Fiserv and First Data announced that their boards of directors have unanimously approved a definitive merger agreement under which Fiserv will acquire First Data in an all-stock transaction. The terms of the deal value First Data at $22 billion.
The merger will result in technology capabilities that enable a range of payments and financial services, including account processing and digital banking solutions; card issuer processing and network services; e-commerce; integrated payments; and a cloud-based point-of-sale solution.
The combined company will have distribution channels and expertise in partnering with financial institutions, merchants and billers of all sizes, as well as software developers.
The deal news happens to land on the one-year anniversary of the completion of a merger between the companies’ rivals, Vantiv and Worldpay, as the fast-growing payments industry continues to consolidate, wrote Bloomberg in an analysis.
Calling the merged entity a “public banktech utility”, Autonomous NEXT had the following analysis in a recent newsletter:
There are two angles we want to consider. The first is that enabling financial technology — i.e., the infrastructure needed to manufacture something financial — trends towards both utility and monopoly over time. It is a utility in the sense that it should be dirt cheap, easily available, and nobody in their right mind would want to rebuild one (also note utilities are public, as in owned by the government). It is a monopoly in the sense that a single player should win the whole market, consolidate all the costs, and charge only at the margin.
As technology evolves, the threat of entry by new players like Alipay and Whatsapp is almost as scary as the actual entry of such players. The infrastructure provider would be wise to compress their own margins to make entry by smarter, faster, better players unattractive. A corollary to this line of thinking is that the long tail of small banks and credit unions rent software from utilities, while firms like JP Morgan and Goldman Sachs get to hire AI PhDs from Google.
The other lens to think about is where the innovation and associated growth happen. Private market valuations no longer have a meaningful ceiling (thanks to SoftBank and Tencent), and therefore private investors get to capture all the capital gains from fintech disruption. To go public merely is to monetize those private gains, whereas in the past going public meant getting capital for growth. That means we expect Payments and Banking industry innovation to stay private, and for large players like Fiserv and First Data to rent or acquire them, rather than lead and source them.