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This article first appeared in Forum, The Edge Malaysia Weekly on October 31, 2022 - November 6, 2022

The hottest business in payments is “buy now, pay later” (BNPL). For consumers, it’s often an interest-free way to defer payments on purchases. 

For retailers that subsidise the offering, it’s a way to encourage conversion and higher average ticket sizes. BNPL has grown at an annual rate of 60% to 70% in the UK in recent years, and now accounts for 5% of all e-commerce sales. In the US, it’s expected to grow 10 to 15 times over the next three years, representing US$650 billion (RM3.06 trillion) to US$1 trillion in transactions.

Not surprisingly, incumbent companies in payments are rushing to get in on the act. And when they evaluate whether to build or buy, many are discovering that, despite high valuations, the fastest way is through mergers 

and acquisitions (M&A). BNPL deals represented 50% of the value of all payment deals in 2021, a boom year for M&A in payments.

The megadeal of 2021 was Square’s all-stock acquisition of BNPL company Afterpay for US$29 billion. Square (now renamed Block) will integrate Afterpay with its seller ecosystem and Cash App, which has about 70 million users. But there were also a number of smaller deals, including PayPal’s purchase of BNPL firm Paidy in a US$2.7 billion largely cash deal to enable access to its base of more than six million customers across Japan.

BNPL players are also adding capabilities to bulk up their offerings and boost growth. Sweden-based fintech Klarna made six acquisitions in 2021 alone, everything from online trip planner Inspirock to Apprl, a software-as-a-service platform provider that allows content creators and retailers to work together. 

Klarna also picked up mobile wallet company Stocard, social shopping platform Hero and artificial intelligence-enabled personalised shopping tool Toplooks during its 2021 shopping spree.

Visa and Mastercard diversify beyond cards

Meanwhile, payments companies must deal with the prospect of more consumers using digital and account-to-account payments. One option for them has been to diversify beyond traditional cards by acquiring new payments players, not only in BNPL but also companies offering account-to-account and wallet payments as well as ancillary services such as know-your-customer solutions.

Visa has been pushing into consumer and business payments and extending into account-based payments. For example, it expanded Visa Direct, its global real-time platform for peer-to-peer and business-to-customer payments. The company made two major acquisitions in 2021 — European open banking platform Tink and cross-border payments platform CurrencyCloud.

Mastercard has focused its acquisitions on payments infrastructure and services. For example, it acquired Danish open banking fintech company Aiia, digital identity management company Ekata, blockchain analytics company CipherTrace and bill pay solutions player Arcus.

Piling up such tucked-in deals, however, will not be easy. There has been increased regulatory scrutiny involving antitrust concerns in markets where these companies hold leadership positions. For example, Visa abandoned its US$5.3 billion deal for Plaid before it even had a chance to succeed, following a US antitrust lawsuit alleging that Visa’s acquisition would eliminate a competitive threat to its online debt business.

Using selective deals to scale up

In 2019, large deals among payments companies included Fiserv’s acquisition of First Data, Fidelity National Information Servi-

ces’ acquisition of Worldpay and Global Payments’ purchase of Total Systems Services. This continued in 2020, with deals such as the Worldline and Ingenico merger, and Italian payments processor Nexi’s US$9.2 billion deal for rival Nets, creating Europe’s biggest payments firm by volume. There were scope deals too, such as American Express’ purchase of small business online lending platform Kabbage.

In addition to Square-Afterpay, one of the bigger deals involved PayU’s acquisition of Indian payment gateway BillDesk for US$4.7 billion to help it expand into emerging markets. More common, though, were larger techs pursuing tuck-in acquisitions, such as Fiserv’s US$206 million purchase of Pineapple Payments and Stripe’s acquisition of India’s Recko.

Smaller payments fintechs are also selectively acquired to bulk up and penetrate new markets. That was the case with payments-as-a-service platform Rapyd’s US$100 million deal for Icelandic payment company Valitor, for example.

US technology firms expanded into payments in 2021. Bill.com, an accounts payable and receivable management company, acquired Divvy, a payment and business budgeting platform, while Tyler Technologies, a technology provider, acquired government payments company NIC, to name a few.

In an effort to increase focus on its global corporate, commercial and wealth businesses, Citigroup has divested its retail banking business in 13 markets, most of them in Asia, providing a unique opportunity for local and regional banks to scale up their credit card businesses and gain share in the consumer space. National Australia Bank (NAB) took advantage of the opportunity by buying Citi’s consumer business, a move that put NAB in the No 2 position in the country’s credit card business. Similarly, in the Philippines, UnionBank purchased Citi’s consumer business to boost growth in its retail banking sector. And UOB Group acquired Citi’s consumer banking franchises in Indonesia, Malaysia, Thailand and Vietnam to increase its scale across Southeast Asia.

The challenges ahead

Payments deals are coming with increasingly high valuations, making it more challenging to do large-scale deals (although that may change along with market fluctuations). In the fourth quarter of 2020, the median enterprise value (EV)-to-trailing 12-month revenue multiple was 15 times. The Square-Afterpay deal carried a 42 times EV/revenue multiple. At the same time, the growing popularity of stock deals has made it difficult for banks to participate. As a result, players need to be clearer and more selective about the strategic rationale for acquisitions (for instance, geographical expansion, new payments capabilities or value-added services).

Deals intended to provide a specific capability come with their own challenges. Because of the complexities involved with integrating diverse payment platforms, players may struggle to realise the intended benefits. Combining the infrastructure of companies can create redundancies in functionality and operations. It can also make maintenance more expensive, which in turn can boost processing costs.

As companies struck deals, private equity (PE) investors showed increasing interest in payments industry M&A. For example, Advent International and Eurazeo, a French-based PE and venture capital firm, bought Planet, an international payments and transaction processing service provider. PE firms’ involvement increases the competitiveness of deals. Corporate buyers need to focus on integrating payments players into their core business to add value through sales and costs synergies.

Finally, as deals in BNPL grow in number and as this business takes shape, regulatory scrutiny for consumer protection concerns will continue to become more of an issue in markets around the world. Companies acquiring to expand a geographical presence need to be prepared to address possible regulatory issues — and, when necessary, be prepared to walk away from deals.


Francesco Cigala is a partner in Bain & Company based in Kuala Lumpur and Sen Ganesh is a partner based in Bangkok. Glen Williams is an advisory partner in Bain & Company’s London office.

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