To Merge, or Not to Merge

Recent mergers within the payments industry have many wondering what’s next. In reading several blog posts, news publications, and LinkedIn articles, I see industry professionals scratching their heads and asking “what’s to gain from these mergers?”

Companies acquire or merge for 3 primary reasons – to gain market share, acquire talent, or round out a product gap – this includes technology. I suspect that the recent mergers have been driven by pressure from within the industry to achieve size and greater scale – hence share. The market share play becomes the focus of mergers when the other two reasons are lacking from the equation.

Imagine if two Pharma companies that both produced ibuprofen merged, what would they gain other than greater share? However, if one of those companies produced a ground breaking Alzheimer’s medication you now have a new entity that is potentially more valuable given its broader reach and product offering. So the question to be answered is what specific gaps and gains will be addressed by these recent combinations. And here’s a hint….the answer can’t be “operational efficiencies” which is simply code for saying the plan is based upon squeezing cost out of the business to drive short-term financial results.

Let’s also not forget the #1 reason for combo failures – cultural misalignment. Synergies that look great on paper still must be executed by human beings…those same human beings that have been living with, and in, specific cultural norms for a period of time. People often underestimate what’s required to combine companies – to combine cultures. What if the U.S. and Mexico were suddenly merged together into one country?  Just because it works on paper doesn’t mean it will actually take hold…heck we struggled to figure out NAFTA let alone something grander. Cultural differences are too significant to underestimate.

This will not be the last combination. Corporate decisions tend to revert back to our childhood days of playing musical chairs…no one wants to be left standing without a seat. Unfortunately these mergers are not addressing the key problems the payments industry is facing – a dynamic buyer, global sellers, legacy technology, and infrastructure dilemmas. How these four things can be best brought together is the idea, or solution, the market requires. These transactions clear the path for smaller, more nimble players to answer this question and disrupt what has been an industry slow to change and innovate. In the end, the buyer holds the most powerful vote to determine what is most valued.  My belief is they will continue to vote for more choices for easier and secure ways to make their purchases.  This vote will be given to those agile enough to listen to the need and place the creation of a new customer experience as the #1 priority, versus clinging to the belief that bigger is better.

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