Digital Payments Germany's Wirecard cashes in on the cashless market's global boom

A surge in online shopping has turned the payments market into a battleground for financial startups. Germany's best-known provider Wirecard placed its focus abroad, not on its cash-loving homeland, to rise above its competitors.
The best kind of vector.

It’s boom-time for financial technology firms, or fintechs, offering payment services such as card processing for retailers.

Take German fintech Wirecard, for example. The company is currently valued at €18.7 billion ($22 billion) on the stock market following a 60 percent surge in the last 10 weeks that has made it more expensive than Commerzbank, Germany’s second-largest bank, and almost as valuable as troubled flagship lender Deutsche Bank.

And on Wednesday, Dutch fintech Adyen had a dream launch on the Amsterdam stock exchange, soaring more than 100 percent above its issue price of €240 in the biggest IPO of a European financial startup in a long time. By Wednesday afternoon, the shares were changing hands at €482 a share, valuing Adyen, whose investors include heavyweights like Twitter founder Jack Dorsey and the Singapore state investment fund Temasek, at over €14 billion.

Both Wirecard and Adyen are profiting from the global trend towards online shopping and card payments. But they also cater to brick-and-mortar retailers, who use an array of payment methods such as credit cards, direct debit or online systems, like Paypal and Sofort.

Booming but competitive

The market is booming but it’s a low-margin business as the firms usually receive only a tiny percentage of retailer’s revenues in exchange. Competition is huge and still growing, and the big global retailers are demanding more as they integrate their online business with their physical retail outlets. Many of them are looking for fintechs that can operate internationally.

“The international retailers want one-stop solutions for their payments and, if possible, on a pan-European scale,” said Gökhan Öztürk, a partner at consultancy Oliver Wyman. “Service providers who only focus on their home market can’t offer that.”

Riding the acquisition wave

As a result, there’s a wave of mergers and acquisitions among fintechs in Europe. The consolidation is gaining momentum, not least because many of the firms belong to financial investors keen on securing profitable exits.

Denmark’s Nets, for example, is taking over German rival Concardis. Both belong to investment companies, after German banks sold Concardis to Advent International und Bain Capital Private Equity a year ago.

At the end of May, French fintech Ingenico said it had entered into talks to combine its Germany business with BS Payone, which belongs to the German savings bank organization. Ingenico is to hold a majority stake in the jointly-owned business. Meanwhile Switzerland’s Six Group is selling its payments unit to French rival Worldline.

Despite recent mergers, Germany's market remains particularly fragmented: The country has more than 10 fintechs wooing retailers.

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Bo Nilsson, the CEO of Danish fintech Nets, sees a lot of potential for growth in Germany because the country lags behind other nations in cashless payments.

The Germans still pay cash for three quarters of their purchases – measured in terms of the value of what they buy, it’s almost half. Payment by smartphone is still in its infancy in Germany, with Google Pay launching at the end of the month, long after it was rolled out in neighboring countries.

While cash-loving Germany still adapts to the basics, fintechs are going further and trying to broaden their range of services to include guaranteeing and processing card payments, offering an array of payments options for online and physical outlets, and specializing in risk management.

The Dutch fintech Adyen has used that strategy to win prominent clients such as Uber, Facebook, Netflix, Spotify and L’Oréal. It will also start catering for Ebay where it will replace Paypal from 2020, after which Paypal will be just one of several payment methods offered.

Paypal, a US online payments group, is also pushing into the physical retail busines via it's acquisition of the Sweden-based payments provider iZettle, which offers a payments system with mobile card readers for retailers.

Success abroad, not at home

One reason Germany’s Wirecard is successful is that the company based near Munich generates much of its revenue abroad and not in its hotly-contested home market.

It’s active across Europe and in Asia. In emerging markets, cashless payments are far more widespread than in Germany. Wirecard cooperates with Chinese fintechs Alipay and WeChatpay. It’s started working with Japan’s Mizuho Bank in March and expanded its partnership with Crédit Agricole of France in April.

If Wirecard’s stock keeps rising, it could qualify for the DAX index of Germany's 30 biggest companies as early as September when the next review of possible new entrants takes place. It’s not just beaten Commerzbank in terms of market value. It’s also worth more than Covestro, Heidelberg Cement, Lufthansa, Merck, RWE and Thyssen-Krupp.

Elisabeth Atzler has been a banking correspondent of Handelsblatt since 2012. Christian Schnell is a correspondent with Handelsblatt, writing about the auto industry and finance. To contact the authors: [email protected], [email protected]