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Berkery Noyes’ 2010 Trends And Predictions For M&A In The Payments Technology Sector

Thursday, April 08, 2010

Merger & Acquisition activity in the payment technology space is off to a good start in 2010. Royal Bank of Scotland Group has recently been forced to sell its payment processing business, WorldPay, by Europe’s competition body. The transaction size speaks volumes for the potential in the payment processing industry. A recent article by Thomson Reuters reported that the total financing for this deal will be 1.5 billion pounds which would include 1 billion pounds of senior debt and 500 billion pounds of junior debt, indicating a purchase price of roughly 2.5 billion pounds.

Indeed, 2009 saw a number of M&A transactions in the payment technology space. The largest of the deals was Fidelity National acquiring Metavante for $2.94 billion. This transaction was particularly important to the future of the payment processing space as it is likely to spark a wave of consolidations and also is predicted to lure large technology providers into the space. Two large drivers attracting large technology providers are: highly recurring revenue streams as clients tend not to move from one processor to another and the cross sell opportunities present in the payment technology space.

One of the big trends in the payments sector is mobile payments sector. No surprise considering the popularity of devices such as the iPhone and the recently released Andriod phone, which allow customers to regularly transfer money and pay bills on their mobile phones. Furthermore, the industry expectation is that mobile carriers in the United States will begin to lower their fees, which will only increase demand for bill-to-carrier payments online. With payments being a game of scale, to retain a competitive advantage the industry must consolidate as the players without scale will likely go out of business.

In 2010, one new trend in the payment technology sector which is likely to attract followers arises from PNC Bank becoming the first major bank to provide a service that allows customers to send money securely online without having to share checking account and routing information. This new P2P payment service offers tech-savvy customers a safe and convenient solution that fits their lifestyle and personal banking needs. At the end of 2009 Fiserv, Inc. (NASDAQ:FISV) announced that it has plans to develop a new personal payments service that will enable individuals to send money P2P using their existing online banking relationships. This will likely be a large source of revenue for FISERV as they will make it available to the more than 3,100 financial institutions in their online payment network.