Merchant acquirers are required to respond to mobile's impact in an almost infinite number of ways, and in many cases deem acquisition the best and fastest play to diversify beyond payments.
The Isle of Man-based Optimal Payments, which trades publically on the London Stock Exchange's AIM market, on March 23 announced plans to buy the Skrill Group for about $1.2 billion from its shareholders, which include CVC Funds and other investors.
"Skrill is a highly complementary business that we know very well from competing against them," said Joel Leonoff, president and CEO of the London-based Optimal Payments, who anticipates the deal should close by around July 1, pending regulatory approval. "Both companies have done a good job integrating m-commerce and mobile applications into all of their products the industry is headed in that direction."
It would be the latest in a series of acquisitions for Optimal.
"For the public companies, there is a tremendous amount of pressure," said Richard Crone, a payments consultant, adding his company has been contacted by three payment companies recentlyand in each case the company's board was pressing management on a response to mobile. These companies want a review of opportunities and acquisition candidates, Crone said.
By adding the London-based Skrill, a private company, Optimal picks up one of Europe's largest digital payment providers, with solutions for digital wallets, online payments and electronic vouchers. Optimal argues the combined companies would have scale in stored value and payments processing, support for more than 100 payment types in 22 languages and 41 currencies, broadened exposure to digital media and e-commerce, and a strengthened digital wallet offering with Netseller and Skrill's digital wallet.
The pace of technology development is important in gaming, where the actual programs require fast reactions. "You can, for example, place bets now in tennis on whether the next serve will be in or out. It's that fast," Leonoff said.
The payments technology boom has been largely driven by smaller, faster startups, and that trend has placed incumbent processors and merchant acquirers in the position of having to act quickly or risk being undercut by nimble competition. This pressure is accelerating acquisition strategies for a series of established companies.
"The 'make, buy or partner' decision to respond to technology isn't new, but the traditional merchant acquirer and processor space has been very slow to act around the acquisition of new technology," said Crone, who added the stagnation is particularly acute for processors that have "joint ownership" agreements with large financial institutions.
"The mobile handset and mPOS can be integrated with significantly less cost and effort, which opens up new opportunities that we have only begun to understand," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. "This is definitely broader than the payments transaction."
Technology is moving so rapidly that it will take decades for businesses and technology suppliers to understand how to use it. "It seems there is no end to the amount of data that can be collected and the many ways that data can be analyzed to generate new insights that guide a business," Sloane said.
Delivering incremental functionality does not necessitate acquisition, that advent of software-delivered functionality is changing the payments market rapidly, said Thad Peterson, a senior analyst at Aite Group.
"Any organization selling payment capability into the merchant space has to have toolbox that includes business services as well as payments, and it should also enable omni-channel and data management capabilities, along with a loyalty and promotion package," Sloane said.
Most of Optimal's technology and product growth in 2014 was organic, said Leonoff, who also said an acquisition can add tech and products quickly. The Skrill acquisition is a digital wallet expansion play, and Skrill also has cash voucher and merchant credit systems that can add to Optimal's product range, Leonoff said.
"What I like about it is the way this infuses significant expansion of global capabilities onto Optimal's platform," said Jim Van Dyke, CEO of Javelin Strategy & Research. "Acquisitions such as Optimal's purchase of Skrill have the potential to create more revenue by profitably opening markets in ways that are fast and affordable."