AQN Payments Monthly – January 2019

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AQN Payments Monthly is AQN’s monthly roundup of the biggest and most significant stories from the payments industry. It is curated by AQN’s Head of Payments Intelligence, Caio Mattos. If you would like to get the newsletter delivered straight to your inbox each month, you can subscribe here.

Jan 4th – Citi overhauls its Prestige product to include two new 5x categories – Air Travel and Restaurants – to more effectively compete against leading issuers within the credit card rewards race. (Source - Citi)

AQN’s Take – This is not the first or last time we are going to be seeing loss generating or spend margin negative rewards advertised. This is a trend that will continue as more value is placed on incremental balances / first-in-wallet status and only the most transactionally optimized issuers will be able to effectively compete.

Jan 15th – The US Faster Payments Council (FPC) has appointed new leadership – Kevin Christensen, a senior executive at SHAZAM network as acting executive director and interim board chair. (Source - PYMTS)

AQN’s Take – Will the new year and new leadership create a tailwind for faster payments adoption in the US? While AQN believes there will be a greater move towards instantaneous payments in 2019 it predicts that it will be borne out of niche solutions, such as instant payouts for gig economy workers, vs a centralized ubiquitous solution.

Jan 16th – Fiserv acquires First Data in a $22B all-stock deal which will create a payments powerhouse by bringing together Fiserv’s servicing for debit and credit transactions with banks together with First Data’s leading merchant acquiring capabilities. (Source - WSJ)

AQN’s Take – 2019 will be a year of continued M&A activity in the payments processing industry as multi-solution platforms become table stakes in retaining relationships regardless of the size.

Jan 18th – Mastercard announces that they are no longer allowing vendors to auto-renew Canadian customers after free trial of a physical goods product. (Source – Yahoo Finance Canada)

AQN’s Take – Consumers will continue to benefiting from networks and issuers attempting to maintain and strengthen relationships by further driving up consumer value propositions. While this will create tailwinds for the dominant players in the market, it will have an opposite effect on contenders as they try to gain the scale to effectively compete.

Jan 22nd – Mastercard receives ~$650M fine from the EU for preventing merchants from using banks in other member countries in order to process payments more cost effectively. (Source – NY Times

AQN’s Take – Payments acceptance cost optimization continues to be a topic on focus for merchants globally and new opportunities to optimize are created daily. For any size merchant continuous optimization creates a sustainable competitive advantage, but inertia often leads to little opportunity realization at even the largest companies.

Jan 22nd – Apple Pay continues its path to ubiquity in the market by adding Taco Bell, Target, and Hy-Vee Supermarkets among other merchants to its list of partners. With the latest additions, Apple Pay is now supported at 74 of the top 100 merchants and 65% of retail locations across the country. (Source - Apple)

AQN’s Take – Apple has been the only company to effectively monetize its wallet app through issuers and is successfully building a significant stream of recurring revenue from it. AQN believes the market is ripe for another merchant with global scale to utilize a similar or tangential strategy to achieve similar results.

Jan 30th – Stripe raises another $100M from Tiger Global Management bringing it to a $22.5B valuation amidst the online payment boom. (Source - CNBC)

AQN’s Take – Stripe, similarly to Square and Adyen, are well positioned for continued growth in the short-term as new companies continue to scale as faster than ever and need simple plug and play solutions to execute their ramp. However they will face a growing challenge of customer retention and margin compression, specifically from their biggest and most profitable accounts, over time as their flagship customers mature and swing to a more cost effective payments stack.

Jan 30th/31st – Visa and Mastercard announced earnings, both beating expectations amid the continued shift to card payments and subsequent volume growth. (Source – Barron’s)

AQN’s Take – Mastercard gained some ground in terms of purchase volume market share over Visa as global payments growth through the 3 months ending in December came in at 9.3% vs 7.1% respectively. AQN believes that the networks’ payments volume market share is increasingly at risk as mature issuing portfolios, which drive the majority of the networks’ purchase volume, come up for renewal and potentially convert to competing networks.