The second part of the mergers and acquisitions in the payments space outlines the way PSD2/SCA becomes a trigger for strengthening capabilities, and how businesses tap into strategic markets.
In the previous part of our M&As retrospective, we have depicted three out of five trends that shape the payments industry: card schemes diversifying their traditional business models, incumbent payment providers striving for control of a greater portion of the payment ecosystem, and PSPs moving up in the value chain.
This editorial continues to address the remaining aspects that are likely to influence the business’s decisions in the future:
Trend #4 PSD2/SCA regulation becomes a trigger for strengthening capabilities
In the context of PSD2’s SCA long journey, companies are looking to help other businesses to meet the regulatory changes in this respect.
The payments technology company Stripe has acquired Touchtech Payments, an Ireland-based startup that helps banks to manage Strong Customer Authentication. As mentioned in a TechCrunch coverage, this brings a sea change for Stripe, which has been built on connections with merchants, while Touchtech interfaces with banks and others that handle card payments – so for the first time, Stripe is developing a service that is not primarily focused on merchants but on banks.
Trend #5 Global expansion into strategic markets
Form East to West and vice versa, we see China-based companies entering Western markets and Western companies entering the Chinese market.
In Europe, Ant Financial (part of the Alibaba Group) has bought the UK-based payments company WorldFirst, this being the most significant overseas deal since the company’s US expansion – in 2016 Ant Financial bought US-based EyeVerify and in 2017 it bought MoneyGram. The Alibaba Group’s subsidiary believes Alipay and WorldFirst complement to offer better payment services to smaller businesses.
An acquisition with the scope of expanding footprints that made headlines for a while, was the one of PayPal buying GoPay, a China-based payment gateway. This way, PayPal has become the first foreign payments platform licensed to provide online payment services in China. A strategic move, needless to say, but it would be interesting to see how this Western payment company can compete with the super-apps, like WeChat and other popular mobile wallets in China. It’s not easy to copy successful models to another market, if we recall WeChat challenges in India, which is a market with consumers already accustomed to social apps, such as WhatsApp, Facebook Messenger, or Truecaller. WeChat’s features couldn’t compete with existing services and it didn’t manage to localise its product for the Indian market. For this reason, any company entering a market where there is already a high penetration of digital payments, should consider an impactful value proposition. So let’s wait and see what alternative has PayPal prepared for Chinese customers.
The ‘me too’ products
In the ‘interesting fact’-type news we have the following story. Mastercard bought Ethoca – a favourable move in the chargeback management context, as Ethoca is known in the industry for their collaboration-based technology that enables card issuers, merchants and online businesses to fight against chargebacks. Approximately three months later, Visa acquired Verifi, a company focused on minimizing fraud risk and eliminate chargebacks. So two competitors have bought each other two companies that in turn, are also competitors. Visa is also looking to leverage Verifi’s capabilities to complement its own risk management in an attempt to reduce ecommerce fraud.
With the intelligence that Verifi holds, Visa can monitor transactions while making sure the whole process is a seamless one. But the question is, do merchants working with Verifi have something to say here? Are they willing to share their insights with the credit card network? The same question applies to Mastercard.
More acquisitions to come, more trends to watch
Surely there will be more strategic buys in 2020 that will remove competition at certain levels – a competitor buying another one, or will increase competition at a high level – once a company adds new capabilities, its services become more valuable on the market, also being able to improve the unique selling propositions. This year we expect further developments of account to account payments with card schemes and banks continuously investing in this capability. We expect card schemes to enter the Request to Pay market, which is a great area of B2B, B2C and ecommerce businesses. Unless a PSP services a great lock-in (still being able to get high margins), the consolidation space is becoming a volume and big data game with continuous acquisitions. Moreover, we should also watch the move beyond payments with digital lending, and, of course, we should also keep the acquisition of startups in sight.
This editorial is also featured in our Who's Who in Payments 2020 – Complete Overview of Key Payment Providers, a report presenting a comprehensive overview of the key solution providers in the payments space, as well as educational insights into the size of the market and the development of the payments ecosystem.
About Anda Kania
Anda is doctor in Political Sciences, currently exploring her research skills to discover the latest trends in the payment and commerce industry. Anda has used her position of senior editor at The Paypers to analyse the hottest topics, and to discuss them with thought leaders in order to get the pulse of the payments environment.
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