This week saw two significant M&A milestones — Fiserv’s announcement that it had completed its First Data integration, and FIS’s completion of the Worldpay acquisition.
Neither outcome was certain earlier in the year, but both had received positive signals in recent weeks. Fiserv’s announcement came Monday. The company announced on its site, “We’re proud to announce that Fiserv and First Data are now combined, creating the world’s leading payments and financial technology provider and advancing our value proposition for clients.”
Deva Annamalai, director of payments and innovation at Fiserv, sent the following note about the new Fiserv to CCG Insights:
“The new Fiserv is #1 in:
- global issuer processor
- global merchant acquirer
- U.S. core account processing provider
- U.S. ACH and bill payment presentment provider
Servicing more than one billion card accounts and facilitating billions of payment transactions.”
While these superlatives are no doubt good news to the company itself, its effects on clients of one or both companies remain to be seen. It should also be noted Fiserv faces months or even years of systems integration.
One company that opted out of the new larger company immediately was Bank of America, which announced yesterday it would terminate its electronic payments joint venture with First Data in June 2020. The move will cost the bank about $2 billion. First Data and B of A were formerly supposed to continue working together on Bank of America Merchant Services through 2023, but will now pursue separate merchant acquiring strategies.
FIS also announced it had closed its acquisition of Worldpay. CEO Gary Norcross said, “I would like to extend a warm welcome to Worldpay employees, clients and investors to the FIS family as we work together to bring the benefits to businesses and communities around the world.”
In both new Fiserv and FIS, key executives from the acquired companies will be retained. Frank Bisignano, former CEO of First Data, will become president and chief operating officer of Fiserv, under CEO Jeff Yabuki. Former Worldpay CEO CHarles Drucker will become executive vice chairman of the board of directors, under chair Norcross.
2019 has been a year of major acquisitions in core banking and payments, with Global Payments acquiring rival TSYS, and Jack Henry & Associates acquisition of Geezeo.
Norcross put it most succinctly at the time of the FIS announcement of the Worldpay deal: “Scale matters in our rapidly changing industry.”
Trouble in Fintechland
Much as it has been a week of coming together, it has also been a week of breakups and disappointments.
One of the most prominent bank-fintech partnerships is coming to an end.. OnDeck announced during its second quarter earnings call that its three-year deal with JPMorgan Chase to lend to small businesses was coming to an end, though ti would continue to service existing loans for two more years. Some industry watchers warned this was part of the danger of partnering with banks — they can study your business and technology and reproduce it. On the same call, OnDeck CEO Noah Breslow announced the company would pursue a bank charter.
Capital One also announced a massive data breach affecting as many as 105 million credit card applicants. Penny Crosman in American Banker pointed out that the breach was caught relatively quickly, which is true compared to the JPMorgan Chase breach, which went undetected for years. Despite battening down the hatches with some alacrity, Capital One didn’t discover the breach on its own. The bank was alerted to the breach by a white hat hacker, and the alleged perpetrator, a former Amazon Web Services employee, bragged about the hack on Twitter as far back as early June.
The hacker was able to access and read encrypted data, and remove it en masse without raising suspicions, but an alert white hat spotted the data on Github and notified the bank. Because of the hacker’s previous professional affiliations, early reactions placed the blame on Capital One’s cloud investment, but it does not appear Amazon is involved. Still, Capital One is known as one of the most tech-forward banks in the industry and an advocate of the public cloud, and rightly or wrongly this news will likely set back cloud-based banking several years.