The recent wave of consolidation among payment processors in Europe provides a powerful motivation for banks to review their acquiring business, according to a deep-dive analysis of the EU payments sector by Jefferies.
The study, which covers 25 European markets, shows the recent wave of M&A is yielding a new status quo which concentrates dominant market positions in the hands of Italy's Nexi and Worldline.
Nexi has achieved significant scale economies from the takeover of Nordic payments processor Nets and Italian compatriot SIA, while Worldline has also benefited from the consolidation wave, as shifting competitive dynamics in Germany complements share gains from Wirecard.
Between them, the two firms have captured more than 20% of Europe's payment market.
"Built on highly dominant market positions in high growth markets (DACH, Italy), WLN and Nexi standout as disproportionate beneficiaries of the new status quo leveraging their market position, enlarged earnings base and balance sheet capacity to not only drive consolidation but also widen the competitive gap vs US counterparts in Europe," states Jefferies.
Market share mapping shows that banks still acquire more than 50% of card present transactions across Europe. However, higher margins generated via joint ventures, a growing scale gap and renewed interest in partnerships, offers a clear motivation for banks to engage with non-bank counterparts.
This in turn is likely to feed into further consolidation in EU payments market.
States Jefferies: "Our analysis of HHI scores and market shares point to France, Spain and CSEE as attractive targets for M&A. WLN's JV strategy is suited to France and Spain, with a large JV driving >5% earnings accretion. Conversely, Nets offers a platform for Nexi to export its partnership model outside Italy, with partner banks offering opportunities for consolidation in the DACH and CSEE regions."