Barclays Plc is trying to work out how to make the best of its payments business in its quest to increase the appeal of its shares. One option is selling a stake in the unit that handles card transactions for shopkeepers and other businesses, Bloomberg News reports.
That won’t be a shortcut to boosting the stock through advertising the high value put on an overlooked part of the group – the last refuge of uninspired executives. More likely, such a sale would be a way of injecting extra investment into the unit and bringing in the expertise of a tech-savvy partner to aid its development. Given Barclays’s returns on equity lag behind peers, getting some outside help could be the smart choice.
It would be an odd time for Barclays to think about cashing out of the payments business. The field has high growth potential, but industry leaders such as Stripe Inc or Adyen NV have recently suffered steep drops in valuations. Barclays also needs to diversify its earnings and find more reliable income streams to offset its volatile corporate and investment bank. Deal-making, fundraising and trading used nearly 70 percent of Barclays’s equity capital, while producing 53 percent of revenue last year.
Several European and US banks sold their payments units after the 2008 financial crisis as a way of raising capital. NatWest Group Plc – formerly Royal Bank of Scotland – offloaded the business that became WorldPay Inc, for example. But since then, the rapid growth of online retail and a wave of investment in fintech startups have seen the dull backwater of processing and settlement become a hotbed of innovation.
Payments businesses are being turned into the entry point for selling other services, from lending and bank accounts to tax, accounting and company formation. US institutions like JPMorgan Chase & Co are investing billions to catch up with younger companies like Stripe in combining such tools and selling them as a package to airlines, carmakers and online marketplaces like Amazon.com Inc.
The field has come to be known as embedded finance, and the revenue could more than double to $51 billion in 2026 from $21 billion in 2021 in the US alone, according to forecasts by consultants at Bain & Company last year.
It’s not for everyone, though. If Goldman Sachs Group Inc ends up quitting its credit card deal with Apple Inc, as well as selling its home-improvement lending business GreenSky, that would mark a swift end to its nascent foray into the area. Some incumbents have also struggled to keep up with the faster, lower-cost tech companies that have invaded the territory. Fidelity National Information Services, Inc is spinning off Worldpay, which it only acquired in 2019, after it started losing small and medium-sized business customers to challengers.
Elsewhere, deals and tie-ups continue apace: Visa Inc in June announced
the $1 billion acquisition of Brazil’s Pismo, while in Europe both Worldline SA of France and Italy’s Nexi Spa continue to hunt out partners and targets.
Barclays has previously flagged payments and related services as a focus for investment and growth as a complement to its strong US and UK credit-card businesses. While that shouldn’t change, it is a fast-moving field that needs heavy investment to keep up. But Barclays returns on equity are weaker than rivals, which leaves it with a tough choice: Spending what is required to compete in payments will hold back profits today in exchange for a potentially bigger prize in future; getting in a partner with deep pockets and tech knowhow could make the UK bank smarter and faster, but sacrifice a share of future earnings.
Stake sales for their own sakes are just the kind of purposeless fiddling loved by consultants and bored investment bankers. Barclays should only do it with payments if it promises true benefits to that business.
Paul J Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
Credit: Bloomberg
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