Jan. 24, 2019 | by David Jones
The payments industry may be headed for a turbulent period of activity following the surprise deal in which Fiserv announced it is buying First Data for $22 billion earlier this month.
The agreement caught much of the industry off guard as the merger had not been a subject of industry speculation and may possibly be the largest acquisition in the payments industry.
Thad Peterson, senior analyst at the Aite Group, told Mobile Payments Today that two factors are driving the move toward consolidation in the payments space: the power of scale and explosive changes taking place in the business.
"Payments processing is a sticky business and it's much easier to acquire than it is to grow organically. The greater transaction volume, the greater the opportunity to generate revenue, reduce client attrition and sell more product," he said in an email. "The space is changing dramatically, the line between online and offline is increasingly blurry and some processors or capitalizing on that."
David Albertazzi, senior analyst at Aite Group, said that, on the bank side, both firms have been adding capabilities to respond to changes in the financial services and payments business.
"First Data invested significantly in its point of sale technology for merchants, while Fiserv invested in the core banking, digital banking and biller/bill payment markets, so the merger seems very complimentary in terms of being able to offer and even larger umbrella of services," he told Mobile Payments Today in an email interview.
Combined structure
He said Fiserv has Accel/Exchange PIN debit and First Data has Star network and an extensive merchant footprint.
Fiserv CEO Jeffery Yabuki will become chairman and CEO of the combined firm, while First Data CEO Bisignano will become president and COO of the combined firm.
The merger will allow the companies to link merchant and cash management capabilities. Fiserv will offer First Data’s Clover POS tools to financial services clients; while First Data will offer Fiserv's biller solutions to corporate clients.
"This was not a difficult decision to make at all to put these companies together," Bisignano told analysts on a conference call announcing the agreement last week.
The companies plan to invest $500 million over the next five years to develop technologies in the payments space, including next-generation merchant services, digital enablement and advanced risk management.
The companies expect about $900 million in run rate cost synergies, over the next five years, mainly due to eliminating duplicative corporate structures, streamlined technology and operational efficiencies.
A key factor in the deal for First Data is the reduction of debt, according to officials. Fiserv will refinance about $17 million at the closing of the agreement and has entered into a bridge financing agreement in connection with the deal. The company expects to have an investment grade credit rating in terms of its balance sheet, capital structure and capital allocation policy
Cover photo: iStock
Topics: Financial News, Mobile Banking, POS, Retail
Companies: First Data, Fiserv
David Jones
David Jones is a veteran business and technology journalist, with three decades of experience writing about business travel, real estate and technology.
Since 2015 he covered a range of technology stories for the ECT News Network, which includes the E-Commerce Times, TechNewsWorld, LinuxInsider and CRM Buyer, writing about cybersecurity, artificial intelligence, machine learning, open source computing and privacy issues among others,. He recently covered FinTech issues for PYMNTS.com.
He worked as a staff writer for Bloomberg Business News and an online reporter for Crain’s New York Business. He has written for numerous media organizations, including Reuters, The New York Times, The Real Deal, Continental, City Limits and The Nation.
He was previously awarded the George Washington Williams Fellowship for Journalists of Color by the Independent Press Association.
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