Payments Stocks Flattened Again as Brexit Downdraft Grows

A second day of market turmoil in the wake of the United Kingdom’s “Brexit” vote to leave the European Union once again took a big bite out of stocks of U.S.-based payments companies with large operations in the U.K. and Europe.

For example, on a day when the major market indexes declined in the 2% range, shares of leading payment processor First Data Corp. closed Monday at $10.13, down 7.9% from Friday’s $11.00 close.

Other companies that took big hits Monday were Euronet Worldwide Inc., off 8.6% from Friday’s close; NCR Corp., down 8.5%; and MoneyGram International Inc., off 7.6%. Diebold Inc., which is in the process of buying Germany-based ATM and payments-hardware manufacturer Wincor Nixdorf AG, slipped 6.3%.

Analysts attributed part of the payments downdraft to the providers’ increasingly global exposure and their sensitivity to market perceptions.

“Payments companies tend to have a broader global footprint than some other technology companies,” industry analyst Gil Luria, managing director at Los Angeles-based Wedbush Securities, tells Digital Transactions News by email. “While technology companies such as Amazon, Facebook, and Intuit still generate most of their revenue in the U.S., payments companies tend to have a revenue profile that more closely reflects global GDP [gross domestic product]. The other factor is that their customers tend to be banks and retailers, who are more economically sensitive than other sectors.

Investors also clobbered bank stocks on Monday. For example, shares of The Bancorp Inc., owner of The Bancorp Bank, a major prepaid card issuer, fell 8.9%.

The payments-industry slippage also stems from the effects of the recent decline in the value of the British pound sterling on expected earnings and asset values when companies report their second-quarter financials, says Lawrence Berlin, a vice president at Chicago-based First Analysis Securities Corp. A 10% drop in the pound on a U.S. company that gets 20% of its earnings from the U.K. will cut profits by 2%, he says.

How long the market swoon lasts is anybody’s guess. The weekend produced speculation that more countries might try to leave the EU, which means instability could persist for some time. But when the “fear factor” is removed, the fundamentals of the payments industry remain strong, according to Berlin. Whether or not Britain is in the EU, people are still going to pull out cards to pay for transactions—which means revenue for payments firms.

“I look at the whole thing … I don’t see a lot of change,” he says. “Markets jump and follow each other. There’s a lot of fear factor, and people follow each other.”

One tangible fear, however, is the specter of one set of regulations for the U.K. and another for the rest of the EU, raising companies’ compliance costs. For example, the EU has passed rules regarding data storage, so a payments firm that warehouses data in the U.K. might need to build another center in an EU country if it does business with EU member countries, according to Berlin.