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Does the Payment Processing Industry Still Have Room to Grow?

By Matthew Frankel, CFP® - Jan 25, 2021 at 7:03AM

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Companies are moving trillions of dollars around the globe, so how much bigger could the payments space get?

The payment processing industry has grown dramatically over the past decade or so, as more people have adopted cashless methods of payment. Companies like Fidelity National Information Services (FIS 0.74%) are moving trillions of dollars around the world each year. 

This begs the question: Does the payment processing space still have room to grow, or is the cashless payment trend starting to reach its limits? In this Jan. 14 Fool Live video clip, contributor Matt Frankel, CFP, sits down with Jim Johnson, head of merchant services for FIS, to get his thoughts on where future payment volume growth could come from.

Matt Frankel: So, my first question is, do you still see a lot of growth potential in this space, and if so, where is it going to come from?

Jim Johnson: There's absolutely a lot of growth potential. You mentioned MasterCard (MA -0.76%), yes, MasterCard, Visa (V -1.31%), ourselves. When you look globally around the world at how many payments are still done with cash, it's an astronomical amount. I think as we look for alternative payment methods and things of that nature, it's going to continue to grow. I think as you look at some of the younger generation and they're making payments at an earlier age ever before, those payments are smaller, so from a volume standpoint, Gen Z actually does the most number of payment transactions in our portfolio today, while the baby boomers are the biggest dollar amounts. I think you're going to continue to see more micro payments taking place. You see that a lot with the P2P and the things that have gone on with that technology. Splitting a bill 10 ways, where it used to be just one cash transaction. So you're taking payments that used to be one transaction and turning them into many. You're going to continue to see a lot of evolution in here, and the people who don't pivot are going to be the ones left behind.

Frankel: On a similar note, there's obviously a ton of cash payments going on around the world, that's a big growth potential, and as they say, a rising tide lifts all ships.

Johnson: Yeah.

Frankel: Your market share has to be pretty huge right now. Do you also see potential to grow your market share or are you worried about FinTech disrupters? Because FIS has been around since the '60s so are you worried about any of these younger companies swooping in with their technology and things like that?

Johnson: We're always worried. If you're not close to your competition, you're not doing your job and we have new entrances all the time. What I'll tell you. You had mentioned, we've been around over 40 years, and we really started specifically in that core banking type business and as we moved along in our journey, we've entered a lot of different adjacencies, new payment types. Forty years ago when we started in the core business, debit processing was within its infancy. That evolution is going to continue as we move forward here. With new entrants, the types of transactions and experiences that are happening digitally continue to evolve. I will tell you, when you look at our merchant processing business, historically, we've really played in that payment space, enabling payments, but if you look at our merchant and businesses that we transact with the day, they're looking to providers like us to provide much more in, I'm going to use the word, ecosystem, but in their business model whether it'd be providing them working capital funds or lending or helping them sell online or providing more security, or maybe it's technology-related to accounts payable, accounts receivable, general ledger type things. The space just keeps continuing to evolve because commerce is just becoming more advanced, more streamlined, and so we have to continue to evolve our technology, continue to be an easier company to work with because there's a lot of those new start-ups in helping to create those great consumer experiences, so we have to be able to work with them well. Really, the opportunities are endless, and it's our job to make sure we're making life easier for our customer base and providing the services they need to provide to their end consumers because at the end of the day, we're a B2B type company and so we're that quiet partner behind the logos we do business with and we have to make sure we're meeting the needs of their customer base.

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Stocks Mentioned

Fidelity National Information Services, Inc. Stock Quote
Fidelity National Information Services, Inc.
$97.44 (0.74%) $0.71
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$333.35 (-0.76%) $-2.55
Visa Inc. Stock Quote
Visa Inc.
$197.36 (-1.31%) $-2.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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