The Two Companies are Divorcing but Promise to Remain Friends
Almost exactly four years ago, on March 18, 2019, FIS and Worldpay announced their marriage. As we commented then, there seemed to be a number of good arguments for joining forces, such as synergies in distribution, broader set of capabilities, including having the visibility to the payment transaction end-to-end, and projected cost savings. And yet, yesterday, FIS announced spinning off Worldpay as a separate business again.
On the investor call and the press release, the FIS executives emphasized that "this spin-off will create two industry-leading, publicly traded companies with sharper focus and increased agility, each well positioned to capitalize on the significant value creation opportunities ahead in their respective markets." It is true that "the pace of disruption in payments is rapidly accelerating, requiring increased investment in growth and a different capital allocation strategy for [the] Merchant Solutions business"; a number of FIS Worldpay competitors providing merchant services have been very nimble and able to invest into pursuing focused growth strategies, both organically and through acquisitions. The expectation is that the separate entities will be better placed to invest accordingly and participate in the ongoing industry consolidation.
It also appears that the need to be more nimble outweighs the various synergies that the larger FIS was expecting to achieve. FIS has indeed been able to launch several innovative solutions leveraging the strengths in both issuing and acquiring, such as enabling real-time rewards and allowing customers to pay with points at the point of sale. And yet it now seems to acknowledge that such solutions can be delivered by partnering rather than having both assets under one roof. In other words, while it's a divorce, the two partners will remain friends: "The two companies expect to maintain a strong commercial relationship, preserving a key value proposition for clients of both businesses."
Finally, as we know, the financial services ecosystem is becoming more open, and the increasingly diverse set of players are providing bank-like services. Worldpay competitors like Stripe and Adyen are offering card issuing services to their merchant clients - something that until not that long ago has been the preserve of financial institutions. Being very clear over who your clients are helps maintain a laser-like focus on delivering value to those clients and avoids having to navigate the potentially diverging strategic priorities of different client groups.
We finished our original blog by saying that "only time will tell if the new combined entity can deliver more than the sum of the parts." It looks like after four years, FIS and Worldpay decided that they can grow the individual parts faster by separating and remaining friends. One thing is clear - the pace of change in payments shows no signs of slowing down!