9/22/23, 1:00 PM FIS’s $43bn takeover of Worldpay

Menu SM

Finance & economics | Terminal velocity

FIS’s $43bn takeover of Worldpay

The scramble to build global payment systems

Mar 23rd 2019

Save Share Give

Y our home is about to become a department store. Of the 27% of American

consumers who own voice-activated speakers, more than a quarter already
use them to shop. You may soon start ordering groceries via a panel on your
fridge or buying accessories through an interactive mirror in the bedroom.
Social-media outlets are also after your money: before long, that red coat you
liked on a friend’s Instagram page will be just a click away.

Listen to this story. Enjoy more audio and podcasts on iOS or Android.

8:07 / 8:07
https://www.economist.com/finance-and-economics/2019/03/23/fiss-43bn-takeover-of-worldpay 1/8
9/22/23, 1:00 PM FIS’s $43bn takeover of Worldpay
8:07 / 8:07

The continuing boom in e-commerce—which is still growing at a breakneck 18%

a year—is forcing speedy change on a once-staid sector: the invisible pipework
that powers payments. On March 18th fis, an American company which
provides information technology to around 14,000 banks, agreed to buy
Worldpay, a payments plumber, for $43bn including debt—the largest deal ever
in the payments industry. It marks a sharp escalation in the battle for a market
that bcg, a consulting firm, expects almost to double in size, to $2.4trn, between
2017 and 2027.

Payment technology is already pretty nifty. When a shopper swipes her credit
card at a till, the company providing terminals to the shop (the “merchant
acquirer”) asks the lender that issued the card (the “issuer”) to confirm that she
has enough funds. That electronic query reaches the lender—whether around
the corner or across the world—in milliseconds. If the answer is “yes”, the shop
has a guarantee it will eventually receive the money, and the shopper can take
the goods.

ADVERTISEMENT

The acquirer usually requests funds from card issuers only at the end of the day,
after the shop submits its full list of transactions. Payment networks, such as
Visa or Mastercard, then move the money, which may take days to reach
retailers’ accounts. They also set the complex rules by which the issuers and
https://www.economist.com/finance-and-economics/2019/03/23/fiss-43bn-takeover-of-worldpay 2/8
9/22/23, 1:00 PM FIS’s $43bn takeover of Worldpay

acquirers they licence must abide. For example, acquirers provide insurance:
they repay customers who, say, have bought tickets from an airline that goes
bust before they fly. They also store the granular data needed to withhold
deposits or execute partial refunds.

This system was designed for a brick-and-mortar world. But e-commerce has
spawned new payment methods, such as digital wallets, and is changing
constantly. Websites and apps can upgrade their software daily; acquirers might
do so every quarter or two, says Chris Jones of pse, a consultancy. Companies
dubbed “gateways” now act as multi-socket adapters, connecting acquirers to
morphing e-commerce firms. “Digital storefronts” like Shopify, a software
company, add another layer: they cater to small vendors, enabling them to
create a sleek website connected to a gateway in minutes.

Banks have been in retreat from this fast-evolving world. “They are like turkeys
waiting for Christmas,” says Mark O’Keefe of Optima, a consultancy. Card issuers
outsource most of their processing to technology providers like fis. Merchant
acquiring used to be part of banks’ domain, but it was never part of their core
business. In the past decade or so many have spun them off. The financial crisis
accelerated this. In 2010 Royal Bank of Scotland (rbs) sold Worldpay to Bain
Capital and Advent International, two buy-out firms, for £2bn ($2.7bn) as a
condition of the lender’s bail-out by the British taxpayer.

ADVERTISEMENT

rbs may now feel a tinge of regret. After a £9.3bn merger with Vantiv, an
American peer, last year, Worldpay is the world’s largest acquirer. It says it
processed over 40bn transactions in 2018 Other non-banks such as Global
https://www.economist.com/finance-and-economics/2019/03/23/fiss-43bn-takeover-of-worldpay 3/8
9/22/23, 1:00 PM FIS’s $43bn takeover of Worldpay
processed over 40bn transactions in 2018. Other non banks, such as Global
Payments, have also become giants (see chart). This is partly due to organic
growth. Acquiring is more profitable than other processing jobs, which have
become commoditised. It is also cheaper and faster to scale on the web:

installing card terminals in-store requires labour and local presence. It helps
that the volume of transactions, on which acquirers levy a fee, is rocketing,
propelled by voracious spending in emerging economies.

Mergers, often orchestrated by private-equity firms, have consolidated parts of

the industry. Acquirers have bought gateways; big technology providers have
snapped up smaller software firms. But vertical takeovers by broad technology
providers of payments specialists, like fis’s of Worldpay, are new. The merger
comes just two months after Fiserv, fis’s main competitor, agreed to buy First
Data, a rival of Worldpay, in a $22bn deal. Both mark the start of new phase of an
m&a chess game. Pawns have been captured, but most big pieces still roam free.
Since these play very diverse roles, dozens of possible combinations make
strategic sense, says Lisa Ellis of MoffettNathanson, a research firm.

Vertical mergers will allow companies to cut costs, gain pricing power and
cross-sell products—often to banks, their former owners. This will give them
the firepower to go for the real target: establishing a truly global acquiring
network. Multinationals such as Hilton or ikea would love the simplicity of
signing one single contract covering their payment needs worldwide. The
https://www.economist.com/finance-and-economics/2019/03/23/fiss-43bn-takeover-of-worldpay 4/8
9/22/23, 1:00 PM FIS’s $43bn takeover of Worldpay

Worldpay deal is a step in that direction. The firm, which focuses on Europe and
America, should benefit from fis’s existing relationships in emerging markets.

Seemingly innocuous deals could precipitate the scramble. On March 11th

PayPal, a digital-wallet pioneer now worth $119bn, announced a $750m
investment in MercadoLibre, a Latin American e-commerce platform. Worldpay,
which has ambitions in the region, was surely watching: PayPal uses First Data
as its acquirer. fis is already thinking about the next round. “It won’t surprise us
that other companies come together,” says John Crawford of fis. “We don’t
expect it to be our last deal either.”

This article appeared in the Finance & economics section of the print edition under the headline "Terminal
velocity"

Finance & economics

March 23rd 2019

→ FIS’s $43bn takeover of Worldpay

→ Why book value has lost its meaning

→ Commerzbank and Deutsche Bank start discussing a merger

→ A dispiriting survey of women’s lot in university economics

→ Alan Krueger, natural talent

From the March 23rd

2019 edition
Discover stories from this section
and more in the list of contents

Explore the edition

https://www.economist.com/finance-and-economics/2019/03/23/fiss-43bn-takeover-of-worldpay 5/8
9/22/23, 1:00 PM FIS’s $43bn takeover of Worldpay

Save Share Give Reuse this content

THE ECONOMIST TODAY

Handpicked stories, in your inbox

A daily newsletter with the best of our journalism

Sign up

More from Finance & economics

Does China’s fear of floating exceed its fear of deflation?

The central bank is constrained by its own limits on the yuan

https://www.economist.com/finance-and-economics/2019/03/23/fiss-43bn-takeover-of-worldpay 6/8
9/22/23, 1:00 PM FIS’s $43bn takeover of Worldpay

Renewable energy has hidden costs

Why it is often more expensive than policymakers expect to go green

Why uranium prices are soaring

Conflicts and resurgent demand combine to radioactive
effect

Subscribe The Trust Project

Group subscriptions Help and contact us

Reuse our content

Keep updated

Published since September 1843 to take part in “a severe contest

between intelligence, which presses forward, and an unworthy, timid
ignorance obstructing our progress.”

The Economist The Economist Group

About The Economist Group

Advertise Economist Intelligence
Press centre Economist Impact

Economist Impact Events

Working Here
https://www.economist.com/finance-and-economics/2019/03/23/fiss-43bn-takeover-of-worldpay 7/8
9/22/23, 1:00 PM FIS’s $43bn takeover of Worldpay
g
Economist Education Courses
Which MBA?

Executive Jobs

Executive Education Navigator

Terms of Use Privacy Cookie Policy Manage Cookies Accessibility Modern Slavery Statement Sitemap

Your Data Rights

Copyright © The Economist Newspaper Limited 2023. All rights reserved.

https://www.economist.com/finance-and-economics/2019/03/23/fiss-43bn-takeover-of-worldpay 8/8