Once WorldPay Spins out of FIS, How Does It Survive?

FIS is calling it quits after four years of marriage.

And while Worldpay has grown its revenues by 50% over the past 4 years (~$3.5B to $4.8B), you kind of have to wonder what’s next for the company, especially as FIS writes down over 50% of the acquisition’s value (Worldpay basically lost $6B of EV annually).

For starters, Worldpay has no software assets.

This is their largest weakness, and we think their inevitable downfall lest they make serious changes.

Software is eating the world, as the VCs like to say.

And software companies can easily become payments companies while the reserve is culturally impossible.

Worldpay processed $2T of transaction volume in 2022, but the software upstarts are no slouches.

Square: $200M GPV (gross processing volume)

Toast: $100B GPV

Shopify: $120B GPV

And thousands of other ISVs are bolting on payments easily and adding up to at least hundreds of billions more in GPV.

In fact, Credit Suisse has created a visual that simplistically shows this trend.

This visual also surfaces another challenge for Worldpay and legacy processors:

Adyen and Stripe, or “modern acquirer backends” that are also pushing out Worldpay.

If the thesis is that these payment processors will just power software company payment backends (which is terribly low margin, undifferentiated, and an even faster race to zero) then you have to take Adyen and Stripe seriously.

These two entities have written directly to the card schemes and have much, much more modern solution sets.

Software companies are preferentially partnering with Adyen and Stripe to build their payfacs over legacy backends.

Not only that, but these two are winning direct merchant business as well, taking share from the legacy incumbents.

Here’s a great snippet to prove the point:

Over the past three years, Worldpay merchant transaction volumes have grown by 28% yet newer competitors have grown more: Volumes at Stripe are up 3.8x and at Adyen they are up 3.2x. One time distractions, these competitors are now major adversaries. 

https://www.netinterest.co/p/worldpay-reborn-993

Worldpay cannot compete against Adyen and Stripe on technology.

Even worse, we’ve personally been involved in ISV platform deals (think payfac models) where Worldpay is 4-5x MORE EXPENSIVE than Stripe or Adyen with shittier technology.

Bro.

Are you as stupid as merchants are?

If you’re not going to be competitive on pricing how the hell are you going to win with inferior technology?

Like all their legacy payment counterparts, Worldpay was built through M&A.

Technology M&A can be tricky.

Disparate systems, technical debt, and a sprawling web force companies like Worldpay to spend considerable resources getting systems to work, ceding ground to competitors who execute much more quickly.

And honestly, in the case of Worldpay, the biggest challenge is that they don’t spend on R&D anyhow.

#paymentsculture.

So while it might take a Google or Facebook a year to swallow an acquisition, it will take Worldpay 10.

Which is really wild when you think about it.

Worldpay payment bro #1: man, we keep losing market share to software companies

Worldpay payment bro #2: don’t forget losing our direct business to Adyen and Stripe

Worldpay payment bro #1: yea, I have no idea why we keep losing

Consultant: have you noticed you spend nothing in R&D and the companies winning share spend a lot in R&D?

Worldpay payment bro #1: yea…

Worldpay payment bro #2: anyhow, it’s a mystery why we keep losing

By the way, this same conversation takes place at every legacy processor.

These guys just don’t have the management to tell the street that they need to invest in R&D to be relevant.

Instead they hire some non-founder type and bleed their companies to zero with fake fees and acquisitions until the clock runs out.

But management gets tens of millions in compensation, so who’s the real dumbass in all of this?

If you asked us how to fix Worldpay, here would be our answers.

1. You can’t. It’s too late. This is going to be a slow burn to zero. If you want to ignore this point, you can try these below. GTCR will see if they can’t reduce one turn of debt, and that might get them 15% IRR (working on our LBO model for a separate article)
2. Hire management with software backgrounds. Adding fake fees and providing zero value isn’t a sustainable business model. Call us crazy, but the management that got us into this situation is not the management to take us in a different – and needed – direction. Doing the same thing and expecting different results is the definition of insanity.
3. Start acquiring software. Nobody said this would be easy, but it’s way faster than building from scratch. Fiserv’s only growth vector has been Clover. Worldpay cannot compete with Adyen and Stripe on enterprise deals anymore, and they’re going to continue losing ISV relationships to the aforementioned processors too. The payments world is quickly bifurcating: those who own software, and bankrupt payment companies. The big problem, of course, is that Worldpay is going to be saddled with too much debt to do meaningful M&A. Maybe they need to overpay for something, but they’re going to need a cultural 180 to keep it alive
4. Start modernizing your core infrastructure. Maybe you partner with Silverflow, maybe you spend years building it yourself. Doesn’t matter, but right now tech debt is a disaster. The benefits of newer tech have been compounding for the past decade. Worldpay, Global, Shift4 et al. are all so. far. behind.

Worldpay, like Shift4, Global Payments, Paysafe, Nuvei, and other processors is in trouble.

Software is dunking all over the payments business.

It’s ultimately too little, too late for Worldpay.