Global Payments Announced on Tuesday that is planning to buy Heartland Payment Systems, a rival payment processor for $4.3 billion in cash and stock.  The two companies’ combined will be the 6th largest U.S. payment acquirer based on card purchase volume and the largest U.S acquirer based on active merchant locations (using March 2015 Nilson data to re-calculate the size of the new company).    

Global Payments gets Heartland’s direct sales force focused on selling to higher margin SMB merchants as well as new ISV and Reseller distribution relationships for its OpenEdge Integrated Payments Channel.  Global also gains a stronger U.S. presence in restaurant, retail and education verticals.

  • The new combined company will need to determine how to avoid channel conflict with Heartland’s POS companies, Xpient, pcAmerica, Dinerware and Liquer POS.  OpenEdge has operated with a strict mantra not to compete against the channel in the past.  Heartland Payments has had a more blended go-to-market strategy – enabling its direct sales to sell its POS systems while simultaneously developing ISV/Reseller channel.

What It Means

More consolidation of the payments value chain is on the horizon.  Payment processing is a business of scale and utility.  Despite growing electronic transactions across the globe, margin compression continues to plague the industry.  The last stronghold for margins rested in the SMB space where compression is now starting to ramp.  Payment acquirers and processors need to drive more efficiency in their operations, while strengthening their overall value proposition to stay relevant.  

  • Another recent example of payments value chain consolidation is ACI Worldwide’s acquisition of PAY.ON, which enabled ACI to round-out its current merchant offerings with a Global PSP solution that integrates with its ReD Shield fraud product.  Three years ago these were all separate offerings from separate companies creating a web of complexity for merchants trying to expand globally.  The new combined solution creates a more simplified offering for merchants with new margin opportunities for ACI. 

Customer Experience Leads. Technology Follows.

Payment technology evolves to keep up with merchant and customer experience demands, which will only accelerate in the Age of the Customer.   Payment terminals in the ‘80s, Integrated Payments and E-commerce in the 2000’s and mobile technology in this decade transformed the payments industry, but only because of rising demand from merchants and customers.

  • Acquirers and processors looking to mine more margin need to build or buy digital assets that enhance the customer-merchant interaction such as new payment experiences, integrated rewards, redemptions, data, and globalization services.

For acquisitions to pay-off in the long-run 1+1 must equal 3.  Global’s acquisition of Heartland will help the company gain more scale, but this is only a short-term measure to a compressing margin issue.  Much will be touted over the next few months around new synergies, technology integrations and cross-sell opportunities, but little of it solves the fundamental business issue merchants are having in growing, differentiating and operating their business. 

Focus on the customer-merchant experience, simplify complexity, grow the merchants’ business and the industry margin problem gets fixed.   The future of payments is back to the future – creating a better customer and merchant experience.