Mega Mergers: Synergistic or Sadistic?

The Current Landscape

The payments industry has experienced a burst of consolidations and mergers in the past five years. Large processors kicked off the trend by acquiring large sales organizations, key technology players and specialty software shops. This year alone, three mega-mergers have jolted the industry.  First, Fiserv acquired First Data, then Fidelity acquired Worldpay (who acquired Vantiv in 2017), and now Global Payments (who bought Heartland several years ago) recently announced their intent to acquire TSYS.

Savvy business-people understand this phenomenon isn’t unique to payment processing. The travel and cable industries have also been transformed by consolidations and mergers in recent decades.

In the case of air travel, the current big players are American Airlines, Delta, United and Southwest. All of them grew to be giants of the skies by gobbling up large regional carriers and their direct competitors. But their customers aren’t happy – ludicrous fees, terrible customer service, high employee turnover, systems failures and unconscionable tarmac wait times are the norm. We’ve all felt the pains of these mega-mergers. Unfortunately, this dynamic is a common by-product of large corporations trying to increase shareholder value through mergers, acquisitions, and other forms of consolidation, regardless of industry.

The Effect on Software Providers

What can software providers expect as the payments consolidation trend picks up steam? Basically, an excruciating set of pain points. Here are the top ones we see currently generating the most discomfort amongst ISVs and merchants.

Declines in partner program support.

As reorganizations lead to layoffs, software providers will lose key account executives and relationship managers. As a result of this type of corporate restructuring that is inevitable with mergers and acquisitions, we see software partners having a constant revolving door of account managers.  This subsequently leads to operational inefficiencies and a lack of understanding of business needs which ultimately results in loss of profit for the ISV.

Acquisition Integration over Innovation

Integrating systems and infrastructures after a merger takes time and money – shifting the focus away from delivering the products that software providers need to meet the needs of their customers. We’ve come across several ISVs that have been dependent on the delivery of product roadmap items and have experienced delays as result of M&A related initiatives.  This has resulted in both loss of revenue and customer dissatisfaction.  In the case of the Fiserv/First Data deal, integrating the two companies could take up to ten years according to the one source.  A decade is a long time to wait for product delivery.

Additional Development Work

With the marriage of these large payment conglomerates comes lots of legacy technology. ISVs will be required to complete additional development work as platforms eventually sunset. Likewise, software providers will be required to learn new systems for reporting and customer management.  Our take is, if you must complete a new integration and learn a new system, why not look for a new partner and complete the integration just once?

Being Forced to “Sleep with the Enemy”

This is a trend that is unique to the payments industry, where processors can purchase a software provider, but also support the software company’s competitor through a payments partnership. For an ISV, this presents an impossible conflict of interest. If your processor owns a competitor, how can they have your best interests at heart?

Escaping Consolidation

How can you avoid the coming consolidation catastrophe in the payments industry? Find an alternative. Look for a new payment partner that deliberately goes against the grain and does business differently. Looking at the cable industry which has experienced the all too familiar industry consolidation, video streaming services actively disrupted the prevailing business model and led large numbers of customers away from cable’s entrenched infrastructure.

Boutique payment processors such as Paragon Payment Solutions focus on customized partnerships, unprecedented support for your merchant customers (and you!) and ongoing innovation. We offer traditional referral relationships, registered agent/ISO programs, payment facilitation models, investments and portfolio buyouts, and everything in between. With Paragon Payment Solutions, we are here to deliver the best possible payments experience. We are passionate about payments and are positioned to make sure our partners and their mutual merchant customers know it. Contact Paragon today to find out how we can boost your growth and profitability.

Worried about how industry consolidations are going to affect your business? Discover how to avoid merger-mania by downloading our free guide, The Top Ten Signs It’s Time For A New Payments Partner.