FIS-Worldpay deal spotlights PSD2's high stakes
Bank technology giants FIS and Fiserv are spending nearly $66 billion between them in just the past few weeks to add a broad swath of payments technology — including a few key nuggets that will help them go toe to toe with fintechs.
FIS' deal to buy Worldpay and Fiserv's deal to buy First Data give both buyers new capabilities for digital payment processing, cross-border transactions and data sharing. The data-sharing tools will have the most immediate benefit by allowing FIS and Fiserv to respond to the growing trend toward open banking by adhering to PSD2, the European mandate that banks share data with third parties such as fintechs.
That mostly means using open development tool such as APIs, something First Data and Worldpay have in abundance. These APIs can help the bank technology vendors help their bank clients embrace open banking, but also ramp up small-business financial services, where rivals such as Square and Stripe are well-established threats.
“We will have more than 300 alternative payment methods,” said Charles Drucker, executive chairman and CEO of Worldpay, during a conference call to discuss the FIS-Worldpay deal, noting the companies will have about 1,000 APIs to support connections between fintechs and financial institutions in different jurisdictions. “PSD2 will allow for different ways for these companies to connect to each other and to help FIS’ bank clients to add value.”
PSD2 is expected to be a tough compliance challenge for banks, particularly since the open banking concept is expected to grow far beyond Europe.
The resulting compliance pressure has sparked attention from cloud developers and has sparked a fintech development wave in technology centers such as London to feed new payment, transfer, investing and personal financial management apps that will connect consumers to banks.
“Fiserv’s acquisition of First Data and FIS of Worldpay are preemptive distribution strategies at the most lucrative part of the value chain … at the edge of the network, at the point of sale,” said Richard Crone, a payments consultant.
FIS has about 14,000 financial services clients, including 45 of the 50 largest financial institutions globally. It also has more than 1,000 technology partnerships.
This provides a ready-made match between banks and fintechs that can use open technology to build a cross-border marketplace to compete with JPMorgan Chase’s WePay or fintechs in supporting a mix of international payments, small-business services and merchant credit offerings. The scale also provides a way for FIS to add security to open banking, which is also considered a challenge given the focus on PSD2.
“You can buy anything anywhere in any currency,” Drucker said. “We’ll be able to accelerate the realization of that goal.” FIS and Fiserv did not respond to PSD2-related queries by deadline.
There is another benefit for FIS and Fiserv’s banking technology businesses, since PSD2 allows both vendors to move their core banking technology closer closer to the intersection of mobile payments and financial services, a far busier channel than traditional branch banking.
The separate FIS and Fiserv deals bring scale and traditional banking technology to the fintech battle. Fintechs command a huge portion of new incremental revenue, according to Crone, adding online only fintechs and challenger banks have originated more loans than the entire credit union industry since 2017, based on his research company’s work.
The deals give FIS and Fiserv "big upside on new revenue streams and value creation in-context from mobile payments, point of sale lending and customized credit,” Crone said.