NCR's JetPay deal shows how fintechs edged out ISOs, resellers

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NCR has turned to the acquisition market to shore up its defenses against fintech challengers, a further signal that longtime retail industry staples such as payment hardware and ISOs are going by the wayside as dedicated business models.

NCR has agreed to pay $184 million to acquire JetPay, which will add remote software and payments technology to NCR's point of sale business. The deal is one of several moves NCR has made over the past year to counter fintechs such as Square and Stripe as they make a tech-driven march through the payment industry.

Square and Stripe started out targeting micro merchants and other small businesses, and have aggressively used relatively simple APIs, hardware and software to pair payments with other merchant technology. The overall effect has been to create a powerful threat to incumbent acquirers and processors, mostly by providing a diverse, easy and nimble alternative that can be purchased directly from the tech provider.

By adding payments software, NCR hopes to provide the same kind of ease via its traditional business and relationships.

“It’s incredibly important to compete with the fintechs,” said Paul Langenbahn, executive vice president of NCR's Commerce business unit. “We needed to simplify the process. We didn’t want to be in a position where someone chooses NCR Silver and then we tell them they have to pick from a list of six processors.”

NCR is using the JetPay acquisition to graduate from proprietary hardware to services as a one-stop payments facilitator, according to Richard Crone, a payments consultant.

“It is a good fit; NCR already has the the hardware and payment gateway. Adding payment facilitator services allows them to deliver more value and increase sales and margins from the merchants they already serve,” Crone said.

Companies like NCR and Diebold Nixdorf face pressure in the new payments industry, where software, APIs and cloud-hosted technology provide small to medium-sized businesses a way to set up online storefronts and accept digital payments in their stores.

That’s made stars out of Stripe, which has vaulted past $20 billion valuation, and Square, which is frequently updating and diversifying its merchant technology to squeeze out traditional companies.

The traditional point of sale and payment hardware sectors have faced struggles, such as Diebold Nixdorf's fiscal challenges. Despite such setbacks, the incumbents have not stood still. NCR and Diebold have each made personnel changes at the highest level. NCR appointed Michael Hayford CEO, among other changes; and its rival, Diebold Nixdorf, also appointed a new president and CEO, Gerrard Schmid.

And around the same time NCR announce its JetPay deal, Diebold Nixdorf partnered with Google and Mastercard to add merchant shopping and analytics to payment technology.

At NCR, the personnel and technology moves are designed to create the same sort of simple path to onboarding, setup and payment execution that the fintechs offer. NCR has a base of thousands of merchants to work with globally, particularly in the retail and hospitality segment, that it can now offer an easy option for payment acceptance and execution, Langenbahn said.

“If a small merchant wants to launch a business, such as a new restaurant, they just want an easy hookup to payment. That’s the appeal of Square and Stripe,” Langenbahn said.

Payment facilitators such as Square, PayPal, iZettle, Braintree, Stripe and Toast are also sidelining ISOs and resellers of payment services, much like Uber and Lyft are disintermediating taxis and limos, Crone said.

“It is no longer a viable model to be just an ISO or simply refer payment processing business to an acquirer," Crone said. "The payment facilitators underwrite the merchants and provide all of the hardware and services they need to not only take payments but to run their business such as payroll, HR and scheduling.”

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M&A Point-of-sale Payment facilitators ISOs NCR