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Acquiring industry sellout opens space for new and agile players

Acquiring Industry Sellout

We are witnessing an acquiring industry sellout. Vantiv bought Worldpay, Bain/Advent bought Concardis, SIX Payments will be sold this summer, etc. Huge companies buy big companies and get even bigger. As acquiring is an “economy of scale” business it looks like this makes sense. More transactions and customers equal more profit.
But what happens behind the scenes? Can they really bundle services and get more profit? Can they activate synergies and boost revenue? I have some doubts and I want to share them with you.

Legacy Burden

The acquiring industry evolved in the 90-ies and card acceptance started its success story. Companies built their acquiring infrastructure and signed up customers very successfully. The business grew and the internet came. With continued growth and the internet, acquirers needed more technology. Therefore, new technology companies where born. They sold their technology to the acquiring industry.

Today, 30 years later, an average acquirer has over ten different systems. Those systems were built in different time periods and with different technologies. In addition, these systems are usually incompatible to each other. Hundreds of interfaces and middle ware layers connect those systems and keep the whole thing from breaking.

Now, what happens if an average acquirer buys an other average acquirer? They end up with 10 additional and incompatible systems that need to be integrated. This in turn requires even more interfaces and middle ware. Because of the huge complexity of such an integration, the different systems will most of the time be kept separate. Only the company name and the marketing departments are merged. Some times not even that. Bambora belongs to Ingenico, but still is Bambora. Worldpay belongs to Vantiv, but still is Worldpay. At least Paylife, who was taken over by Six, became Six Austria. The only benefit of such a merger is to increase volume and size.

However, the failure of merging the acquiring systems has one problem: There is no synergy from a technical point of view. Therefore, there are no benefits from an economy of scale perspective.

Space for Agile Players

I would bet my money on new, technology focused payment companies like Adyen, Stripe and so forth. Many of these companies become acquirers these days. They have new and exciting technology platforms which are built from scratch. And those companies are growing super fast.

Acquiring is a technology service. Therefore, these companies can serve their customers better. I predict that they will get many more merchants from huge acquirers who are fighting with their technology.

I strongly believe that there will be more Adyen-like companies evolving. It just makes sense to compete with dinosaurs. They don’t move very fast.

My advice for the established acquiring industry:
Instead of spending all the money on mergers and acquisitions, invest in technology. Save yourself from becoming a dinosaur.
Or the other way around: It makes sense to invest in technology, so that your technology allows merging with other companies easily. Unfortunately, this is not the case very often.

Daniel Eckstein

Daniel is the Chair of the Board and Founder of Abrantix, a visionary, lateral thinker and the driving force behind Abrantix. With his other partners he has developed the company into a leader in payment software engineering.

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