11 fintech M&A deals that defined 2020

December 29, 2020 12:01 AM

The year 2020 was disruptive and chaotic. And while it derailed or delayed some companies' plans for growth, it also created opportunities for new combinations — or, at the very least, didn't slow them down.

Digital payments, instant credit and other pockets of the payments industry proved ripe for consolidation. But the payment companies that sought to consolidate also encountered economic, regulatory and other hurdles.

This story was compiled from reporting by PaymentsSource writers including John Adams, Kate Fitzgerald, David Heun, Michael Moeser and Daniel Wolfe.

Can you buy loyalty?

Bloomberg News

Travel spending was hit hard during the pandemic, and many travel loyalty cards expanded their rewards options in a bid to keep customers engaged even when they can't redeem their miles for airfare.

This trend has spilled over into the M&A realm: JPMorgan Chase announced in the final week of December that it is buying Stamford, Conn.-based cxLoyalty, a major credit card loyalty platform, in a bid to enrich its own card loyalty programs when travel resumes after the global pandemic.

Chase will gain a full-service travel agency plus the gift card, merchandise and points-bank operations of cxLoyalty Group Holdings, which will operate as a new Chase business unit. Financial terms of the acquisition, which is expected to close imminently, weren’t disclosed.

The deal means that over time users of Chase’s Ultimate Rewards loyalty program will have access to enhanced travel experiences through cxLoyalty’s platform.

Visa faces pushback over Plaid

Bloomberg News

Visa spent much of the year fighting to complete its $5.3 billion purchase of Plaid, a data aggregator that had sometimes run afoul of major banks. Its latest battle is with the Justice Department, which raised antitrust concerns.

Visa claims the Justice Department has “gerrymandered” its assessment of the payments market to artificially inflate Visa’s market share and power. According to Visa, the Justice Department bases its theory on the idea that buying Plaid would be anticompetitive because of Visa’s dominance in the online debit market. Visa notes in the filing that online debit payments are only one category of a broad range of payment types available to consumers making online purchases, including credit cards, PayPal, Apple Pay, Google Pay and ACH transfers.

Suspicions about Plaid’s motives in leveraging consumer banking data surfaced over the last year from banks including PNC, which expressed concern with the way Plaid collects data through “screen scraping” methods when it sued Plaid. TD Bank recently filed a trademark lawsuit against Plaid.

Buyers pick up Wirecard's pieces

Bloomberg News

Wirecard AG was awash in scandal and financial stress that followed months of reports of more than $2 billion in accounting irregularities, questions about whether clients actually were clients, the resignation and arrest of its CEO, a move to insolvency and the prospect of Visa and Mastercard cutting ties with the Munich company.

In the aftermath of this scandal, many companies picked up choice pieces of Wirecard's global business: Spain's Banco Santander acquired technology assets of Wirecard's European merchant payments business in November; Railsbank, an open banking and payments technology firm, struck a deal in August to buy the U.K.-based Wirecard Card Solutions unit; and Wirecard North America, the former Citi Prepaid Card Services, went up for sale in June (in October, Wirecard North America rebranded itself as North Lane Technologies).

Signs of consolidation in instant credit

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As 2020 put pressure on individuals' cash flow, installment lending grew in popularity around the world. Notable deals included Alliance Data's October agreement to purchase the point of sale installment lender Bread for $450 million and Afterpay's deal with NBQ Corporate SLU to acquire Pagantis SAU and PMT Technology SLU for €50 million (about $59 million) to expand into France, Italy and Spain — a direct challenge to Klarna, one of the dominant European buy now, pay later providers.

But the instant credit market also had one or two blemishes, such as Klarna needing to explain marketing emails that surprised and angered consumers who did not intend to sign up for them.

Digital payments' global growth

Bloomberg News

Amid the global explosion of e-commerce and demand for digital money transfers, Visa announced in October that it is acquiring YellowPepper to help drive tokenization and real-time payments in Latin America.

YellowPepper’s platform enables financial institutions to launch account-agnostic solutions that include tokenization, virtual cards and push payments. Demand for more secure mobile commerce solutions is being fueled by a strong growth in smartphone ownership in Latin America, as well as fears over shopping in stores as COVID-19 is experiencing a spike in new cases across South America.

The acquisition of YellowPepper builds on a prior 2018 investment of $12.5 million by Visa in YellowPepper’s Series D round.

Amex's recipe for Kabbage

Bloomberg News

In August, American Express said it would buy "substantially all" of the online lender Kabbage, but not its loan portfolio, in a deal that instead focused on technology and talent. By October, Amex's plan for the company was clear.

"Kabbage is going to accelerate our efforts in small business, from a platform perspective, and will help us create an SME digital banking platform, which is all inclusive," Stephen J. Squeri, the chairman and CEO of American Express, said during an earnings call.

Through Kabbage, Amex will offer more cash-flow management tools to small-business clients, while also encouraging mom-and-pop operations to borrow money for working capital products. This focus on small businesses is part of Amex's strategy to ride out the pandemic, which has had a stark impact on its earnings. Amex reported third-quarter net income fell 40% to $1.1 billion, from $1.8 billion a year earlier.

Elavon's well-timed digital deal

Bloomberg News

Payment processor Elavon purchased Sage Pay on March 11. Two days later, Elavon's entire workforce was operating remotely as the coronavirus forced it into lockdown.

Though many companies would see this as disruptive, for Elavon it demonstrated the importance and timeliness of bringing on a company that specializes in digital commerce.

Elavon, a unit of U.S. Bancorp, bought Dublin-based Sage Pay — now called Opayo — to gain a stronger small-business presence in the U.K., specifically in helping convert customers to digital technology. The coronavirus pandemic put Opayo in high demand throughout England, Scotland and Ireland during a growing pandemic.

Apple's next big idea for payments

Bloomberg News

With its midyear acquisition of Montreal-based Mobeewave, Apple placed a long-term bet on where it sees the payments industry headed.

Mobeewave’s technology uses NFC to turn iPhones into mobile card acceptance terminals without a hardware dongle popularized by the likes of Square, Clover and iZettle. With Apple now set to pack this capability into the iPhone alongside P2P payments through Apple Pay Cash and credit services introduced last year with Apple Card, Apple is rapidly developing a formidable payments stack that should raise concerns among both mobile point of sale providers and larger processors.

The timing is ideal, as Apple is now positioned to become the payments service for a new generation of iPhone-based micromerchants climbing out of the pandemic. Many smaller shops that didn't sell online or didn't accept digital payments are adding the capability as a way to not only survive the pandemic but to serve a growing population of digital-first consumers.

WEX's canceled M&A

B2B payments — especially business travel — were hit particularly hard by the coronavirus pandemic. WEX, a company active in fleet, corporate and health care payments, was set to grow its B2B payments business in January with a $1.7 billion pair of acquisitions.

By June, WEX had backed out of both deals — Australia’s Optal and Singapore-based eNett — because of negative effects on those companies related to the pandemic. This move led to lawsuits by shareholders of both companies, but WEX also obtained a $400 million investment from Warbug Pincus in June to free up cash flow.

Square deals

Square's two-screen register and payment options

Bloomberg News

Square has long been an acquisitive company, and 2020 didn't slow it down. In February, Square bought Dessa, a Toronto-based machine learning startup that specializes in advanced risk management.

In November, Square bought the tax business o fCredit Karma with the goal of enhancing Square's Cash App, which had performed well for Square throughout the pandemic. Square's $50 million deal for Credit Karma's do-it-yourself tax filing capabilities also cleared the way for the Department of Justice to approve Intuit's $7 billion acquisition of the rest of Credit Karma.

Worldline buys Ingenico

Bloomberg News

2020 kicked off with a multibillion-dollar fintech deal: Worldline's $8.6 billion agreement to purchase Ingenico. The dea, announced in February, would create the fourth-largest payments company and a juggernaut in merchant services.

The news echoed earlier deals in the market, such as Fiserv's acquisition of First Data, FIS's purchase of Worldpay and Global Payments merger with TSYS. Over the course of 2020, these companies emphasized that their M&A activity gave them the diversity they needed to endure the pandemic.