Barclays ponders future of UK merchant acquiring

Barclays has updated investors on its strategic review of Barclaycard, the UK’s leading card issuer and the second largest merchant acquirer. Reuters reported in August that Barclays had hired consultants to advise “whether some of the payments businesses should be expanded or combined with other providers through a merger or joint venture.”  

Confirming for the first time that a review of merchant acquiring was underway, C.S. Venkatakrishnan, Group CEO said “I think there’s a broader strategic question for us, which other banks have faced. [Payments is] a very technology-driven business. Is there a comparative advantage in developing the technology or in implementing the technology or is there a comparative advantage in helping service [merchants] as part of a larger set of banking services? That’s the question we’re looking at, and then I think the commercial arrangement will come out of the answer to that question. So, that’s the way we are thinking about that business.”

Despite its strong distribution through the bank’s network of business advisors, Barclaycard is believed to be losing market share in SME to Dojo and with larger corporates to Adyen and others. Lack of investment in new products is understood to be a the heart of the problem and could be addressed if the sales team had access to technology from a modern payment vendor.

If Barclays decides to divest its merchant acquiring business, several private equity funds, including Bain/Advent, would certainly be interested. A sale price of £2bn has been suggested based on EBITDA of £300m but management may struggle to achieve this following the sharp declines in the stock price of listed European payment businesses such as Adyen and Worldline. This might tip the balance towards incorporating Barclaycard inside a JV with a technology partner such as Fiserv, Nexi or Worldline. Two other major European banks are currently in processes to do just this – Sabadell with Nexi and Credit Agricole with Worldline.

Meanwhile Barclaycard UK acquiring volume recovered a little in Q3 to record 9% year on year growth, having increased just 4% in the previous quarter.

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