Fiserv buys First Data for $22 billion, takes aim at Square
- More consolidation continues in the payments industry.
- This tie-up could actually provide more opportunity to smaller fintechs.
Fiserv announced it is acquiring First Data in a $22 billion all stock deal.
Why the tie-up?: Both firms provide a lot of technology to banks and financial institutions, but analysts believe it is trends in the payments industry that are behind this merger. Fiserv processes credit card transactions for banks, while First Data handles merchants. The combined entity would mean that the firm would control both sides of the transaction and could cross-sell technology and services to their clients.
Square’s looming presence: The growing number of payment options means merchants have more choices. Square, in particular, with its point of sale product, has been successful luring away SMB clients. In Q3 of 2018, Square had a gross payment volume of $22.5 billion. To put that in perspective, First Data processed $2.1 trillion in the US in all of 2017.
First Data has a cloud based point-of-sale payment system called Clover that it has positioned in direct competition with Square.
“There is no question that Clover is in a heavyweight fight to win the title in terms of cloud-based point of sale systems,” First Data CEO Frank Bigsignano told the WSJ.
Bigger players may mean opportunities for smaller ones: Fiserv-First Data will be a massive company with about 8000 employees and thousands of clients. Consolidation in core banking providers means fewer choices for customers.
While the combined company has even more resources, it may mean that product development and responsiveness to clients slows down. Many smaller financial institutions are dependent upon their core banking providers for technology.
“Many community banks and credit unions rely on these large banktech firms to compete with fintech and the largest banks,” Alex Jimenez, vice president and senior strategist at Zions Bancorp told American Banker. “The merger could impact the pace and their ability to be swift.”
So while Goliath becomes bigger and stronger, David could become more appealing to smaller financial institutions like community banks.