Global Payments and other processors face an increasingly competitive market, with rising pricing pressures forcing some businesses in the ecosystem to consider consolidation.
Global Payments has touted increased merchant acceptance of its Genius point-of-sale services brand, but now it may be trying to force through price hikes in an increasingly competitive market.
The payments processing company is seeking to implement a new $699 annual fee for its merchant clients next month, according to a merchant consultant who posted a portion of a Global Payments letter on LinkedIn.
“Worldpay, now part of Global Payments, is introducing a $699 annual fee, with the first charge hitting merchant statements this December. Yes, another one,” Merchant Cost Consulting Partner Matt Rej said in the LinkedIn post last week. “And this is on top of the other increases we've already seen from Worldpay this year.”
Rej questioned, and poked fun at, the reasoning Global Payments provided for the increase, pointing to the company’s letter saying: “Government and industry regulations have had a significant impact on system requirements in the payment processing industry.”
The Atlanta-based company didn’t immediately respond to a request for comment. Nonetheless, in its third-quarter earnings press release last week, the company acknowledged “increased competition in the markets in which we operate.”
Global Payments pricing moves come less than a year after it completed its $24.25 billion purchase of the merchant services company Worldpay, which could give the company stronger pricing power in the industry. In the third-quarter report, Global Payments reported that the Genius brand, which was launched last year, was placed at 65% more merchant locations, compared to the year-earlier period, and bookings more than doubled.
As the Genius brand gains traction, the company is reportedly considering selling itself off to one of its largest shareholders, private equity firm GTCR, and the investment firm Clayton, Dubilier & Rice. GTCR is acquainted with Global Payments partly because it was one of the companies that sold it the Worldpay assets.
Any fee increases by POS service providers are increasingly met with pressure from younger financial technology companies building a presence in the market with newer technologies. As a result, some legacy companies that provide payments services to merchants, including behemoth Fiserv, the new entrant Shift4 and the Dutch company Adyen, are feeling a competitive crunch.
Point-of-sale services firm PayCompass said in September that it had merged with two other firms and the CEO at the merchant services provider Butter Payments said last month that the company had sold its assets to an unnamed buyer.
While analysts who follow Global Payments praised the company’s progress in integrating Worldpay into its operations and luring merchants to the Genius brand, they noted the increasingly competitive market. As such, price increases may be a tough sell, particularly as merchants face consumers stretched by inflationary pressures.
Analysts at the investment firm William Blair raised concerns about Global Payments technology being capable of competing with new fintechs.
“While sales metrics appear strong, we argue Genius is simply not a competitive offering from a technology standpoint and will not become material enough to durably accelerate consolidated organic growth,” the analysts said in a Thursday note to their clients, acknowledging the brand’s third-quarter growth.
Other analysts who follow the company also pointed out the competitive intensity in the market in commenting on Global Payments results.
“The Payments industry is very competitive with both existing and emerging competition,” analysts for TD Cowen told clients in a note Thursday. “All of our companies face the risk of being unable to capture market share or having their business models become commoditized by newer entrants in the market. Additionally, our companies are levered to consumer spending and therefore are exposed to general economic conditions.”
Analysts who follow the company for the investment firm R.W. Baird called out the difficulties for raising prices at this time across the industry. “Pricing pressure is a constant threat, and new fintechs have become competitive threats as well,” analysts at the Baird Equity Research arm said in a Thursday note.
A sale to private owners might relieve some of the pressure of operating in the publicly traded market, with its focus on quarterly reports. Still, the analysts at William Blair last week gave the deal less than a 50-50 chance of being completed, partly because of the debt that Global Payments has in the wake of its Worldpay deal.
In a prior Oct. 30 note focused exclusively on the reports of a potential Global Payments sale, the William Blair analysts said that some $22 billion of debt at the company “could be an impediment, especially in a rising rate environment.”
The William Blair analysts posited that they could be wrong about the chances of the sale. If they are, they forecast that other “debt-laden” publicly traded companies in the industry, including Shift4 Payments and Fiserv, “pressure to sell will ratchet up dramatically, setting up what could be the final wave of industry consolidation.”
