Barclays has given more details on the future of its UK Barclaycard merchant acquiring business. Speaking during the bank’s 2023 full year results call, C.S. Venkatakrishnan, Group CEO, reiterated that merchant payments would remain an essential part of the product portfolio but that he was exploring different delivery models.
Barclaycard is the second largest acquirer in the UK and third largest in Europe. Most recent published numbers indicate 400,000 merchants and annual processing volume of around £300bn. To its credit, Barclays has always been effective at cross-selling acquiring to its business banking base, but Barclaycard’s core technology and processes are lagging further and further behind the new market entrants. The position hasn’t been helped by endemic overmanning and bureaucratic decision making which slows down new proposition development and customer onboarding.
Barclaycard has been late to offer new products, such as omni-channel, and has not managed to adapt its front end systems to take advantage of the shift in distribution of payment processing from bank branches to ISVs and platforms. The business is losing market share with both enterprise and SME customers. This gives competitor fintech’s such as Checkout and Dojo a foothold in Barclays accounts, posing a medium-term threat to Barclays core lending business.
Venkatakrishnan explained to analysts “We intend to remain in the full ecosystem of payments, which includes acquiring. It’s just we think that part can be delivered better in partnership with others, and that’s what we’re talking about…. we are exploring how best via partnerships to provide further benefits of scale, global scale and new technologies and innovation to our clients.”
Anna Cross, group finance director, underlined that merchant acquiring “in whatever form is critical to Barclays, the Barclays ecosystem, and in particular, to our corporate and SME clients. So either way, it’s a service that we would expect to have.”
As part of a wider restructure, merchant acquiring – outlined with the blue line in the chart – has been transferred to “head office” alongside other assets held for sale. Barclays has been working on plans for Barclaycard merchant acquiring since last June. It reportedly originally valued the business at £2.5bn based on £300m EBITDA but recent reports suggest it may settle for closer to £1bn.
Barclays management has two main options for a partnership. One would be to inject Barclaycard merchant acquiring into a joint venture with a payment specialist. With Nexi and Worldline distracted, candidates might include Fiserv or Global Payments. Either could bring a modern product set that would be more appealing to Barclays business banking customers.
If a trade buyer can’t be found, Barclays would most likely need to work with a private equity group. Bloomberg reports that Brookfield, CVC and Blackstone have been in discussions. There’s plenty of fat at Barclays. A PE buyer would be able to generate a fast financial return that could be reinvested into product but this would be a slower route to a market-leading set of propositions than a JV with a specialist.
