9 transformative fintech deals of 2019

December 30, 2019 10:46 AM

2019 kicked off with a series of large, multibillion-dollar acquisitions that promised to forever change the landscape of the payments industry. And while those big deals were clustered at the start of the year, many other pivotal deals took place over the course of the year.

There is value to bringing more services under a single ownership, but there is also wisdom in in leaving some lines of business on the table. The year was just as notable for the deals and opportunities that fintech companies walked away from.

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

Fiserv, First Data and the evolving ISO model

The numbers behind Fiserv's deal to acquire First Data are huge, particularly considering each company's existing tonnage still makes consolidation the best play when faced with nimble fintechs and mobile startups.

Fiserv's $22 billion deal to acquire First Data, announced in January 2019, creates a company of massive scale. First Data alone processed 6,000 transactions per second during the prior year's holiday season, with 4,000 financial institution clients and 6 million merchant locations in 100 countries. It spends $1.5 billion a year on technology, and has the heft to partner with the likes of China's Alipay. Fiserv controls a third of the U.S. core banking market and has more than 12,000 clients.

Yet, fintechs like Stripe are forcing companies with longer-established histories such as Fiserv and First Data to spend billions to keep up. Quite often, this means consolidation — and the official end of any semblance of traditional merchant acquiring or payments hardware as a viable business model.

FIS and Worldpay: The year's second mega-deal

Not to be outdone, the financial services technology company FIS agreed to buy Worldpay in March 2019 in a deal valued at $43 billion, allowing FIS to counter the transaction processing scale Fiserv received when it acquired First Data.

The merger price is based on a $34 billion bid plus $9 billion of Worldpay's debt.

The deal builds on a number of previous acquisitions by FIS and its rivals. The growth of e-commerce and digital transactions has pressured broad-based financial IT companies like FIS and Fiserv to broaden processing technology.

Worldpay, formerly Vantiv (Vantiv purchased Worldpay in 2018 and took its name), combines Vantiv's American acquiring strength with the original Worldpay's international reach. Worldpay has also recently increased its ability to process a greater volume of relatively smaller transactions, a staple of serving online marketplaces.

Global Payments and TSYS

In May, TSYS and Global Payments announced a merger deal of about $21.5 billion, making it the third M&A deal in the financial/fintech industry of more than $20 billion in 2019.

Like the $34 billion FIS-Worldpay deal announced in March and the $22 billion Fiserv-First Data deal announced in January, TSYS and Global Payments have a deep bench of payments and financial services technology, but need to scale and expand geographically to counter smaller yet faster-growing technology companies like Stripe and Square. Those fintechs are scooping up merchants with a mix of hardware and software that makes it easy for small to mid-sized businesses to offer e-commerce and other mobile technology.

At the time the deal was announced, Global Payments was valued at about $23 billion, making it the third-largest merchant acquirer in the U.S.; and TSYS was the No. 3 card processor in the U.S., worth about $18 billion.

Visa and Mastercard feud over Earthport

Visa in December 2018 offered to buy Earthport, a provider of account-to-account cross-border payments, for $250 million — and a month later Mastercard jumped in with a higher offer.

In February 2019 Visa raised its offer for Earthport to $320 million, driving Earthport shares up 500% from when the bidding war began. The following month, Mastercard dropped out of the bidding war over Earthport, announcing it would instead buy Transfast, a different cross-border payments firm.

The Earthport deal closed in May after Visa received clearance from the U.K.'s Competition and Market Authority. Mastercard's Transfast deal closed in July. Both deals bolstered the card brands' ability to stay relevant as real-time payments expand globally.

Mastercard and Nets

In August, Mastercard agreed to buy a majority of Denmark-based Nets' corporate services business for about $3.19 billion, Mastercard's largest acquisition in this or any year.

The price tag is justified in part by the risk that would come if Mastercard tried to compete for a more affordable firm — Mastercard tried to instigate a bidding war for a different company, Earthport, this year only to see it stick to its original suitor, Visa.

From Nets, Mastercard will get technology to support clearing, e-billing and instant payment services when the deal closes in the first half of 2020.

The Nets deal follows several relatively smaller Mastercard investments and is taking place alongside a scramble from governments, fintechs and financial firms to conquer the intersection of real-time processing, cross-border payments, account-to-account transfers and B2B transactions.

These capabilities are all necessary for issuers, merchants and acquirers to thrive in an Amazon-influenced market that demands borderless retail, supply chains and instant access to funds. The market's largest payment processors have already shelled out more than $100 billion combined in 2019 on acquisitions to marry card issuance and merchant technology.

PayPal and Honey

When PayPal decided to commit to spending $4 billion for Honey, a startup with revenue of just $100 million a year, the size of the deal raised many eyebrows.

After all, this is PayPal's largest acquisition ever by price, and it far eclipses the $800 million PayPal spent in 2013 for Braintree, which owned Venmo — a highlight of PayPal's portfolio, even though Venmo has yet to generate a profit. It also eclipses the $32 million in VC funding Honey has raised to date.

With only 17 million users, compared to PayPal’s 300 million, Honey seems minuscule. But Honey has already conditioned its base of mostly female users to use the service to hunt for deals and price-drops on e-commerce items, creating the effect of checking in before the purchase, an action PayPal wants.

For PayPal — battling the rise of other e-commerce marketplace giants like Amazon and the threat posed by the card networks’ new Secure Remote Commerce-powered “click to pay” — connecting its customer base to Honey could provide exponential value.

Unlike older deal fads like Groupon, which required users to take action on each offer, Honey’s browser extension and app scan the internet for promotion codes and automatically applies them at the checkout.

Correction: An earlier version of this story provided an incorrect figure for Honey's revenue.

Google, Fitbit, and wearable payments

Google's $2.1 billion deal to buy Fitbit, announced in November 2019, is primarily a hardware play. But it also brings Fitbit Pay under Google's umbrella — potentially repairing part of Google's fragmented mobile and wearable payments ecosystem.

Google's Android ecosystem allows the likes of Samsung and other manufacturers to develop their own apps that compete directly with Google's offerings. In an extreme example, the telcos behind the now-defunct Softcard mobile wallet went so far as to prohibit Google's own wallet app on their networks' devices.

Fitbit Pay is different from most mobile wallets in that it doesn't run on the mobile device itself. Instead, users make payments with a compatible Fitbit wristband or smartwatch.

While the competition seems less heated these days, it's clear that Google still has a lot of work to do to catch up to Apple.

Ant Financial and the West

Ant Financial, which operates China's Alipay mobile wallet, entered a $700 million deal to acquire the U.K.'s WorldFirst in February — a clear sign that Ant had shifted its strategy for expanding beyond Asia.

WorldFirst gives Ant greater access to the European market, and is a milestone for a company that’s long wanted to acquire a major player in a Western market to gain a local foothold for product diversification. In announcing the agreement, Ant gave credence to the suspicion that WorldFirst divested its U.S. business at Ant's behest.

This was most likely to avoid running afoul of President Trump's policy against giving China too much influence within the U.S. That policy led U.S. regulators to impede Ant's earlier attempt to acquire MoneyGram, which is based in Dallas.

Offloading old acquisitions

2019 was notable not just for the scale of its fintech mergers, but for a trend of many other companies trimming down to focus on their core services.

This includes Western Union's $750 million sale of Speedway to ACI, announced in February 2019. For Western Union, divesting Speedpay allow edit to concentrate resources on cross-border money movement and monetize a “non core” asset for its investors.

In June, Hallmark Cards sold its payment card subsidiary, Hallmark Business Connections, to InComm. And in August, Square agreed to sell its Caviar food delivery app to DoorDash for $410 million in part to free up resources to invest in Square Cash. Square bought Caviar in mid-2014 and had been reportedly trying to sell it since at least late 2015.