In payments, M&A isn't always the answer
There’s a long-held belief in the payments industry that growth means acquiring the competition. If you want to get something done quickly, conventional wisdom says to acquire and merge, rather than building from scratch.
Take a closer look, though, and you'll see M&A rarely brings the cost savings or innovations it promises. After any initial boost to a company’s bottom line, the inefficiency of merging two organizations usually ends up negating the positive financial impact. Estimates show successful acquisitions are the exception, not the rule — with up to 90% resulting in failure.
That’s not to say mergers and acquisitions are inherently bad. They’re not. Rather, M&A is a tool payments companies can use if and when it improves functionality for their merchants. Payments companies are better served by measured, self-driven growth. Here’s why.
In the short term, there’s no doubt that acquiring is faster than building something yourself. But to maintain quality and value for your merchants, you have to go through the process of deeply understanding the problem to build a solution that truly solves it.
That’s why keeping development in-house brings the most value and speed in the long run. You never waste time retroactively bringing a solution up to the same level of quality as your own, while saving your company from the overhead of merging two different cultures and teams.
For example, if a company moves into the U.S., it could buy a U.S. company to enable that expansion, but it’s better to build it yourself. Why? Because payments is a revenue driver, not a commodity, and a single way of working facilitates the best results.
In the payments space, there are a number of companies that have turned to M&A as a way to grow quickly. But it’s critical to consider what you’d like to achieve as a company before you acquire — because it’s not just about the immediate benchmark of hitting your numbers.
Take the people impact of M&A. Blending different ways of working under one house can be very challenging. Get it wrong and you can lose a competitive advantage. Culture must be ingrained in everything you do. The way companies work is key to its success and guarantees good choices are made to build an ethical business. Anything that threatens that isn’t worth the risk.
Then, there’s the technology perspective. If done well, M&A requires that different tech stacks and very complicated infrastructure must come together. Yet, many engineers hate integrating systems, since it’s hard work to integrate systems that weren’t built to be merged. This isn’t really seen from the outside but could result in poor customer experience or loss of a sale that might follow if something goes wrong.
Last, but not least, there are the security risks. An acquisition can expose payments companies in greater ways than they normally would be, which is why it helps to have a limited number of platforms to manage. It’s just one more way complexity increases when acquiring.
M&A might be the fastest way to get results for many companies, but it relegates innovation to a second-tier priority. As we navigate an uncertain world, there will be an uptick in opportunities for M&A in the payments industry. Instead of trying to grow as quickly as possible, it’s better to take the long view and focus on what’s best for your merchants.