All change!

I think when I predicted at the beginning of last year that there would be consolidation in the vendor part of the payments business I was confident that it would happen. Hand on heart, I’m not sure even I expected some of the changes that have actually happened. We of course had the “love triangle” of ACI, S1 and Fundtech, which eventually saw ACI & S1 hooking up, and Fundtech & Bankserv joining together. This week saw the announcement of the purchase by Distra by ACI. We’ll find out the details and rationale behind it this week when the deal closes. I know Distra well, but for those of you less familiar with them, they’re (amongst other things) the beating heart behind the UK Faster Payment System. They were chosen because of the speed at which they can process payments, yet they still met the essential need of the levels of reliability required in payments. What struck me was the contrast of another deal that took place this week. That was the fundraising of an additional $200m by Square, which in essence valued Square at c. $3.25bn. Was the Square deal really that much more valuable than Distra? At $48m, Distra to me seems a bargain. Square has innovated at the point of interaction with the customer. It has made acceptance more, well, acceptable, opening up a whole new market. But it’s still a wrapper on an existing system, using the same rails as before. That’s not a criticism – innovation needs to be incremental to be adopted, and in a space where not has really happened for many years. On the other hand, Distra could “turbo-charge” what happens in the back office, making real time, multi-platform interaction possible. Customers expect instant 24/7 service, and this could enable it. The challenge will be that speed is only as fast as the slowest point in the transaction, and that is usually the banks other systems, which are still batch and industrial. But for those banks that have made the transition to modern, SOA based systems, they stand to reap the benefit. I understand the valuations as an investor. But as a payments professional I certainly know which one was the more interesting.