Investors press FIS, Fiserv for divestitures


Three years ago, the giant payments processing companies FIS and Fiserv made multi-billion-dollar acquisitions, and pledges to achieve economies of scale that would drive profits.

“Scale matters in our rapidly changing industry,” FIS Chairman and CEO Gary Norcross said at the time. The company, officially known as Fidelity National Information Services, said its 2019 merger with Worldpay would combine “modern” software services for banks with e-commerce payments innovation.

Fast-forward to the dawn of 2023 — past a global pandemic and an onslaught of new, digital competition. Now, FIS and Fiserv are struggling to boost profits in their two key service segments catering to merchants and banks. As for Norcross, he exited abruptly this month.

Through their 2019 acquisitions, FIS and Fiserv doubled down on old-school technology just as ambitious venture-backed fintechs, including Square, Toast and Stripe, raced ahead with digital payments ideas. When COVID-19 sped up e-commerce growth, the fledgling fintechs seized market share, ratcheting up rivalries.

As the battle intensifies, with FIS and Fiserv going head-to-head, the giant processors are recasting operations by slashing costs, selling business units and potentially eliminating thousands of jobs worldwide.

With persistently high inflation, rising interest rates and a possible recession in the offing, next year will test their 2019 promises that more scale would equal bigger profits.

“It will be interesting to see whether these legacy payment processors regain some market ground, or if the gap becomes too big to close, compared to the more nimble fintechs,” said Peter Sanchez, an executive vice president at the Chicago-based institutional bank Northern Trust.

Sanchez, who heads up Northern Trust banking and treasury services, said the large processors have been hemmed in by regulatory and market changes, and unable to adapt as quickly as young rivals.

Northern Trust Executive Vice President Peter Sanchez

Northern Trust EVP Peter Sanchez

Permission granted by Ashley Thompson

 

Topping the long list of digital payment rivals are Block’s Square, the digital device pioneer that enabled small merchants to take credit card payments; Toast, which is gobbling up restaurant payments; the mega-unicorn Stripe, with its digital edge; and Dutch new entrant Adyen making inroads in the U.S.

“It’s a huge advantage right now for the fintechs through the recent years of regulatory and industry change, that their platforms had the ability to design to those standards from the outset, rather than having to design after they have a full system in place,” Sanchez said.

While the payments processing behemoths have swallowed some small fry as a means of absorbing entrepreneurial know-how and technological innovations, those deals have not always panned out. 

For instance, Monitise faded away after being acquired by Fiserv, said Robert Keil, the chief payments officer at Attica, Ohio-based Sutton Bank and a former Fiserv vice president who oversaw fintech and emerging payments.

FIS and Fiserv are “where good technology goes to die,” Keil said he and colleagues joke. “They buy it and then that technology dies a slow death,” he said. 

Swallowing big acquisitions

In January 2019, Fiserv agreed to pay $22 billion in stock to acquire New York-based First Data in a deal ultimately worth $46.5 billion. A few months later, in March 2019, FIS said it would pay $35 billion to acquire the Cincinnati-based merchant payments processor Worldpay in a $43 billion deal.

They have become technology holding companies with myriad services offered through separate units, notes AlixPartners Managing Director Mark Flamme. Some of the businesses operate under their own brands and sell through independent software vendors, too. The set-ups have made cross-selling difficult.

“That integration challenge is big,” Flamme said. “It requires some significant thinking with respect to the business model for these players.”

The parallels between the two American companies go beyond their confusingly similar names. They both sell payments, processing and financial technology services to banks and merchants; employ tens of thousands of workers, with significant percentages outside the U.S.; and generate more than $10 billion in annual revenue.

Both recently also embarked on new headquarter plans, with Fiserv heading downtown next year from suburban Milwaukee and FIS setting up a new larger home base this year in Jacksonville, Florida. 



Source link