What M&A Means for Payment Processors

Brett Horn: Every time you use a card, there's multiple companies involved. Acquirers work with merchants to allow them to accept card payments. There's, of course, the network, which is typically going to be Visa or Mastercard. And then there's the card issuer. The card issuer in turn works with payment processor companies to help process transactions. Historically, these areas of the industry have been separate. But a wave of M&A in 2019 is bringing these areas together, with Fiserv buying First Data, FIS buying Worldpay, and Global Payments and TSYS combining.

Of these three deals, we like the Global Payments/TSYS merger the best. I think the deal positions Global Payments to capitalize on a couple of key trends within the acquiring industry. First is international expansion. Historically, Global Payments has been ahead of peers in this respect, with a quarter of its revenue coming from outside of the US. I think the combination of Global and TSYS' international footprint will help further facilitate international expansion for the company.

The second is e-commerce. E-commerce increasingly is becoming an area that's just too big for traditional point-of-sale acquirers like Global to ignore. In the first quarter, e-commerce for the first time accounted for 10% of all retail sales. One of the critical factors, though, in serving the online market is combating fraud. The Nielsen report estimates that over half of all card fraud is related to card-not-present transactions, while those transactions make up only 15% of total card volume. I think having information on both the consumer and the merchant's side will allow Global Payments to build better fraud detection systems and help them better exploit this trend.