As the payments industry looks around for which organizations might be party to the next mega-merger, an article in PaymentsSource considers the role that debit networks are and might play. If you look at recent transactions, there will be a shakeup in the debit market particularly if these organizations combine their respective networks. The FIS and WorldPay merger brings together the NYCE and Jeanie networks. These networks are connected to 10’s of thousands of merchants and ATMs in addition to functioning as behind-the-scenes transaction processing rails for other payment types. The Fiserv and First Data match-up brings together Accel and STAR. These networks offer both single and dual message capabilities that are competitive with the global card brands, at least in the U.S.
If these networks eventually combine, this may provide the kind of volume and capabilities to compete in the U.S. with Mastercard and Visa, as the article points out. It also brings to the table merchants who accept the debit brand that could be prospects for selling additional merchant processing services. Between the combination of debit networks, and the land grab for merchant processing, I expect pricing to get very competitive, and others agree:
“Merchants shouldn’t make long-term commitments or partnerships with any of these incumbent networks until the smoke clears on this consolidation,” said Mark Horwedel, a strategic consultant for CMSDI. “There’s going to be potentially a lot of different entities bidding for your business if you’re a merchant. I can see the global card brands getting into the merger action if they feel threatened.”
This may leave other major processors like Jack Henry as one example, considering if they too need to consider the importance of owning debit rails vs. integrating. The next merger announcement could be telling.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group