With consumers globally embracing financial technologies, digital payments firms are fast disrupting the hegemony of traditional players in the payment value chain. Against this backdrop, the payment segment is emerging as a lucrative investment avenue for merger and acquisition (M&A) activities and venture financers, according to GlobalData, a leading data and analytics company. The company’s latest report, ‘Smart Money Investing in the Financial Services Industry - Q4 2018’, reveals that the number of M&A deals rose by 10.2% to 640 during the fourth quarter (Q4) of 2018, much higher than the previous three quarters. Even though the payment segment accounted for only 11% of total M&A deal count, it registered the fastest quarter-on-quarter growth of 30.8%.
Sowmya Kulkarni, Payments Analyst at GlobalData, explains: “This trend is more prevalent in emerging markets like China, where consumers have bypassed card payments by switching directly from cash to alternative payment methods.”
Consequently, traditional payment companies are now exploring new avenues to stay ahead in the market. The announcement that Visa is acquiring Earthport, a UK-based cross-border digital B2B payment provider, can be seen as one such move.
On the other hand, deal value registered quarter-on-quarter growth of 10.7% to $58.7bn. The rise in deal value was due to a rise in high-value deals. The top 10 M&A deals in Q4 2018 accounted for $33.6bn, up from $28.9bn in Q3 2018.
Similar growth was seen in the venture financing space, with deal count in the payments segment more than doubling to 119 deals in Q4 2018.
Kulkarni concludes: “The rapidly rising consumer preference for convenience, coupled with the increased level of security offered by new payment technologies, will further drive investments in the payments space over the coming years.”