British payment processing company Wordplay announced Tuesday that JP Morgan Chase and Vantiv had each expressed interest in acquiring it.
Wordplay made the announcement without either suitor’s consent. The New York Times did not receive comment from either prospective buyer. Negotiations were thought to be in the early stages, and many wondered whether a deal would ever be reached.
Wednesday morning, Wordplay announced that it had accepted a $10 billion buyout offer from Vantiv, an American competitor.
After the announcement Tuesday, which came amidst widespread media speculation that a takeover of Wordplay might be on the horizon, Wordplay’s stock jumped 30%. Its market capitalization soared to $10.5 million. The company’s shares fell 8.82% following the deal Wednesday.
As more and more consumers make purchases electronically, companies like Wordplay and Vantiv are carving out sizable niches for themselves in the financial technology field.
Wordplay now operates in 146 countries and processes 35.8 million transactions daily. It made 264.1 million pounds in pretax profit in 2016 and handles about 42% of transactions in Britain.
Vantiv had its hand in 25 billion transactions last year, more than any other U.S.-based merchant acquirer (a merchant acquirer processes payments for stores and businesses), and generated a net revenue of $1.9 billion.
Vantiv, based in Cincinnati, has already snatched up Moneris Solutions Corporation, a Canadian payment processing operation, and Paymetric, which sells payment technology.
Wordplay said in a statement that it hopes the merger will create a super-company “with deep payments capabilities, product and vertical expertise and strong distribution channels to serve merchants around the world in the global e-commerce market, and in-store and online in the UK and US markets.”
Payment processing companies pose an increasing threat to financial institutions. PayPal’s business model is arguably the aptest illustration of that threat. An employer can deposit an employee’s check directly into that employee’s PayPal account. The employee could theoretically spend that whole check without ever withdrawing it from his PayPal account. Most online sellers, including amazon.com, accept PayPal, and the number of retailers who accept PayPal in-store is growing.
The employee, then, would never need a bank.
Wordplay started under Royal Bank of Scotland in 1989, prior to the advent of the internet. At that point, the company primarily handled electronic point of sale transactions. In 1994, it began serving the U.K.’s first online shop. It became independent in 2010.
Technology and commerce have become increasingly intertwined since 1989, and will only continue to do so. Wordplay-Vantiv will need to keep adapting.
As augmented reality and virtual reality become fixtures in the daily life of the average consumer, Wordplay plans to begin processing transactions in virtual games and stores. With smartphones continuing to gain popularity as methods of payment, Wordplay-Vantiv could expand itself further into the mobile payment processing arena. Wordplay already processes a substantial number of payments made via mobile devices, but competition with companies like Stripe, Square, and Ayden, which specialize in mobile transactions, is stiff.
PayPal is also a leader in processing mobile transactions. In 2013, PayPal acquired Braintree, a company similar to Stripe or Square. Now, Braintree serves Uber and other, similar companies. Wordplay-Vantiv may move to take over a company like Braintree.
Wordplay-Vantiv may also look to make inroads into the peer-to-peer wing of the financial technology industry. Peer-to-peer platforms such as Venmo are currently small players in the sector, but companies such as JP Morgan, which recently created a peer-to-peer payment service called Zelle, see possibilities in the niche.
There is untold potential in the financial technology market, and the recent merger of Wordplay, the most prominent payment processing company in Europe, and Vantiv, the most prominent such enterprise in the States, may put Vantiv-Wordplay in an unprecedented position to capitalize.