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What M&A Means for Payment Processors

What M&A Means for Payment Processors

Brett Horn: Every time you use a card, there's multiple companies involved. Acquirers work with merchants to allow them to accept card payments. There's, of course, the network, which is typically going to be Visa or Mastercard. And then there's the card issuer. The card issuer in turn works with payment processor companies to help process transactions. Historically, these areas of the industry have been separate. But a wave of M&A in 2019 is bringing these areas together, with Fiserv buying First Data, FIS buying Worldpay, and Global Payments and TSYS combining.

Of these three deals, we like the Global Payments/TSYS merger the best. I think the deal positions Global Payments to capitalize on a couple of key trends within the acquiring industry. First is international expansion. Historically, Global Payments has been ahead of peers in this respect, with a quarter of its revenue coming from outside of the US. I think the combination of Global and TSYS' international footprint will help further facilitate international expansion for the company.

The second is e-commerce. E-commerce increasingly is becoming an area that's just too big for traditional point-of-sale acquirers like Global to ignore. In the first quarter, e-commerce for the first time accounted for 10% of all retail sales. One of the critical factors, though, in serving the online market is combating fraud. The Nielsen report estimates that over half of all card fraud is related to card-not-present transactions, while those transactions make up only 15% of total card volume. I think having information on both the consumer and the merchant's side will allow Global Payments to build better fraud detection systems and help them better exploit this trend.

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Brett Horn

Senior Equity Analyst
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Brett Horn, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers insurers and credit bureaus. He also oversees the equity research team’s stewardship rating methodology.

Before joining Morningstar in 2006, Horn worked in the banking industry for about a decade, most recently as a commercial loan officer for First Bank, where he was responsible for underwriting loans and managing relationships with middle market clients. Before that, Horn worked for Mizuho Corporate Bank, where he managed loan portfolios and client relationships, primarily with Fortune 500 companies.

Horn holds a bachelor’s degree in business administration, with a concentration in finance, from the University of Wisconsin and a master’s degree in business administration from the University of Illinois. He also holds the Chartered Financial Analyst® designation. He ranked first in the business and industrial services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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