FIS and Worldpay agree on a $43bn merger

The race to create a global payments giants is shifting up a gear 

The processing of payments was once regarded as a boring piece of financial plumbing. So dull, in fact, that even banks shunned it. Fidelity National Information Services, aka FIS, which provides computing systems for thousands of financial institutions, finds pipework positively alluring. On March 18th the Florida-based financial-technology group agreed to take over Worldpay, a payment-processor, for $43bn including debt. The deal is the largest ever in the payments industry. It is also the latest in a series of mergers, as the race to build global payment powerhouses accelerates. 

Until recently, most merchants entrusted banks with processing payments and moving money on their behalf. But it was never really banks' core business, so little investment was made into making such activities more frictionless and consumer-friendly. "Traditionally, it's been a poor cousin in the bank relative to investment banking," says Todd Latham of CurrencyCloud, an international payments platform. Starting in 2006, many banks thus set out to spin out those units into independent commercial enterprises. 

The financial crisis accelerated this: Worldpay was divested from Royal Bank of Scotland in 2010, as a condition of the lender's bail-out by the British taxpayer. But the potential of such companies was not lost to everyone. From 2010, private-equity firms led the charge in merging those lonely outfits into increasingly big companies equipped with efficient technology. Advent International, a buy-out group, bought Vantiv, the payments unit of America's Fifth Third Bank, for $565m in 2012. Vantiv, which went public in 2014, acquired Worldpay from Bain Capital, another private-equity house, for £9.3bn ($12.3bn) in 2017. The combined group was renamed Worldpay. 

Consolidation is now reaching a new phase. Propelled by the move to cashless e-commerce, the payments industry is expected to jump from $805bn in annual revenue in 2010 to $2.4trn in 2027, according to BCG, a consultancy. Existing players are rushing to build scale. The Worldpay-FIS deal is "about grabbing that market today, and grabbing it quickly", Charles Drucker, Worldpay's executive chairman and chief executive, said when the merger was announced. 

FIS's purchase is partly defensive. In January Fiserv, its main competitor, agreed to buy First Data, a leading rival of Worldpay, in a $22bn deal. But it has an offensive side too. FIS has been looking to acquire payment capabilities for a while. Worldpay is among the largest providers to e-commerce; it also has strong cross-border capabilities, in particular in processing transactions across the Atlantic. FIS will now be able to sell processing services to its banking clients. "There is a real cross-sell opportunity," says Darrin Peller of Wolfe Research. 

FIS and Worldpay expect their marriage will generate $500m annually in extra-revenue - between them they pulled in $12.3bn last year - and $400m in savings. FIS believes the deal will bump up its revenue growth from 6% to 9% over the next three years. Both companies have a good record of executing mergers, so there is a decent chance that they will hit these targets. 

The global payments outlook is rosy, and not just for Worldpay. Other companies have carved out lucrative niches. Global Payments, based in Atlanta, has integrated its systems into retailers' online and offline platforms. San Francisco-headquartered Square offers snazzy payment technology to small businesses. The most powerful weapon in the payments war is software: payments firms either partner with hundreds of providers or own code outright. Leading payments firms have successfully tailored their wares to suit merchants of different kinds. Catching them is therefore hard. The way to grow now is to buy.