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It is safe to say that a “new normal” is emerging in financial services. With banking, investment and payment apps gaining critical mass, “old school” banks and brokers could end up in the dust. Put simply, these “perturbers” and their fintech stocks pose a serious competitive threat. But, as the saying goes, “if you can’t beat them, join them.”
Or in this case, buy them! Mergers and acquisitions (mergers and acquisitions) could help consolidated companies to maintain the economic moat. This can move the needle for many major fintech stocks.
We recently asked Derek Horstmeyer, an associate professor of finance at George Mason University, about the impact of payment solutions like Square (NYSE:SQ) is PayPal (NASDAQ:PYPL) on the financial services landscape.
In a response sent to InvestorPlace by email, Horstmeyer said: “I think the impact will be consolidation in the industry.” He went on to quote Visa of (NYSE:V) recent acquisition of Plaid. Horstmeyer also pointed out that although many of these new apps are “free”, strategic buyers could easily monetize them.
The “breakdown” of Fintech can be an abrupt awakening for some established institutions. But through mergers and acquisitions, many of these financial services and fintech stocks are experiencing a further hike. Among the large-cap names in this space, these five stand out as clear beneficiaries.
- Fixerv (NASDAQ:FISV)
- MasterCard (NYSE:BUT)
- Visa (NYSE:V)
- Paypal (NASDAQ:PYPL)
- Square (NASDAQ:SQ)
Let’s dive in and see why these five Fintech stocks could benefit from mergers and acquisitions.
Fintech shares that could benefit from mergers and acquisitions: Fiserv (FISV)
As the main payment processor, Fiserv shares offer investors high margins and a deep economic ditch. The company is no stranger to mergers and acquisitions. Over the past decade, they have acquired many fintech companies to strengthen their existing businesses.
But are they interested in buying something like Square? Last year, the company merged with the payment giant First data in a $ 22 billion transaction. This could mean that they take a breather by absorbing their latest purchase. In addition, the company already has its version of Square: Clover.
However, it may be easier to move the needle to the FISV stock by acquiring similar payment apps in combination with growing Clover. In short, this payment giant may not be a household name. But with their balance sheet and smart eye for mergers and acquisitions, this “old school” company should benefit from Fintech’s consolidation.
Source: Alexander Yakimov / Shutterstock.com
You may know about Visa’s revolutionary takeover of Plaid. But what does Mastercard do? The credit card processor can operate in a de facto oligopoly with its ubiquitous rival. But are they keeping up in the game of Fintech M&A?
As recently discussed in this Fortune article, the CEO of the company aims to transform Mastercard into a fintech giant. Past acquisitions of VocaLink is Nets helped drive towards this goal. Clearly they are not slowing down from a business perspective. Could the company thwart the recent Visa stock deal with a say buyout, Square?
Only time will tell. But with a strong cash flow and solid balance sheet, MA shares could continue its strong long-term performance through its clever Fintech merger and acquisition strategy.
Source: JHVEPhoto / Shutterstock.com
Simply put, PayPal is the perfect way to bet on the future of payments. The company has gone far beyond its roots as eBay (NASDAQ:EBAY) responsible for payments. With apps like Venmo by driving growth, the company could do to financial services what Amazon (NASDAQ:AMZN) made for retail.
But we could put the card in front of the horse. PayPal could have a dominant market share. With other well-capitalized players in the game, however, it’s not overwhelming. Outside of organic growth, mergers and acquisitions could help the company further expand its already long track.
A purchase of Square would probably not get regulatory approval. Society could easily change the game by acquiring mediation Robin Hood, turning into a fintech supermarket overnight.
Square can be considered an acquisition target, but despite being smaller than competitors, I’m not exactly a smaller company. With a market capitalization of $ 23.2 billion, they were able to purchase some of the main fintech businesses through equity transactions. With its high forward price / earnings (P / E) multiple of 78, they managed to find deals that increase earnings.
The SQ stock already offers investors a significant fintech exposure. In addition to their merchant payments business, the company includes the CashApp peer-to-peer platform, as well as services including brokerage and purchase of bitcoins. Buying smaller startups in this space could help the company keep up with the likes of PayPal.
Source: Teerawit Chankowet / Shutterstock.com
Visa could carve out its work with the recent purchase of Plaid. But this recent deal, while making headlines, hasn’t broken the bank for the credit card giant. Like Mastercard, the company’s strong cash flow and healthy balance sheet could support major acquisitions.
A high purchase price and regulatory barriers could keep them away from Square. But such plaid-sized deals may be on the cards in the coming years. Far from being a financial services dinosaur, as recently discussed by our Matt McCall, Visa also benefits from the “future of payments” megatrend.
InvestorPlace contributor Thomas Niel has been writing single-title analysis for web publications since 2016. At the time of this writing, Thomas Niel had no position in any of the aforementioned securities.
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The views and opinions expressed in this document are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.