Buying frenzy hits payments sector

The shift to digital payment is reaching fever pitch, reflected in unprecedented levels of M&A in the sector. The headline deal was the £7.7bn purchase of Worldpay by US-based Vantiv, followed by agreement by France’s Worldline to buy Sweden’s Digital River World Payments, and French operator Ingenico to purchase Sweden’s Bambora. Isle of Man-based payment business Paysafe Group has also recently been acquired by Blackstone and CVC Group for £2.9bn.

In its current edition TMT Finance is reporting on fresh moves on Portugal’s SIBS and Denmark’s Nets, as well as a contest over Indian mobile payments firm Freecharge. The fact that potential acquirers include trade buyers from the payments sectors, as well as private equity firms and telecom operators shows both how critical payments are to modern business, but also, in the case of the PE players, how much upside is there is thought to be in valuations.

There are plenty of reasons to think digital payments have a rosy future: compared with cash and other payment mechanisms it offers greater security (as long as hackers can be defeated), convenience, and speed, as well as lower costs per transaction. As if that were not enough, however, there are forces at work both at government and corporate level to do away with cash altogether, which would provide a significant additional boost to the sector.

For instance, it was reported this week that Visa is offering to pay shops in the USA, and more recently the UK, to stop accepting cash. Visa CEO Al Kelly was quoted saying that that the company was ‘focused on putting cash out of business’.

At government level there are also moves to sideline notes and coins. Sweden and Denmark are moving rapidly to becoming cashless societies, and in Estonia an astonishing 75% of all transactions in 2015 were made digitally. The European Payments Council (EPC), a subdivision of the European Central Bank, is working on plans for a cashless payments system. The ECB has stopped producing E500 notes, and the Indian government famously abolished high value notes in circulation last November. The latter two moves were said to be against tax evasion and crime, but the effect is also to reduce the utility of holding cash.

All this could make investing in payments platforms rather a good bet on the future.


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