay: Successful US$120 million Series B funding round (November 2019)
• Cardlay: Successful €9 million Series B funding, led by SEB Bank (November 2019)
• Stripe: Participation in US$100 million Series C funding round for Rapyd (October 2019)
• Visa and Mastercard: Participation in US$250 million Series C funding round for Plaid (September 2019)
• Klarna: Successful US$460 million Venture funding round, led by Dragoneer, CBA and BlackRock (August 2019)
• Paysend: Successful £8.5 million Series B funding round, led by GVA Capital (July 2019)
• Payconiq: Successful €20 million funding round, led by Belfius, BNP Paribas, ING and KBC (July 2019)
• SumUp: Successful €330 million debt funding round, led by Bain Capital Credit (July 2019)
• Currencycloud: Successful £32 million Series E funding round, led by Goldman Sachs (July 2019)

JVs:

• Visa: Africa payments JV with MFS Africa (December 2019)
• Finablr: Cross-border remittances JV with Alipay (November 2019)
• GoCardless: Recurring overseas payments JV with TransferWise (November 2019)
• Danske, Handelsbanken, Nordea, OP Financial, SEB and Swedbank: P27 payments collective (October 2019)
• Mail.Ru, Alipay, RDIF, MegaFon and USM: Russian payments JV (October 2019)
• Finastra: DLT cross-border payments JV with Ripple (October 2019)
• Mastercard: Cross-border payments JV with R3 (September 2019)
• Visa, Samsung and First Data: Software-based point-of-sales JV (September 2019)
• Apple Pay: Credit card JV with Goldman Sachs (August 2019)
• Wirecard: Digital payments JV with SisalPay (July 2019)
• SumUp: European SME electronic payment JV with Mastercard (July 2019)
• Optal: Commercial banking payments JV with Lloyds Bank (July 2019)
• Swish: In-store payments JV with Nets (July 2019)
• P27: Real-time, cross-border payment infrastructure JV with Mastercard (June 2019)
• Bottomline Technologies: Real Time Payments Express Service partnership with Starling Bank (June 2019)
• Wirecard: Cashless payments partnership with KaDeWe (June 2019)

Collaborations:

• Sibs API Market: Launch of Sibs' API platform which brings together 24 financial institutions (August 2019)
• Bluecode, ePassi, momo pocket, Pagaqui, Pivo, Vipps and Alipay: Development of unified QR code to promote digital payment interoperability for European travellers (June 2019)
• Global Payments and Ingenico: Launch of joint international innovation programme (June 2019)

New licences/territories/business lines:

• Paysend: Launch of money transfer service to Turkey (December 2019)
• PayPal: 1st foreign business to secure Chinese payments licence (September 2019)
• Stripe: Launch of corporate credit cards offering (September 2019)
• Stripe: Launch of cash advancement service (September 2019)
• Apple: Apple Card JV with Goldman Sachs (August 2019)
• Xoom: Launch across 32 new European markets (July 2019)
• Nets: Hungarian RealTime24/7 JV with GIRO Zrt. (July 2019)
• Revolut: Launch of Apple Pay in 12 new countries across Southern Europe, CEE and Balkans (June 2019)
• Wirecard: Launch of boon Planet (June 2019)
• Volante Technologies: Launch of Single Euro Payments Area (June 2019)
• WorldRemit: Launch of UK/Kenya payment services capabilities for SMEs and employees (June 2019)

Start-up support:

• Visa: Launch of Visa Partner, an online access portal for fintechs (September 2019)

High appetite and deep pockets

Private equity/Venture capital:

• Durable Capital Partners: Equity investment in Rapyd (December 2019)
• Oak HC/FT: Participation in US$100 million Series C funding round for Rapyd (October 2019)
• Toscafund Asset Management: Equity investment into Lemon Way (October 2019)
• General Catalyst, Sequoia and Andreessen Horowtiz: Participation in US$250 million Series F funding round for Stripe (September 2019)
• KKR: Acquisition of Heidelpay (August 2019)
• Dragoneer and BlackRock: Participation in US$460 million Venture funding round for Klarna (August 2019)
• GVA Capital: Participation in £8.5 million Series B funding round for Paysend (July 2019)

Banks:

• US Bancorp: Elavon's acquisition of Sage Pay (November 2019)
• SEB Bank: Participation in €9 million Series B funding for Cardlay (November 2019)
• RBS: Participation in £60 million Series A funding round for Pollinate (November 2019)
• Intesa Sanpaolo: Acquisition of minority stake in MatiPay (October 2019)
• Belfius, BNP Paribas, ING and KBC: Participation in €20 million funding round for Payconiq (July 2019)
• Nordea: Equity investment in Mondido (June 2019)

Overarching prerogatives

Encouraging competition:

• UK Competition Markets Authority: Investigation of competition concerns relating to Bottomline and EPG merger (October 2019)
• Bank of England: Grant of access to BoE overnight accounts, to level playing field with commercial banks (June 2019)

Encouraging safety:

• European Banking Authority: Strong Customer Authentication standards required by 31 December 2020 (October 2019)
• UK Payment Systems Regulator: 'Confirmation of Payee' implementation deadline for UK High Street lenders set for 31 March 2020 (August 2019)

Encouraging innovation:

• European Commission: Brussels roundtable on development and availability of cross-border instant payments (June 2019)
• UK HM Treasury: Long-term review of UK's payments landscape and regulatory framework (June 2019)

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