What’s The Best Way To Navigate The New World Of Payments?

These are indeed the days for mergers and acquisitions (M&A) in the world of payments, and that trend looks likely to hold into the 2020s. That raises several questions for financial institutions (FIs), FinTech firms and payment service providers as they figure out how to best navigate this changing world.

It can be confusing to figure out what to do. However, PYMNTS recently caught up with Mitch Pangretic, vice president of strategic partnership development at agent credit card issuer Elan, to get a better sense of the changes and landscape, and for some insight about what payment operations should do next, especially in the 2020s, when several big trends are expected to get bigger and even converge to provide better, deeper experiences for consumers via digital and mobile channels.

For starters, don’t expect M&A activity to stop anytime soon, he told PYMNTS. “The trend is expected to continue in the near future,” Pangretic said. “Legacy payment providers are looking for ways to innovate in the ways that [FinTech firms] do, and to avoid duplicative costs.”

Recent Trends

Recent developments not only back up his point, but demonstrate how much energy the M&A effort has in the world of payments, as more consumers around the world turn to digital and mobile channels — and come to expect speedier, more secure transactions and experiences. In July, for example, Fiserv announced that it had completed its acquisition of First Data. The two massive firms first inked the deal earlier this year, which had Fiserv buying First Data for $22 billion in an all-stock transaction. With the transaction now complete, Fiserv is one of the world’s largest payment and financial technology providers.

Another earthshaking deal was Global Payments and Total System Services (TSYS), which entered into a merger valued around $21.5 billion. The overarching strategic aim for Global Payments and TSYS — as had been among the hallmarks of the aforementioned mergers — has been to gather scale and global reach. As reported, Global Payments is the third-largest merchant acquirer in the United States, while TSYS is the third-largest card processor in the country.

Another factor in all this is the rise of FinTech, often backed by favorable regulatory winds designed to promote more innovation in payments, including the sharing of data with legacy FIs. “What will happen,” Pangretic said, “is that larger legacy issuers (and other institutions) will look to FinTech to build out their strategy. It’s not about smaller ones gobbling up bigger [players]. It actually will be the reverse.”

The motivations are pretty basic, though no doubt much easier said than done. “Processors and issuers are looking for the best way to bring the best technology to their customers,” he told PYMNTS.

Getting from here to there will require payment players in this world of mergers and acquisitions to look at themselves, and figure out what’s working and what’s not. Such reviews will also often touch upon their credit card operating models.

Basic Question

One basic question, according to Pangretic, is whether insourcing or outsourcing credit card operating models work better in this developing world of payments. Both differ in terms of assumed risk and FI control over their card programs. Insourcing, for instance, generally allows for more control, but requires more costs and risks. Outsourcing, on the other hand, may limit some control, but can offer a way for FIs to remove future technology investments, and focus more on other areas of their business, he explained.

“The activity in today’s market provides an ideal time for financial institutions to think about how they are offering credit cards to customers,” Pangretic said.

However, those aren’t the only considerations that matter in this year of big payment deals. Identity theft and fraud prevention are increasingly near or at the top of consumers’ minds, and those concerns must be taken into account during any reviews or crafting of plans by FIs and payment service providers, he noted.

“That should be a high priority for all card issuers,” Pangretic told PYMNTS.

Overall, though, this developing world of payments — the one being formed in part via mergers and acquisitions — can offer a healthy chance at reinvention if done right. “With the digital shift happening so fast, reviewing the credit card operating models allows the institution to understand the future impacts,” he said. Indeed, companies should be looking, as reasonably as possible, a decade or more down the road to figure out their best paths.

Looking to the future is as important as looking to the past, but one can hardly be done without the other. That applies to the world of payments as it continues to rapidly change.