The Networks’ M&A Mania

Are the big card networks no longer content to be card networks? You might be excused for thinking so if you looked at the buying binge Mastercard Inc. and Visa Inc. have embarked over the past year or so—with some participation from American Express Co., as well. Much of this spending—now adding up to billions of dollars—has focused on payments plays that have little or nothing to do with payment cards (see senior editor Jim Daly’s story, “The Networks’ Shopping Spree,” this issue).

And that’s really the point. Digital payments are moving well beyond the familiar card-based processing for in-store and online transactions that has characterized the industry for the past couple of decades. Now, we are seeing opportunities like cross-border payments, bill payments, business-to-business payments, and fraud and chargeback management attracting the big networks’ attention—and they’re writing some big checks to buy leading players.

There are some nuances to this shopping spree. Mastercard is intent on building up its ability to satisfy the burgeoning demand for real-time payments (for more on this opportunity, see “The New Reality in Real-Time Payments,” this issue). Just this summer, Mastercard announced the biggest acquisition in its history, laying out almost $3.2 billion for the account-to-account businesses of Denmark’s Nets Group.

Visa, on the other hand, is focusing on cross-border payments and dispute-­resolution services. This includes the $320.4 million acquisition earlier this year of Earthport. Not that Mastercard is ignoring this market: It was outbid by Visa for Earthport and then bought another firm in the space, Transfast.

So what’s going on? If you’re AmEx, Mastercard, or Visa, non-card payments are an enticing field for expansion at a time when merchants and regulators are increasingly putting pressure on card-based fees. This is especially true for cross-border payments, an enormous market little penetrated by cards.

And, as fraud losses continue to mount, technologies that combat chargebacks and various forms of fraud can be lucrative—and can be developed and deployed more nimbly if you own them. It’s no coincidence that Visa bought Verifi shortly after Mastercard snapped up Ethoca.

But perhaps the biggest opportunity for expansion-by-acquisition lies in faster payments. Companies are coming at this market from multiple directions, including cryptocurrency (see Facebook: Libra). Mastercard got an early jump with its acquisition of Vocalink, developer of the technology undergirding the United Kingdom’s real-time system and a key component of The Clearing House’s Real Time Payments network. The Fed’s decision to jump into this market only intensifies the urgency to claim share now.

Where will this shopping spree lead the payments industry? Those who distrust the big networks are wary. Others see opportunity. We’d bet on the latter camp.

—John Stewart, Editor |  john@digitaltransactions.net