2019 was a banner year for mega-deals involving payment firms: readers will recall Fiserv buying First Data for $22 billion, FIS acquiring Worldpay for $43bn and Global Payments purchasing TSYS for $21.5bn. Now 2020 has picked up the M&A baton, with Worldline agreeing to purchase French counterpart, Ingenico, for $8.6 billion, thus creating the largest European provider and fourth-largest globally. " This move signals that there is still plenty of appetite for further consolidation in merchant acquiring," noted Lorna Baek of Verisk Financial Research. "With the rapid adaptation of fintechs to changing consumer habits and their growing combined presence, the larger providers are feeling the need to diversify services quickly as well as achieve the massive economies of scale required to stay ahead."
And while some services are being rapidly digitised and globalised via mergers and acquisitions, others are being nationalised, drawing comment from Mastercard's chief executive Ajay Banga. In an interview with the Financial Times, the CEO offered his take on governments that have been nationalising payment cards in recent years, a strategy which has led in his view to redundant investment, friction in cross-border transactions and a fragmentation of data that hinders policing. Cue news from Australia that the central bank is scrutinising the automatic direction of contactless payments onto Visa and Mastercard rails, rather than the potentially cheaper option of the local payment network. Philip Lowe, governor of the Reserve Bank of Australia, has approached the banking industry regarding the issue. Failing appropriate modification, he promised that the authorities "would have to consider a regulatory solution".
Mastercard reported gains across the board in its latest round of earnings, resulting in a continuation of its consistent growth (up by over a quarter year over year) to reach revenues of $4.4 billion in the fourth quarter. In its earnings call, the company credited gains in acquisitions and increased cross-border volume. Presenting its outlook for the coming year, the prospects for profitability look strong as net revenue is expected to rise in double digits and operating expenses to decline in a single-digit trend. Visa also reported positive results, with revenue up ten percent year on year thanks to increased payments volume and cross-border growth; however, revenue fell just slightly short of consensus expectations, coming in at $6.05 billion rather than $6.08 billion. The real star of the show though was contactless payments, with both schemes citing tap-to-pay's role in their latest numbers. Visa's chief executive, Alfred Kelly, explained that "Visa had doubled the number of countries where contactless payments are at least two-thirds of transactions", while Mastercard reported that contactless made up 30 percent of all purchases made using its card.
Visa is planning to make changes to its interchange fee structure in the United States for the first time in ten years, according to a document seen by Bloomberg. As it stands, merchants effectively pay more than $100 billion per annum in interchange fees in order to accept Visa-branded cards, a figure which has grown exponentially as card use has spread. Now, in a bid to widen acceptance and encourage usage, the firm has decided to recalibrate based on merchant type and payment method. For example, retailers in service categories such as healthcare and education will see fees decrease, while online purchase transactions will be charged at a higher rate. Visa, according to the report, will also expand its rates to include newer merchant categories related to ride-hailing services and vending machines. Merchants will continue to be at liberty to negotiate deals individually to access lower pricing.
BNP Paribas reported positively on profits for the fourth quarter, exceeding income expectations by $123 million. This reflects well on a three-year overhaul that has seen substantial investment in technology improvements and which cost $3 billion to implement. The bank remains cautious over its 2020 outlook, as does Danske Bank, which also released its fourth quarter earnings. While the Danish bank also beat net profit forecasts – reaching $738.5 million and surpassing the forecast of $659.5 million – it too blamed the continent's low interest-rate environment for its bearish outlook. Margin pressures and higher funding costs are likely to offset volume growth and continue to restrict liquidity in the region, something the ECB will have to address.
While the world has been waiting to see which Scandinavian country will make the first foray into a full-blown sovereign digital currency, China may once again blindside us all. Beijing has been making rapid headway with its fully centralised, state-controlled digital currency, with reports pointing at a release as early as the next few months. While the Chinese population is self-evidently open to digital payments, the very nature of cryptocurrencies – anonymous, decentralised and renegade – runs counter to the essence of the People's Republic under Xi Jinping. Therefore, a compromise: the forthcoming DCEP (digital currency/electronic payments) has a centralised ledger, the money is distributed through the same channels as its traditional counterpart and the value is pegged to the yuan: not quite revolutionary then, but certain to stand as a model for many countries.
To end, links to some other stories of interest this week:
The Weekly News Digest from Verisk Financial Research highlights significant developments that have recently occurred in payment cards, digital payments, acquiring, processing, retail banking and consumer credit. Our writers and researchers frame these items in contexts such as historical, sectoral and regional trends, adding a layer of value that is often missing from the rolling news cycle.
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