Posted on: Friday 14th of July 2017
Lucy Burton – 8 July 2017
IT IS hardly a household name, in fact few people will have ever heard of Worldpay. Yet, the company knows lots about you and almost everything you buy. Such power is why the business – part of the Royal Bank of Scotland until it was forced to sell it in 2010 as part of its government bailout – found itself at the centre of a takeover battle between two US financial giants last week.
Responsible for around 400 electronic payments every second, analysts predicted that the FTSE 100 firm could trigger a wave of counterbids from technology giants such as Google, Apple or Amazon – in a rapidly expanding digital world, knowing what, when and where people buy things has never been so alluring.
“If you have 42pc market share in the payments industry [as Worldpay does in the UK], then you can see what people are buying on a daily basis,” noted Robin Van den Broek, an analyst at Mediobanca. “With this data [a company] could phone me up tomorrow and give me three products I would probably buy immediately. That data makes a lot of sense to have.”
With that hanging over the two interested parties – payment rival Vantiv and banking giant JP Morgan Chase – the former wasted no time in getting its offer on the table. A day after the talks emerged and Worldpay’s shares soared 28pc, a merger was agreed with Vantiv, JP Morgan withdrew its interest (making clear on its way out that it had been responding to an invite from the group) and Worldpay’s shares fell 8pc. It is still possible that others could swoop in. But the frenzied 24-hour tug-of-war for Worldpay points to a wider battle among large businesses as they race to adapt to a world that is becoming increasingly cashless.
Given the choice, more than a third of Europeans would only pay for things electronically, according to a recent study by ING bank, while 78pc of respondents said they use cash less than they did just a year ago.
Some stores are even ditching their cash registers altogether so that staff don’t waste time counting coins or sending money to a bank. Inspired by a trip to Sweden, which printed Europe’s first banknote 350 years ago but is steadily moving towards a cashless society, café owner Ross Brown decided to stop accepting cash at his London-based coffee shop Browns of Brockley seven months ago and is yet to see his sales drop.
“Fair enough most people don’t consider it when they go to a shop, but from a business point of view you spend a lot of time [processing cash payments] and 99.9pc of the population aren’t offended to pay for something on their card,” the 29-yearold said, adding that only around 30pc of customers paid with notes or coins before the change.
“What are you more likely to have on you, cash or card? We always said we’d trial it [going cashless] but it’s been so great there’s no reason to change.” You only need to look at Worldpay to see how successful payment processing firms – once the unglamorous corner of the financial services market – have become as consumers shun cash for the convenience of “tap and go” or online.
More than 16,000 hairdressers, 24,000 restaurants and 9,000 pubs in the UK currently use technology from Worldpay, which since listing in 2015 has seen its stock market value more than double to over £8bn. But it is not the only payment processor attracting attention from bigger businesses. Days before the group revealed that it was in takeover talks with JP Morgan and Vantiv, Danish payments processor Nets said it was “reviewing its options” after being approached by a number of buyers, thought to include Visa and Mastercard.
“When announcements like this happen it creates activity among a lot of players,” said Imran Gulamhuseinwala, EY’s global head of financial technology. “There is an emerging group of payment winners which are credible and growing quickly. If you roll the clock forward a decade or so you’d expect [this sector] to be dominated by a few large-scale players.”
Eager to be in the lucrative club of big players, banks and technology businesses are digging deep into their pockets to see who they can partner up with. As digital becomes a key part of financial services, it could soon be hard to tell the two sectors apart.
Indeed, the aim of these changes is to open up the payments market. The second Payment Services Directive (PSD2), for example, will lower the barriers for entry to third-party providers as banks will be forced to give them greater access to their customer data, while the UK Government’s forthcoming “open banking” scheme is aimed at accelerating technological change in the retail banking sector. Banks will also have to change the way they handle customer data under the General Data Protection Regulation (GDPR) coming into force.
“The financial services sector is in the early stages of a shake-up spurred by emerging technology, evolving customer habits and a changing regulatory landscape,” said Liz Brandt, the chief executive of specialist consultancy Ctrl-Shift.
“We are seeing the blurring of the lines in the industry as a new breed of challenger banks, fintech start-ups and tech companies fight with established banks for market share.”
But adapting to the regulatory landscape is not enough to become a heavyweight in what is looking likely to be a future where cash is redundant. In fact, if they don’t work together that future could be a bit of a mess.
“The [Worldpay] battle is a classic case where we see the future, but can’t get there, at least not easily – and certainly not by each company acting on its own,” said Ben Gomes-Casseres, a professor of strategy at Brandeis International Business School and the author of Remix Strategy: The Three Laws of Business Combinations.
“The future of cashless payments requires that a number of things fall in place – from consumer acceptance and mobile device standards, to interconnected payment systems and security standards. The whole payments ecosystem needs to evolve, but it cannot do so piece by piece, because every new technology requires others to succeed,” said Mr Gomes-Casseres.