August 2023 newsletter

Business of Payments

FIS has given an update on the rescue operation following its catastrophic $43bn acquisition of Worldpay in 2019. Worldpay will be spun off into a joint-venture with GTCR, a Chicago based private equity fund, at a valuation of $18bn. You may have noticed $25bn missing. This is a loss to FIS shareholders for which nobody has apologised.

One of the key reasons for the collapse in Worldpay’s valuation is that when FIS bought the business, it was growing sales at about .9%. However, starved of funds under FIS’s ownership, Worldpay hasn’t been able to keep up with high-spending competitors such as Adyen, Stripe, Checkout and JP Morgan. The result: revenue was up just 1% in Q2, JP Morgan has overtaken Worldpay to the global number one spot and $25bn has disappeared.. More details on the Business of Payments blog.

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In Europe, most attention is focused on battles for bank partnerships. In Italy, Banco BPM, advised by Bain Consulting, rejected its current partner, Nexi. Instead, in a surprise move, the Milan bank will merge its merchant services business with that of BCC Pay. The combined group, boasting 370,000 POS and €90bn volume, will claim number two spot in the Italian market and has the scale to compete with Nexi and Worldline.

Two other large European banks are in the process of finding partners for their merchant services arms. In France, Credit Agricole has now signed the agreement with Worldline to start a new JV. The revenue should start to flow in 2025. Again, there was less positive news for Nexi. The closure date for its acquisition of a majority stake in Sabadell’s merchant acquiring business (the second largest in Spain) has been put back six months to the first half of 2024.

Both Worldine and Nexi’s merchant services businesses themselves, seem in good underlying health. Reporting H1 results, Worldine revenue was up 13%. Management said it was still interested in acquiring merchant portfolios from banks. Nexi grew revenue 10% in H1 and is proving adept at realising synergies from the recent mergers with SIA, Nets and Concardis. It has decommissioned five of 25 processing platforms, says it’s on track to close another five in H2 and, longer term, to reduce the number to just four.

PagoNxt, Santander’s payment business, is also doing well. Volume was up 22% in Q2with increases recorded in all major markets in Europe and Latin America.

In contrast, Barclays, the UK’s second largest acquirer, reported disappointing acquiring volume growth at Barclaycard Merchant Services. Insiders suggest the bank is struggling to bring modern payment products to market and is rumoured to be considering divesting its acquiring division.

We’ve reported previously on the challenging market conditions for pure-play eCommerce gateways. It’s no surprise that privately owned Computop, which claims 30% of the German eCommerce market, has sold a 30% stake to Nexi. There is strategic logic for Nexi which already owns Concardis, Germany’s largest acquirer. Computop’s volume processed fell from €34bn in 2021 to €30bn in 2022. The decline is partly due the company’s decision to exit the gambling/adult sectors but also indicates competitive pressure from Adyen, Checkout and Stripe.

The decline in value of German payment assets was underlined by KKR’s decision to hand Unzer (formally HeidelPay) to its creditors, writing off most of its $668m investment. KKR acquired a majority stake in Heidelpay, a PSP with about 17% of the German eCommerce market, in 2019. Unzer was recently in trouble with BAFIN, the German financial regulator, due to “serious defects” in its risk processes. 

US based Shift4 still hasn’t concluded its acquisition of Credorax Finaro, a European processor. First announced in March 2022, the deal hit regulatory obstacles linked to a sanctioned Russian oligarch on the Finaro share register. Management says it is confident of closing the deal in Q4.

Ryan Reynolds is a much better proposition as shareholder. After taking an undisclosed stake in Nuvei, a Canadian processor with global ambitions, the actor is fronting a witty and self-deprecating brand advertising campaign. Reynolds’ investment is already under water. Nuvei’s stock fell 39% after disappointing Q2 results.

Rapyd, the London based global “fintech as a service” provider, has paid $610m for the slowest growing and least profitable parts of the sprawling PayU empire. The purchase price will be financed by a fresh capital injection into Rapyd in what the company claims could be the largest Fintech fundraise of 2023. Arik Shtilman, CEO, took to LinkedIn to explain the rationale. “If you don’t aim for a big outcome, you won’t get an outsized return,” he says. More details on the Business of Payments blog.

We reported last month that Toast, a leading US restaurant software vendor with integral payment processing, had shocked its merchants by adding a $0.99c service charge to each bill. The fee would have been paid by diners and provide Toast with free money at 100% gross margin. The company has now back tracked with its CEO recognising “we made the wrong decision.”  

Shift4, with time on its hands waiting for the Finaro deal to close, responded with a clever “Don’t get Toasted” campaign.

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Two small French payment companies reported good results. HiPay, an omni-channel PSP quoted on Euronext, grew volumes 14% to €4bn in H1 with revenues up 19%. Business picked up in southern Europe and in the iGaming segment. Lemonway, which provides specialist payment services to marketplaces, broke even in H1 as revenues surged 90% to €14m.

Synch Payments, an attempt by a consortium of Irish banks to produce a domestic mobile money transfer app to rival Revolut, has been delayed once more. Again, it’s Nexi supplying the technology.

Many domestic schemes co-brand with Discover to access a global acceptance network. Surprisingly, 3rd party volume over the Discover Global Network fell 10% in Q2. New management at DGN will be looking to reboot its proposition.

New shopping

While autonomous stores are gaining traction across Europe, Amazon, which invented the technology, is struggling. According to the RTHI blog, Amazon’s stores are in the wrong place, have the wrong products, cost too much to build and are confusing for customers. For example, you can now checkout by tapping your physical payment card but not with Apple/Google Pay. Or with Amex. The stores don’t even accept Amazon gift cards.

Customer satisfaction with traditional self-checkouts is falling. Shoppers resent the ongoing reduction in staffed checkout. With autonomous stores so expensive, smart carts may provide a cheaper and more flexible compromise. Here’s a good round up from Forbes on the state of play. Kroger, the US grocer, says smart cart shoppers spend less time in store but spend more money. Everyone’s a winner.

Shoppers are returning to local stores. As expected, once confronted with the true economic cost of rapid grocery deliveries, people are willing to walk to the shops just like it’s 2019.  The last mile delivery specialists are disappearing one by one. Getir is the latest to urgently need more cash to keep trading. Maybe robot deliveries are the answer.

Fans of biometric payments will be delighted that Amazon is rolling out Amazon One, its palm payment product, to 500 US Wholefood stores by the end of this year. Amazon says the technology has been used 1m times to date with zero false positives and is ideal for high volume locations such as stadiums. Shoppers first need to visit an Amazon One location where they can scan their palm and link it with their Amazon account.

Palm payments are no more convenient for shoppers than Apple/Google Pay. But there is  clear benefit to Amazon of capturing extra customer data and/or being able to steer transactions to lower cost payment methods.

While Amazon can probably be trusted to keep your data safe, other vendors may not be so reliable. For example Worldcoin, a San Francisco-based start-up, is creating a global identity database founded on iris scanning and secured $115m funding in May this year. Its focus has been mainly on developing countries such as Kenya, in which Worldcoin has been asking people to agree to having their eyeballs scanned in return for $50 in tokens on the blockchain. What could possibly go wrong? Bain Capital is one of the VCs which should know better than be mixed up in this madness.


Legacy acquirer like Worldpay and Barclaycard need to make rapid product investments to keep up with the new capabilities showcased by Adyen, Checkout and Stripe.

Optimised checkout is a great example. This uses AI to configure checkout pages with the best selection of payment brands, ensures that transactions contain the correct data and optimises routing to maximise acceptance or minimise cost. Stripe claims merchants moving to its optimised checkout grew sales revenue 10.5% more than a control group which stayed on the old product. Checkout says its Intelligent Acceptance product increased acceptance rates by up to 9.5ppts. Early customers include Klarna. has also launched Identity Verification which, it says, uses AI to identify individuals within 120 seconds as they video themselves holding up identity documents. Uber Eats is an early customer.  

Adyen announced Data Connect for Marketing which helps merchants identify their in-store customers. Retailers used to this themselves before PCI regulations banned them from storing customers’ card details in their own systems. Impressively, Adyen is also the first Fintech to join FedNow, the new US instant interbank payment network.   


Away from the global processors, Cashflows, a UK eCommerce acquirer, has added a range of Castles POS terminals as part of omni-channel proposition to its ISV and ISO distribution partners. This is a smart move. New UK regulation has outlawed lengthy POS terminal rental contracts but were connected to one of the 14 largest acquirers. Cashflows is not one of the 14 and so will be an attractive option for ISOs looking to continue business as usual.

In case you’re wondering what counts as a POS terminal in UK law, the regulator says this is “an electronic device that a merchant uses to accept a card in a card-present transaction without the need to connect to a smartphone or tablet.” This excludes the typical mPOS propositions from SumUp and others although these devices are normally sold to merchants, not rented.

Far Eastern tourists are back in Paris to shop and the top retailers know they need to offer their favourite ways to pay. Printemps, a leading department store, has integrated Alipay+ into its POS checkout flow. Alipay+ also gives access to Kakao Pay (South Korea), GCash (Philippines), Touch ‘n Go (Malaysia) and TrueMoney (Thailand).

Visa appears to have built its own Blik competitor in Poland, called Visa Mobile. ING, Nest and SGB banks have enabled this within their mobile banking applications.Shoppers just enter their mobile phone number into a merchant checkout page and authorise the transaction in the mobile app.

Fuel cards are commonly issued to staff who drive company vehicles but there’s always a risk of fraud or misuse. A new idea from CarIQ uses vehicle data as a sort of biometric ID. Linked to a virtual card, the vehicle pays for its own fuel, without the driver needing to sign for the gas. CarlQ has just signed a global partnership with Visa.

Access to cash

As cash usage declines, a growing number of merchants are only accepting digital payment. This presents problems in societies where some citizens don’t have access to electronic money. But cash-free stores are also enraging many of the people already angry about vaccines, traffic restrictions, 5G masts and sundry other inevitable aspects of modern life.

Piers Corbyn, a notorious conspiracy theorist, posted a video of himself trying to pay cash at a cash-free Aldi store. It didn’t end well. Lobby for cash if you want, but be careful of the company you keep.


If cash is to be preserved, public policy needs to address the fact that the less cash is used, the more expensive it gets. For example UK convenience stores often host ATM machines with the retailer receiving a commission of 15p per withdrawal. One store reports  transactions down 70% at a “free” ATM. The result: the retailer is not making enough revenue and is switching to an ATM that charges customers a withdrawal fee. The likely outcome is that transactions will fall further.  

Meanwhile, in Germany where cash is still plentiful, 496 ATMs were blown up by criminals last year who got away with a total of €30m in bank notes.


SoftPOS has only been available on Android so news of the European launch of Apple’s “Tap to Pay” on iPhone made the headlines. Apple’s SoftPOS is based on the $100m acquisition of Montreal-based Mobeewave in 2020. Architected differently to Android SoftPOS, Apple offers an SDK to developers/PSPs allowing them to build payment acceptance capability into their own iPhone apps.

Commercial launches on Apple have quicky followed from Natwest TylDojoViva Wallet and Zettle.  

With Apple SoftPOS, there’s still a need for an acquirer (or payment facilitator) to process the transactions but no obvious role for the specialist payment app/gateway providers such as MyPinPad or Phos. Happily for the SoftPOS start-ups, the Android market is large enough to keep them all busy for some time.

In Android product news, Oona, a Finnish start-up, has some interesting enterprise SoftPOS ideas such as this kiosk, for which Rubean provided the payment application. Getnet (Santander) has launched SoftPOS in Spain although only for larger business customers. Finally, Worldine is now live with SoftPOS in Italy via its new Banco Desio partnership supported by a clever TV commercial.

Open banking

Natwest, which has modestly taken the URL, commissioned a report to identify the key obstacles holding back the wider adoption of Open Banking. It concludes the problems lie in “lack of commercial incentives” to develop or enhance the core APIs and “lack of alignment between.. .banks.” Or as Nick Dunse, former CMO of Pay with Bolt wrote on LinkedIn, “Nobody is leading it and there’s no money in it.

Some Fintech lobbyists are asking the regulator to lead by expanding the number of services available but Oliver Wyman, the management consultant, thinks its time for banks to introduce financial incentives for themselves by monetising the APIs. The consultants suggest that a typical bank could make $50-$75m per annum if it charged PSPs for value added services linked to the open banking APIs.

Variable recurring payments (VRP) – an open banking equivalent to direct debits – were meant kick start the sector in 2023 but have also been rather slow to take off. Here’s a good podcast from Edgar Dunn which explains how VRPs work and what the opportunities might be.

In corporate news, NuaPay, an early open banking leader may be for sale. Its parent company, Senteniel, was acquired by EML, the accident prone Australian fintech for €70m in 2021. Account to account payments are meant to be hard to spoof but Senteniel was then hit by A$8.5m merchant fraud in August 2022. Now the Irish regulator has raised anti-money laundering concerns and asset sales look likely.

Banked, a London based white label API aggregator which has raised £36m from investors including Bank of America and NAB, reported revenues of just £45K in 2022 as losses widened to £15m. Management says it will need to raise fresh capital this year  

Munich-based Ivy has raised €7m for “instant bank payments your customers love.” It sits on top of TinkTrueLayer or and looks like a very well thought-through proposition. Merchants need vendors to build compelling customer experiences on top of the raw capabilities provided by the API aggregators so this could be a winner.

Crypto corner

PayPal is hoping to legitimise crypto with its newly minted Paypal dollars but opinion is divided. Bank of America thinks PayPal is unlikely to win significant crypto market share but I suspect its analysts are missing the point. PayPal will focus on customer experience, global deployment, and ease of use in a sector notorious for operational complexity.  If PayPal can’t make this work, nobody can.

Meanwhile, the regulatory clampdown on unbacked crypto is bringing results. Sex workers are complaining that crypto exchanges have been terminating their accountsciting reputational risk. One adult star left with a pile of unsaleable crypto tokens said “the whole ‘crypto is permissionless and censorship-resistant’ thing is a bunch of bullshit.

With crypto exchanges now behaving (slightly) more like respectable institutions, the criminals are moving on. Bitcoin is no longer the currency of choice for laundering money.

No criminal could possibly need the new “No KYC Visa card” available to anyone with an Ethereum wallet. Jason Mikula explains that this wholly noncompliant boondoggle is most likely built on banking-as-a-service capabilities from Stripe.

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Other news

Edgar Dunn writes on payment orchestration platforms (POPs). The consulting company counts 27 multi-acquirer platforms available today plus eight acquirers marketing their eCommerce gateways as orchestration platforms. The sector has attracted over $650m investment in recent years.   

It’s helpful occasionally to remind ourselves of the difference in commerce between the US and Europe. Watch this report on the world’s largest gas station. It has 120 pumps and is in Tennessee. Where else?

Research from Justt shows UK consumers are “now as trigger happy toward chargebacks” as their American cousins.

Poland is a fintech hotbed. There are over 80 payment businesses referenced in the 2023 Map of Polish Fintech.  

If you want to become a wealthy payments sales person, here’s a handy guide from the US Electronic Transaction Association. Because independent sales agents are rewarded with small but long-lasting commission payments, the best advice is to be patient and love your customers.  

The British Government has launched (yet another) Future of Payments Reviewalthough without clearly stating the problem it is trying to solve. No matter. The UK Payment Association has a handy survey for you to give your views.

What if generative AI turned out to be a dud? A must read from Gary Marcus

Sifted lists nine payments start-ups to watch. Four are from the UK and two from the Netherlands.

The collapse of Railsr has caused havoc at Irish shopping centres, many of whom had sold open-loop gift cards issued by UAB Payrnet, a Ralisr subsidiary whose licence was revoked by the Lithuanian regulator.

Latest Wirecard news. Two ex-employees have been jailed in Singapore, the first criminal convictions anywhere in the world relating to the scandal. Meanwhile, Jan Marsalek, the fugitive COO, has claimed that Wirecard’s third party operations, whose existence or lack of existence, brought down the company, have continued to trade.

And finally

Worldline kindly invited me to join its Navigating Digital Payments podcast. If you’ve enjoyed this newsletter, give it a listen. Although I was certainly flattered to be asked to participate, my head isn’t normally this large.

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Worldpay loses crown as number one acquirer. JPM narrowly ahead.

Worldpay has lost its crown as the world’s number one merchant acquirer, although only by a very narrow margin. In each of the last four quarters, JP Morgan has processed a greater volume of payments.

Worldpay has been hobbled by having, in FIS, a cash-strapped parent unwilling or unable to invest. The challenges were spelled out earlier this year when FIS took an $18bn write down on its acquisition of Worldpay. We covered this in detail at the time. Now, Worldpay is to be spun-out of FIS as a joint-venture with GTCR, a Chicago private equity firm. 

Meanwhile, Q2 results demonstrate the extent of Worldpay’s problems. Global payment volume grew 6% in Q2 to €591bn, once again lower than JPM which recorded an increase of 10% to $600bn. At Worldpay, another weak US performance (+4%) was offset by a healthier 11% increase in international volume but, over the last twelve months, JPM has processed $2287bn against $2266bn for Worldpay. 

Underlining the reason for divesting its merchant solutions business, FIS reported Worldpay revenue rose just 1% in Q2 to $1.312bn “with similar sub-segment trends as seen in the first quarter”’ This likely means double digit growth in global eCommerce but continued revenue declines in the domestically focused US and UK businesses which are most badly in need of investment.  Take rate fell 1bps to 22bps. ATV rose 2% to $46.17. 

Worldpay adjusted EBITDA did rise but only by 3% to $634m. Margins expanded 120bps to 48.3% “as we grew our high-margin revenue streams across the operating segment and delivered on cost management.”

FIS management had first proposed a stock market flotation for Worldpay but now say that the partial trade sale is the best option as it can realise value faster and get a cash injection more quickly. It will sell 55% of Worldpay to GTCR, a private equity business with one successful payment investment under its belt. GTCR bought Sage Pay US in 2017 for $260m, floated it as Paya and sold it to Nuvei earlier this year for $1.3bn.  Worldpay’s new valuation of $18.5bn is rather less than the $43bn FIS paid for the company in 2019. However, the price does represent 10x EBITDA, which is in excess of the 8x valuation of FIS as a whole prior to the announcement. To financial analysts, this represents value creation.

Looking ahead, management says that Worldpay “will remain an important partner and distribution channel for FIS” and that Worldpay will continue to benefit from access to FIS banking technology services and solutions. Backing from GTCR will “also ensure that Worldpay will have ample access to capital to pursue near-term inorganic growth opportunities.” Now is a good time to be shopping for payment capabilities. Valuations are lower than they have been for some time and we can expect Worldpay’s new owners to move fast to make up for its wilderness years with FIS.

Worldpay, Nuvei and Raypd reportedly vying for control of PayU (update)

Press reports and analyst comments indicate that PayU’s businesses outside of India and Turkey are for sale in a process being run by Bank of America. Worldpay, Rapyd, and Nuvei are said to vying to take control of the emerging market PSP. The target price is said to be $250m.

PayU is owned by Prosus, the Amsterdam-listed investment unit of South African Naspers, which hit the jackpot as an early investor in Tencent. Prosus has published its results for the year ending March 2023, shedding some light on PayU’s recent performance.

PayU’s payment volume grew 23% in FY 2023 to $97 billion. Most of the growth came from its 8m SME customers in India. Volume processed on the subcontinent rose 32% to $58 billion. What management describes as its Global Payments Organization (GPO), which includes all PayU business outside India, saw volumes rise just 11% to $39 billion.

Revenue from PayU’s core PSP business grew 23% to $792 million, driven by a strong performance in India and Turkey. Sales in India overtook the rest of the world for the first time, recording a turnover of $399 million, a rise of 31%. Outside India, revenue was up a more modest 15% at $393 million. Of this figure, roughly one third comes from Turkey (not included in the sale process) and another third from Poland (which is).

ATV was up 5% in India to $40.39 and remained flat outside India at $31.45.

The take rate in India was flat at 0.69% but rose 4 basis points in the rest of the world (RoW) to 1.01%. PayU provides eCommerce gateway services and payment orchestration but is not an acquirer, so a 1% take rate is reasonable. It represents an average revenue of 30 cents per transaction.

PayU recorded a trading profit of $11 million in India with a margin of 3%. Outside India, PayU lost $14 million, although it would have made a small profit except for a £23 million provision “related to merchants in Brazil and in the travel industry.”

PayU also booked $143 million in revenue and a trading loss of $27m on its 21% minority stake in Remitly.

Divesting the non-Indian and Turkish PayU businesses makes sense. These other markets are growing slowly and, collectively, are barely profitable. A trade buyer should be able to find plenty of synergies although the numerous technical platforms might be challenging to integrate. PayU also brings scale in Poland where it includes the former Allegro Payments, spun out of Europe’s leading online marketplace which was formerly owned by Naspers. PayU Poland recorded revenues of $248m in 2021. You can read more at

Of the three potential suitors, Rapyd has the strongest emerging market focus today and probably best understands this corner of the payment world. On the other hand, Worldpay badly needs a growth story to tell when it demerges from FIS in early 2024 and PayU might fit the bill. As for Nuvei, it has Ryan Reynolds on its share register so anything is possible.

Pay U has built its business largely through acquisition. Key purchases include:

Wibmo – Indian based white-label payment gateway bought by Pay U for $70m in 2019. Wibmo claims to have 160 bank and fintechs as customers in over 30 countries processing  over 3bn transactions annually. Pay U laid off 150 staff in India at the end of 2022 

Citrus Pay – a mobile wallet and gateway business operating in India, bought for for $130m in 2016. Citrus Pay claims $3bn processed annually. 

Zooz – one of the first payment orchestrators, Israeli based Zooz was bought by Pay U in 2018, reportedly for between $80 and $100m. Zooz technology is at the heart of Pay U’s “payments hub” which connects its various technical capabilities. 

Red Dot Payment – based in Singapore, Red Dot offers an webshop in a box, including payments, for micro merchants. Pay U acquired the business at a $65m valuation in 2019.

Iyzico – Pay U purchased this Turkish POS and eCommerce PSP with mobile focus for $165m in 2019. H&M, and Decathalon are customers. Iyzico processes 65bn lira annually which is around $2.5bn today at today’s exchange rates.

No apology as FIS writes down $17b on botched Worldpay acquisition

New management at FIS is moving quickly to repair the damage done by the company’s botched takeover of Worldpay in 2019. Stephanie Ferris, the incoming CEO, announced that Worldpay would be demerged this year with a separate listing on the stock market. She also booked an associated $17.7bn write down of the $43bn purchase. 

Although the FIS board has been under pressure from activist investors, Ferris was Worldpay’s CFO prior to its acquisition by FIS and then worked as COO at FIS overseeing the merger integration. She probably came to her own realisation that Gary Norcross, her predecessor as CEO, had got the strategy badly wrong.

So, why is FIS demerging a business it only acquired three years ago? Well, the strategic rationale slide from the last week’s results deck won’t enlighten you much. I’m baffled investors put up with such flimsy written material.

The investor call itself supplied a little more detail. Stephanie Ferris said that capital allocation is driving the decision. Worldpay is stagnating and needs access to investment dollars to make the acquisitions it needs to keep up with Stripe, Adyen and JP Morgan. Ferris believes the current ownership, with its conservative balance sheet, cannot provide the capital needed to generate growth. She explained “specifically, the separation will enable FIS to target a strong investment grade credit rating, while allowing Worldpay to invest more aggressively for growth.” 

Ferris was clear that Worldpay’s recent poor performance has been, in part, due to key product gaps and that FIS’s cautious capital structure had stymied its ability to buy-in or build capability. As an independent business, Worldpay will be able to raise the money it needs. In contrast, once free of its troublesome merchant acquirer, the rump FIS promises to be an investment grade stock paying steady dividends once more.

Shareholders did not welcome the move. Shares fell sharply on the news but no analyst on the investor call asked about the write down. Why $17.7bn? What went wrong? How is Fiserv, FIS’s arch-rival, seemingly make the exact same strategy work? FIS shares trade at less than half their value before Worldpay joined its family. Nobody apologised to shareholders for this value destruction.

It’s worth looking at why FIS bought Worldpay in the first place but before examining the deal rationale, let’s look at the history. Fifth Third Bank Corp span out its merchant processing division in 2009 with the help of Advent. This business was renamed Vantiv and bought London-based Worldpay for $10.4bn in 2017 bringing “together global scale, integrated technology, and diverse distribution to create a market leader in payment technology to power omni-commerce.”

Worldpay itself had been spun out of Royal Bank of Scotland with investment from Advent and Bain. Although Vantiv was the bigger partner and the HQ was to be in the US, the combined company chose to call itself Worldpay, which is a fine name for a payment brand. The combined business was valued at $28.8bn.

Less than two years later, FIS made its move and paid $43bn (including $8bn debt) for new Worldpay. As a rather staid provider of software and services to banks, FIS was feeling left out of the Fintech boom. Many commentators felt the Worldpay acquisition gave FIS a growth story. “The global payments industry is moving at an accelerated speed, and it is vital that large providers such as FIS stay ahead,” said Rivka Gewirtz Little of IDC Financial Insights. 

The 2019 deal rationale was based mainly on revenue synergies from cross-selling merchant acquiring to FIS’s bank customers although management also believed that FIS products would be interesting to Worldpay’s merchants. The four main revenue drivers were expected to be:

  • Helping Worldpay to expand into emerging markets where FIS has a large footprint such as Brazil and India
  • Faster growth in eCommerce “through Worldpay’s expertise and ability to accept hundreds of payment types and currencies and FIS’ reach.”
  • Leveraging FIS’ leadership in the issuing market to offer loyalty programmes to Worldpay’s merchant customers 
  • Using FIS’ expertise in open banking APIs to extend Worldpay’s acceptance offer beyond cards and wallets

None of these worked out. Cross-selling is always hard. Cross-selling anything to banks is even harder. Despite its heritage, Worldpay was never set up to partner with banks, the way that Global Payments, Worldline or First Data is organised. FIS didn’t pick up any new bank partnerships for Worldpay. In fact, it contrived to lose its main UK bank relationship when Natwest launched Tyl.

Integrating the two businesses, overseen by Stephanie Ferris in her role as FIS COO, took longer and was more expensive than hoped. Three years after the merger, the costs are still racking up. FIS charged $950m in 2022 “primarily to acquisition and integration costs primarily related to the Worldpay acquisition.” 

Fast forward to 2022 and FIS management is now excited to say that the spin-off will create two market leaders – FIS as supplier of technology to banks and other financial institutions and Worldpay as the world’s largest global acquirer. At least for the moment. Worldpay’s FY 2022 volume was $2.2 trillion. JP Morgan, which grew 14% in 2022, is snapping at its heals and will likely be number one in 2023. 

Management says the priorities for the newly independent Worldpay will be expanding in eCommerce (new geographies and “’payment optimisation”), strengthening its enterprise offerings including omni-channel and transforming SMB towards providing embedded finance working with ISVs. The latter is a recognition that its legacy ISO and direct SMB customers on both sides of the Atlantic are under sustained attack. 

Charles Drucker, Worldpay’s CEO in 2019, returns to lead the business. He will need to quickly stabilise the poor financial performance which triggered the demerger. Although Worldpay was supposed to be the growth engine that transformed FIS’s fortunes, sales actually fell in Q4 2022, by 1% to $1.178b. Within Worldpay, a positive Q4 result from Global eCommerce, about 30% of revenue, was offset by continued sales declines in Enterprise (which includes the UK) and SMB. Erik Hoag, CFO, spelled out the problem: “These trends in SMB reflect a lack of new product investment, which we believe the [demerger] will best enable us to remedy. And in Enterprise, we saw economic weakness in the UK and anticipate further deterioration this year.

Worldpay revenues are expected to decline a further 2%-4% in 2023 although I expect new management is assertively managing expectations. These numbers are likely to be very much a worst case scenario but it’s going to be hard for strong growth in Global eCommerce to overcome continued weakness in Enterprise (notably in the UK) and SMB.

FIS will soon be publishing more detail on Worldpay’s financial situation and market positions. It’s going to be fascinating to see how, as an independent business, it plans to invest to win in what is becoming a very competitive market.

FIS – $500m cuts ahead as profitability stagnates and UK revenues fall 15%

Soon after Stripe’s announcement of mass layoffs, FIS used its Q3 results to warn investors that future revenue and profits would be lower than expected. Gary Norcross, in his last call before stepping up from CEO to Chairman, said “We are not pleased with the profitability performance of the business.”

Stefanie Ferris, the incoming CEO, will respond by taking $500m out of the company’s cost base in an “enterprise transformation” programme that will include job cuts, organisational restructuring and lower capital spending. Harris promised “the outsourcing of non-value-added activities and reviewing and rightsizing the current workforce.” Meanwhile, FIS booked a further $60m expense related to company’s never ending platform modernisation project.

Total revenue was up just 3% in Q3 at $3.6bn with low growth in all three divisions – capital markets, banking solutions and merchant solutions. Management said it was seeing “early signs of US consumer shifting spend from discretionary to non- discretionary verticals pressuring yield.”

Despite clear indications of inflationary pressures, especially in wages, “due to competitive job markets for the skilled employees who support our businesses,” FIS has costs under control. SG&A was down 1% at $977m.

Total adjusted EBITDA, the company’s preferred measure of profitability, was up 1% at $1.575bn. Net income was flattered by a $225m gain on the sale of its remaining stake in Capco Consulting to Wipro. 

The merchant solutions division most interests us at Business of Payments. Merchant payment volume was up 3% to $544bn as weak performance in the UK was aggravated by the strong dollar. International volume was down 4% to $132bn. US volume was up 5% to $412bn, a little healthier but still lagging FIS’s competitors. FIS lost one large Payfac client which knocked 1ppt off global volume (c. $20bn annualised)

Merchant solutions revenue was up just 2% at $1.18bn. Management said growth would have been 6% excluding impacts of the Ukraine War and Sterling’s weakness.   

Within Merchant Solutions, Global eCommerce continues to perform well, delivering 22% revenue growth at constant currencies, and signing new customers including Asian airline carriers. FIS is happy with the initial success of its guaranteed payment product in which merchants pay extra to have FIS cover any fraud losses. FIS continues to invest in Global eCommerce as “we expect e-commerce to ultimately account for 50% plus of total segment revenue.”

In contrast, FIS recognises systemic problems in SMB (revenues down 1%) and UK enterprise, the former Worldpay UK, which saw sales fall 15% at constant currencies. Both divisions are heavily dependent on POS payments at old economy merchants in “big box retail, grocery and pharmacy.”

These are non-discretionary consumer spend categories and should be recession resistant but FIS says its UK business is “continuing to see macro softness impacting revenue growth.” Ferris believes the UK is already in recession “and then they changed Prime Ministers at least once, maybe twice. And so the economic conditions in the UK are pretty challenging. And as we look out even over the next 60 days, it’s tough to call it. They are in a recession, their consumers are struggling, and we are tied to consumer spend.”

Recession or not, with consumer inflation at 10%, merchant acquiring revenues should not be falling 15%. The UK performance indicates FIS is losing significant market share. 

SMBhas been adversely impacted by changing market dynamics,” said Harris. FIS is still selling POS acceptance through ISOs but merchant buying behaviour is moving to omni-channel payment solutions sourced from ISVs. Ferris, the new CEO, said “we’re strategically deprioritizing [SMB] and moving all of those partners that we’ve historically had there over to our embedded payment strategy with Worldpay for Platforms.”  The latter is a new product based on the Payrix acquisition which allows Worldpay to compete with Adyen and Stripe for business with complex ISVs such as marketplaces.

Merchant solutions EBITDA was down 7% at $555m with margins falling 4ppt to 47% “primarily due to inflationary cost pressures and accelerated investment in e-commerce and Payrix sales channels to capitalize on developing secular growth trends.”

Banking solutions revenue was up 4% at $1.68bn in Q3. FIS blamed longer sales cycles for this lacklustre performance. The much smaller Capital Markets unit grew revenue 3% to $671m. 

Inflation hits margins hit at FIS

FIS reported moderate growth in its merchant solutions business in Q2 2022. Revenue was up 11% but margins contracted by 280bps. Woody Woodal, CFO, said “We continue to see wage inflation as an ongoing challenge” but he was relaxed about wider price increases as “we’ve been able to offset rising costs.”

Sales were boosted by a strong performance by the Global eCommerce division which was up 28%. Airline and travel clients have bounced back after the pandemic. The enterprise and SMB sectors saw revenue growth at under 10%. 

Margins were hit by the impact of disinvestment in Russia (100bps), extra investment to support Global eCommerce and in beefing up domestic sales channels to support online merchants following the Payrix acquisition earlier this year.

Payrix is a payment-as-a-service offering that allows eCommerce ISVs to integrate payment processing with their software, either as a payment facilitator or simply white labelling the standard merchant acquiring offer. Payrix gives FIS access to a large and growing market segment but also the opportunity to upsell eCommerce payments to its in-store ISV partners. 

Gary Norcross, CEO, is particularly excited about the new partnership with Signifyd which allows FIS to offer guaranteed payments to its merchant customers. Many online merchants are at significant risk from fraud and miss out on business by setting their parameters too strictly and rejecting good customers. With Worldpay Guaranteed Payments, FIS decides which customers are honest and shoulders the risk of fraud or chargebacks if the transaction goes bad. Merchants are assured that they will get paid and, says FIS, are prepared to pay handsomely for this. According to Norcross “we’re able to increase our revenue… doubling what we’re earning over processing revenue.”

FIS is a huge company which means some quite large numbers can be lost in the small print. Constructing the new HQ is not a cheap exercise with a total of $156m spent in the past twelve months. And FIS booked a further $160m “associated with the company’s platform modernisation.”