MasterCard Inc. and Vantiv Inc. are among payment processors helping fuel a surge in deals this year as they vie to stay ahead of emerging technologies and expand globally.
The first six months saw 125 pending and completed deals in the payments industry, a 76 percent increase from the first half of last year and 29 percent more than the same period of 2012, according to data compiled by Financial Technology Partners LP, a San Francisco-based investment bank.
Consumers globally are replacing cash and checks with electronic forms of payment including credit cards and mobile phones. Established companies are scooping up smaller competitors and merging with firms abroad amid a surge in new technologies that make transactions faster and easier.
“The M&A activity we are seeing out there is defensive,” Jay Gurandiano, a Deutsche Bank AG managing director who advises on payment deals, said in a phone interview. “There’s definitely an acceleration. People are ensuring that they are at the leading edge of technology.”
Startups including San Francisco-based Square Inc., led by Twitter Inc. co-founder Jack Dorsey, are creating competition for networks and other processors such as Heartland Payment Systems Inc. and First Data Corp. The new companies offer mobile phone technologies that can make it easier and cheaper for small retailers to accept money from customers.
“There have been these new, disruptive models in the payments space, and the old-line players who are flush with cash but stuck with more legacy payments models have a lot of firepower,” Sean Minnihan, who advises on financial technology deals for GCA Savvian Inc., said in an interview. “They want to invest.”
U.S. payments firms are also seeking to expand abroad, where opportunities tied to consumers switching from cash to electronic transactions are greater. The U.S. share of global card transactions will decline to about 42 percent by 2018 from about 45 percent in 2012, according to the predictions from the Nilson Report, an industry newsletter. Asia-Pacific share is estimated to climb to almost 25 percent from about 18 percent.
This year’s biggest acquisitions include Vantiv’s $1.65 billion purchase of Mercury Payments Systems Inc. in May. The merger will allow Vantiv, based in Symmes Township, Ohio, to help merchants integrate payments information with accounting and customer data the retailers have on file, the company said.
“Mercury was very attractive given its size,” Vantiv Chief Financial Officer Mark Heimbouch said in a phone interview. “We’re very much focused on what’s going on in the market in terms of transitioning from traditional brick-and-mortar to e-commerce.”
Bain Capital LLC and Advent International Corp., both private-equity firms, agreed in March to buy Ballerup, Denmark-based payments processor Nets Holding A/S for about $3.1 billion to expand in Scandinavia. Visa Inc., the largest bank-card network, said in May it bought the rest of GP Network Corp., a Japanese processing company. Purchase, New York-based MasterCard, the second-largest network, scooped up a software firm in India and a card loyalty provider in Sydney as part of its Asia-Pacific push.
Revenue from cards is helping counter declines in trading and mortgage lending for some of the biggest U.S. banks. Card revenue rose 3.1 percent on average in the first half of the year at the five biggest U.S. commercial banks, with Wells Fargo & Co., U.S. Bancorp and JPMorgan Chase & Co. reporting the biggest gains. That compares with an average decline of 50 percent in mortgage revenue.
The value of deals worldwide across all industries doubled in the first six months of 2014 to $1.9 trillion from the same period last year, as the number of transactions climbed 14 percent, according to data compiled by Bloomberg.
“Payments is profitable and it’s a scale business,” Jay Wilson, a vice president at advisory firm Mercer Capital in Nashville, Tennessee, said in an interview. “To the extent that deals come together -- that means you will just see more.”