Last week, FIS, one of the world’s biggest payments processors, announced that it was spinning off its Merchant Solutions business back into standalone merchant acquirer Worldpay.
Set to complete by the end of the year, the move caught some by surprise as FIS only completed its purchase of Worldpay back in 2019. It has so far been met with a less-than-enthusiastic response from investors, although FIS maintains that spinning off the company will be critical to helping Worldpay return to growth.
But it is not the only merchant acquirer – a company that processes payments on behalf of a merchant – that has attracted criticism for its recent moves. Last November, Stripe CEO Patrick Collison announced that the company was laying off around 14% of its staff, saying the company had been “too optimistic” about the growth of ecommerce in 2022 and 2023, and that it had underestimated the chances of the economic slowdown that began over the past year.
While Stripe attracted considerable praise for its sensitive handling of its layoffs compared to other tech companies – its package included 14 weeks of severance pay; payout of the 2022 annual bonus for departing employees; and ongoing career and immigration support – it did attract some criticism for failing to anticipate the macroeconomic climate.
Specifically, it drew less-than-favorable comparisons to Adyen, with industry commentators drawing attention to the latter’s similar payments volume but lower employment costs. However, Adyen itself began to see criticism when it announced its FY 22 results earlier this month.
While Adyen’s net revenue climbed 33% year-on-year, it also saw its EBITDA margin drop below estimates, with the company explaining that it was undertaking a significant hiring spree that would continue throughout 2023. This did not sit well with investors, with the share price dropping around 15% in the aftermath of the results.
Worldpay and the changing merchant acquiring climate
For merchant acquirers, the past few years have been something of a rollercoaster. During the pandemic, a boom in ecommerce saw many companies experience unexpected and outsized growth, with those trading on the public markets seeing a similar jump in market caps.
Stripe has seen its revenue and payment volume grow 3x over the period, while Adyen saw its processed volume jump by around 70% year-on-year in 2021. However, both had less impressive 2022s, as consumers tightened their belts in response to rising inflation and energy prices, and expect to see similarly tough 2023s amid concerns of a global recession.
FIS’s Merchant Solutions division, which will soon be the standalone Worldpay, has seen a similar arc, although with less head-turning numbers. It saw around 20% revenue growth between 2020 and 2021, but this dropped to 6% in 2022 and it expects 2023 revenue growth to fall into low negatives.
Between 2018 – the last full year before FIS acquired Worldpay – and 2022, the company saw revenue growth of just 22%. Importantly, while its processed volume is more than double Adyen or Stripe, its 2022 revenue was around only a third more.
From this perspective, FIS’s case that Worldpay is not sitting well as a part of the wider company is fairly clear. It maintains that it will be better placed to invest in key product areas, such as its ecommerce segment and its embedded finance platform offering, if it is not beholden to the capital structure of FIS. In particular the company wants to be able to allow Worldpay to make more acquisitions to support growth, which will be a familiar return for the company – prior to its purchase by FIS it was averaging more than one a year.
Worldpay’s processed volume for 2022 versus key competitors
Growth is still needed – and that requires investment
Despite the economic downturn, there is undoubtedly considerable opportunity for growth. Consumers may not be spending like they did during the height of lockdowns, but there are new opportunities to take advantage of and evolving trends to respond to.
For some, the opportunities are geographical. Checkout.com, for example, has been keen to highlight the growth of ecommerce in the Middle East and Africa, where it says the number of consumers buying online grew four percentage points between 2021 and 2022 to 91%. In response, the company has upped investment in the region, adding an R&D hub in Tel Aviv, Israel, alongside its existing offices in the UAE and Saudi Arabia.
Latin American player dLocal, meanwhile, expanded its coverage in Africa in 2022, adding payouts in Rwanda and Côte d’Ivoire.
There are also new opportunities available through expanded support for alternative payment types, particularly as the use of digital wallets is continuing to grow. Meanwhile, a new generation of consumers continues to see greater buying power and traditional markets are reportedly shifting from goods to services, with a related shift in what merchants expect of merchant acquirers.
These are all opportunities for growth, but they require companies to make appropriate investments to take advantage of them. However, that may put companies at odds with investors, who are largely expecting a focus on increased leanness above all else. Investors want to see growth, but seem reluctant to support plans to pay for it, from Adyen’s hiring to Worldpay’s spinoff.
2023 is still only beginning, and if 2022 is anything to go by there may be significant surprises in the year ahead, particularly when it comes to the macroeconomic climate. However, if merchant acquirers are to successfully ride the changing times, they will need to help detractors buy into the details of their plans.