The bank software and payment technology provider FIS announced Monday its agreement to acquire the payments company Worldpay for $35 billion. What will the impact be on FIS’ U.S. bank customers?
FIS, which is headquartered in Jacksonville, Fla., provides retail and institutional banking, payments, asset and wealth management, risk and compliance, and outsourcing solutions in 130 countries.
Worldpay is a U.K.-based merchant acquirer that provides payment technology to merchants, businesses and financial institutions around the world, with a focus on e-commerce and omnicommerce.
The companies said, naturally, that their products could complement each other like chocolate and peanut butter.
“Upon closing later this year, our two powerhouse organizations will combine forces to offer a customer-driven combination of scale, global presence and the industry’s broadest range of global financial solutions,” said Gary Norcross, the chairman and chief executive of FIS. “As a combined organization, we will bring the most modern solutions targeted at the highest growth markets.”
(If the merger proceeds as planned, Norcross will be CEO of the new entity, which is to be called FIS.)
Worldpay’s loyalty and fraud solutions for cards and payments, for instance, could be combined with FIS’ banking software to mitigate fraud and provide loyalty programs across multiple channels. For instance, the two companies together could offer loyalty programs at the point of sale. They could also jointly offer data analytics.
“FIS and Worldpay executives talked about synergies in offering innovations such as ‘loyalty-as-currency’ solutions, enhanced fraud management, B-to-B and other solutions,” said Zil Bareisis, senior analyst at Celent. “Also, as open banking and faster payments grow, the ability to offer end-to-end solutions from merchants to account funding irrespective of payment rails will be increasingly important.”
One outcome of the acquisition for bank clients will be that FIS will be able to provide merchant acquiring services and e-commerce services it has not had much of historically, said Bruce Lowthers, chief operating officer of integrated financial solutions at FIS.
Merchant acquiring is critical to community banks because it helps them serve their commercial business customers, he said.
A question that arises with any large tech company merger is, how distracting and time consuming will the merger itself be, and will that take away from the companies’ ability to serve their existing customers?
In its press release about the deal, FIS conceded that one possible risk was “that the integration of FIS and Worldpay will be more difficult, time-consuming or expensive than anticipated.”
But in an interview, Lowthers said there’s little to no integration risk.
“These are adjacent products,” he said. “Worldpay is the No. 1 merchant acquirer in the world; we don’t have that. Culturally the two management teams are aligned and structured the same way. The teams jumped together right from the get-go and acted as one team. Of all the deals I’ve been involved in over the years, this is one of the best cultural fits because we think and act so much alike.”
Bareisis pointed out that Worldpay has made several acquisitions in recent years. It completed its merger with Cincinnati-based Vantiv in January 2018. FIS also has made several acquisitions in recent years.
“Both management teams have a track record of integrating companies and growing through acquisitions,” Bareisis said.
Krista Tedder, director of payments at Javelin Strategy & Research, also seemed little concerned about the companies’ ability to serve their customers in the short run.
“It is always a possibility that a merger can divert attention from existing business,” she said. “The dangers are lower for FIS because of their history of being able to acquire companies with little disruption. If there is a disruption, it will most likely be after the company identifies areas of redundancy and makes the hard decisions of what products will no longer be supported.”
Tedder also noted that FIS has aggressive new product plans with real-time payments and open API technology.
“Ensuring that product delivery time frames are not missed will be a priority for FIS,” she said.
Lowthers said that FIS and Worldpay are both customer-centric.
Another related source of anxiety for U.S. banks and card issuers, especially small and midsize ones, is that as FIS and Worldpay become much larger, the smaller banks could get lost in the shuffle.
“Small to midsize issuers will be more likely to partner with organizations that can provide a more hands-on servicing approach that can be configured for their needs,” Tedder said.
Lowthers countered that the community bank and credit union markets are critical to FIS.
“We really have put a tremendous amount of energy behind improving customer care and being aware of smaller financial institutions,” he said. “We’ve moved further into the credit union space.” FIS will soon launch a cloud-based digital solution for the community bank market.
Tedder also noted that small to midsize issuers may stay at least for a time post-merger in part because contracts with processing entities are multiyear deals.
“Issuers will evaluate how the operational support and new product investments are managed as integration of the two companies occurs,” Tedder said. “My initial thought is that there will be little disruption to FIS issuing clients since Worldpay is a major international merchant organization.”
When their issuer-processing contracts are up for renewal, then smaller card issuers may send a request for proposal to other organizations, Tedder said. The companies that could benefit are Finastra, Shazam, Jack Henry, PSCU and the Co-Op network.
“Each of these organizations can provide hands-on customer support and product offerings which can be tailored to be competitive in the small-to-midsize-issuer markets,” she said.
A third worry banks could have about the merger is that large vendor mergers can also hurt banks’ ability to compete.
“With financial institutions all using the same processing platform, it is harder to stand out from the competition if the bank or credit union down the street has access to the same products,” Tedder said.
Lowthers said there are still many vendors that provide solutions to banks and credit unions as well as banks and credit unions that build their own solutions.
“There’s significant amount of choices available to anyone,” he said.
