Morningstar | Global Payments Has the Assets It Needs to Maintain Its Moat in a Shifting Environment
Along with its fellow acquirers, Global Payments has the wind at its back, given the ongoing shift toward electronic payments. While the competitive dynamic in the space is shifting, we think Global Payments is well positioned to continue to ride this secular trend.Global Payments has seen a fairly dramatic shift in distribution in recent years. Acquiring services have been increasingly commoditized, and merchants are looking for more holistic solutions. This favors acquirers that have omnichannel (both brick-and-mortar and online transactions) capabilities and integration with business software tailored to the client’s needs. We think Global Payments has the assets it needs to compete in this new paradigm, with owned software in a few select verticals and partnerships with software providers in others. Management believes sales with integrated software will account for 60% of revenue in a few years. Its e-commerce capabilities also look fairly strong, with this area accounting for over 10% of revenue and growing at a mid- to high teens rate in recent years.Global Payments also benefits from its global footprint, with about one fourth of its revenue coming from outside North America. We appreciate management’s foresight in building out these businesses and believe this exposure will help lengthen the company’s growth runway, as international markets will likely increasingly provide the next leg of growth for electronic payments.Overall, we think the company’s integrated and e-commerce offerings, along with its international exposure, will allow Global Payments to maintain fairly strong growth for an extended period, and the scalable nature of the business should allow for meaningful margin expansion over time. However, while the secular indications are largely positive in our view, Global Payments’ small-merchant focus could be a hindrance if the macroeconomic backdrop worsens, as smaller merchants are more likely to fail.Global Payments is a pure play payment technology company providing payments and software solutions to merchants and financial institutions. The company has three segments: Merchant Solutions, which includes authorization services, chargeback resolution, and payment security services; Issuer Solutions, which provides solutions that enable financial institutions and other financial service providers to manage their card portfolios and reduces technical difficulty and overhead on a single platform; and Business and Consumer Solutions, which provides general purpose reloadable prepaid debit and payroll cards, demand deposit accounts and other financial service solutions through its Netspend? brand.
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