How the FIS – Worldpay merger reshapes payments

The payment landscape is modernising at unprecedented speeds with the Fidelity National Information Services (FIS) announcement of their intent to acquire Worldpay. Both companies bring different strengths to the deal but both are focused on moving away from legacy platforms to open banking and faster, more cost effective payment methods and technologies.

Experience with launching instant payments

The expertise of Worldpay in global real-time bank transfers for merchant transactions combined with FIS’ issuer instant payment capabilities will streamline the acceptance of real-time bank transfers globally. The key to success of instant payments (see definition below) is the need for both sides of the transaction – merchant and issuer – to have the capability to send and receive the payment. The combined entity of FIS and Worldpay will be able to deliver solutions to all market participants.

Figure 1. Definitions of Faster Payments, Real-time Payments, and Instant Payment

Source: Javelin Strategy & Research, 2019

FIS competitors will need to determine how they will address the instant payment threat. Fiserv and First Data, also merging, will have similar capabilities for instant payments but might have a more difficult time in creating unified product offerings due to their focus on debt reduction. Merchant processors who do not have issuing platforms should look at integrating new digital payment methods that include real-time and instant payments to prepare for new issuers being on-boarded by FIS. Being able to compete for instant payments will make more merchant processing platforms attractive for companies that cross sales channels (web, app, mobile, POS).

Diversification of revenue by payment schemes

Card scheme reliance on interchange has slowly been modified over the past 5 years, however diversification of revenue needs to be accelerated to retain existing business and increase profitability. The total cost of acceptance of payments by merchants – who are needing to support multiple payment methods – is exceeding what they are willing to pay. The ability of FIS to create a closed network of issuer and merchant payment capabilities is a real threat to the existing schemes.

Mastercard has focused over the past 10 years on revenue diversification through their payment processing and gateway services, security service capabilities, and with new acquisitions such as Vocalink and Transfast. Visa diversifying through Earthport is an acknowledgement that global and cross border payments are significant payment avenues. However, the acquisitions may not be enough to diversify incomes if FIS combines the Worldpay alternative payments into a new network.

Payment companies which need to compete with FIS should consider acquiring alternative payment networks or remittance companies to build their technology and integration capabilities. The payments market will see further consolidations over the next 3 years as smaller entities unite to compete.

 Open banking initiatives go global

Financial institutions will be moved to modernise their technology to incorporate new functionality. Moving away from mainframe based core processing, API standardisation and payment hubs will become the new normal. For years financial institutions have been hedging on cloud based technologies, but to support the need for multiple digital services, artificial intelligence, and cost reduction, open banking will be adopted globally with the support of FIS. Both FIS and Worldpay, through the enacting of PSD2 and GDPR, have experience in building open frameworks while protecting privacy and adding security which will provide a competitive edge when working in other parts of the world.

The research and development divisions of both FIS and Worldpay are actively working on new technologies – augmented reality, drones delivery, anonymous P2P activity, and many other innovations which will become available in the next few years. Finding pilot merchants and issuers will become easier now that both the merchant and issuer components can be managed under one corporate roof.

Competitors, as well as issuers and merchants, will need to advance their integration capabilities with third parties to enable new technology to compete with FIS. The challenge of so many companies receiving services from one entity is that it can be hard to differentiate the offering to the consumer. Companies which open up their environments to integrate other services will meet consumer demands while reducing cost of ownership. Partnerships will be increasingly important.

Conclusion

The merger of two of the largest global processors is indicative of what the payments market needs to meet consumer expectations in an increasingly digital and instant world. The need for two competitors to merge is indicative of the reality that companies cannot “go it alone” and partnerships are critical to success.

About Krista Tedder

Krista Tedder is an experienced thought leader in the payments industry working with issuing and acquiring financial institutions, merchants, and payment service providers. She advises clients on how to move from foundational to transformational payment practices to improve consumer satisfaction while increasing profitability. Krista provides strategic consulting on core technology providers and methodologies, emerging technologies, and product marketing functions for payments, including market assessments, go-to market strategies, and content marketing strategies. Krista’s experience crosses all payment verticals of the past 20 years — from merchant, consumer (debit, credit, prepaid, mortgage), and processor (acquiring and issuing), to brand networks.

About Javelin Strategy & Research

Javelin Strategy & Research, a Greenwich Associates LLC company, is a research-based advisory firm that helps its clients to make better-informed business decisions in a digital financial world. Our analysts offer unbiased, actionable insights and unearth opportunities that help financial institutions, government entities, payment companies, merchants, and other technology providers. For more information, visit https://www.javelinstrategy.com. Follow us on Twitter and LinkedIn.