Growing Digitization of Global Currency

Apart from consolidation of the market in a growing fintech sector, one primary driver of this acquisition spree is the rising popularity of debit, credit, and online payments applications’ usage

By Anirudh Sharma

Think about how many times you have used your debit or credit card this week. Now, estimate how many nights out with your friends have made you rely on services like Venmo or Paypal. There is a high chance that the number does not surprise you. Now, think about how many times you reached into your pocket and used cash and change (except of course for Halal food). This number, however, is bound to make you think how the role of hard cash in our lives is rapidly diminishing due to the rise of digitized payment methods. 

Clearly, major financial institutions like Visa and Mastercard realize the importance of currency digitization and thus, are making acquisitions of digital payment platforms and blockchain technologies which can lead to a decentralized monetary system. One of the major recent transactions was Visa’s acquisition of Plaid. Plaid, which uses technology to connect consumers’ bank accounts to other fintech companies and platforms like Venmo, was acquired by Visa in January for $5.3 billion. Visa ended up paying a huge premium on this acquisition as just under two years ago, Plaid was valued at only $2.4bn. The fact that dominant incumbents like Visa are willing to shell out 2x of estimated value for an emerging company is clear evidence that fintech is now the norm and companies are just consolidating their market share. 

Another example of the meteoric rise in the importance of fintech services and digital payment platforms is the merger of Wordline and Ingenico. This deal involved Worldline acquiring Ingenico, its direct competitor, for $7.8 billion to form a conglomerate which is now the largest digital payment services provider in European markets. And it’s not just large scale acquisitions of major competitors that are taking place in the fintech industry – it’s also a domino effect of small-cap acquisitions by large and mid-sized firms of disruptive small startups. For example, Plaid acquired Quovo in early 2019, while various other firms like Fiserv and Global Payments have been delving into payment mergers since 2018. To give you an idea, the number of global payments related M&A deals rose from about 100 in 2018 to nearly 260 in 2019 alone. 

Apart from consolidation of the market in a growing fintech sector, one primary driver of this acquisition spree is the rising popularity of debit, credit, and online payments applications’ usage. According to data collected by LendingTree, in 2017, 87 percent of US citizens preferred plastic currency over cash. Moreover, a rise in the application rates for credit cards and a subsequent decrease in rejection rates reveal that it really isn’t a convenience-driven, lazy move away from cash. Instead, people are now also becoming skilled in managing credit on their cards and payment apps. Overall, given the growing distrust in financial institutions after the pandemic, and with firms like Facebook touting the launch of Libra, JP Morgan moving ahead with JPM Coin, and even BofA flaunting a 97 percent consumer-usage rate of their online banking app, the sky appears to be the limit for digital currency and digitized payments services. 

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