Consolidation and the Un-Banking of EU Acquiring

Navigator Edition: Merchant Acquiring Special Edition
By: Joel Van Arsdale

The pace of consolidation in European acquiring is quickening in the face of the second version of the Payment Services Directive (PSD2) and other impending regulations and mandates. Small acquirers are finding it more difficult than ever to operate an acquiring business, driving more to sell out, often into an alliance.

The pace of European acquiring divestments is being driven by a number of forces:

  1. Regulatory mandates
  2. Breakdown of interbank shareholdings (e.g., Nets, Paylife, Luottokunta)
  3. Rich valuations and capital raising
  4. Preparation for the future of the product

Regulatory mandates, particularly PSD2 (inclusive of interchange regulation), are driving an investment mandate onto EU acquirers, which, in turn, are often choosing to explore strategic options to avoid this investment. The interchange regulation requires interchange plus scheme fees plus merchant service charge pricing (referred to as interchange plus-plus pricing) while many European acquirers lack this capability and face an investment mandate of approximately €1-2 million or more in order to make their platforms compliant.

Valuations in European payment acceptance are rich. Both Nets and Euroline are pending sale at valuations north of 12x EBITDA. And leading Payment Service Providers (PSPs) still regularly fetch valuations of 15-20x EBITDA or more. Capital-raising is a less prevalent theme today in Europe, but it is not hard to see the motivation for banks to cash out at such valuation levels (which represent highly accretive outcomes for banks).

European banks are more conscious of their own limitations in a marketplace that is technically complex, driven by a shift to e-comm and m-comm environments. In this environment, banks are seeking operating partners capable of delivering tomorrow’s product and customer experience so that they can, at a minimum, maintain the customer relationship.

While bank exits are fueling European acquiring consolidation, the “MSP Channel” is driving a fragmentation, of sorts, into the marketplace. As with the evolution of the value-added reseller (VAR) channel in the U.S., the new forefront of competition among European acquirers is for Merchant Services Provider (MSP) distribution. MSPs come in a number of forms: PSPs, ePOS, facilitators, alternative schemes, and commerce platforms, among others. These MSPs white-label and imbed acquiring into their own products and services, often making it easier for merchants to obtain and enable payment acceptance.

The net effect of these forces is an un-banking and a digitization of payment market shares in acquiring, as shown in Figure 1. Banks are playing a diminishing (though still significant) role in the market while digital service providers play an increasingly important role.

Figure 1: Estimated European Acquiring Distribution Share* by Channel

Fig-1_-Estimated-European-Acquiring-Distribution-Share-by-ChannelNote: *Including e-comm platforms, ePOS platforms, other.
Source: First Annapolis Consulting market observations and estimates.

For more information, please contact Joel Van Arsdale, Partner, specializing in Merchant Acquiring,

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