How Mastercard's (MA) Arcus Acquisition Benefits Digitization?
Mastercard Incorporated MA recently announced that it has acquired Mexico-based Arcus FI to expand its presence in the Latin American market. Arcus, a financial technology platform, is a Mastercard Start Path program alum.
Arcus provides various bill pay solutions and cash-in, cash-out services to different types of customers including retailers as well as FinTechs in the United States and Mexico. It has a massive network in the Mexican market. The buyout will likely enable Mastercard to tap into that vast network and offer Bill Pay solutions and real-time payment applications across markets. The financial terms of the deal are yet to be disclosed.
The move is expected to increase the demand for Mastercard’s suite of financial services via tapping into Arcus’ technology and strong customer relationships. The company has made similar moves in the past few weeks. It has joined forces with Trinidad & Tobago International Financial Centre in a bid to provide digital solutions, which will ramp up digital growth across the country. Also, it expanded its footprint in Somalia through collaborations with MyBank and Network International.
The COVID-19 pandemic, which destroyed demand around the world last year, has boosted the usage of digital payments solutions. With the decreasing number of COVID cases, economies are rapidly opening up and businesses are fighting to get back on track. While businesses are recovering, the demand for digital payments solutions is expected to keep rising. Given this backdrop, Mastercard’s decision to boost its presence in the Latin American market and bring more customers in the digital economy can be a fruitful one. It will increase the company’s revenue sources.
The increasing adoption of digital solutions by clients will likely keep expanding the market size for MA, which currently has a Zacks Rank #3 (Hold). As such, the acquisition is in line with the company’s global commitment of connecting 1 billion people, and 50 million micro and small businesses under the ambit of a growing digital economy within 2025. The move will be a stepping stone for boosting the digitization process in the vast Latin America region.
The rising demand for digital payment solutions is being addressed by many other players in the market as well. Other companies like American Express Company AXP , Visa Inc. V and The Western Union Company WU are also ramping up efforts to capitalize on the growing market.
NY-based American Express made a move in small business banking by acquiring Kabbage, which is an online lender. A large chunk of AmEx’s customers consists of small businesses, which suffered the maximum blow from the pandemic. Now that things are looking up and small businesses are rebounding, the company’s products are likely to see a surge in demand. It recently joined forces with Fujitsu in a bid to offer an expense management solution for centralizing and boosting digital transformation for all Fujitsu offices and group companies.
Visa is making the best use of mergers and acquisitions, partnerships, and minority investments to achieve inorganic growth. This strategy has helped the company maintain its leading position in the payment network space. Visa enjoys strong cash and available-for-sale investment position along with solid free cash flow, which supports the acquisitions. Also, Visa continues to invest in technology to further minimize the impact of fraud, and protect consumer and merchant information. This makes V a safe choice for clients.
Headquartered in Denver, CO, Western Union enjoys a robust digital arm, thanks to several digital partnerships and investments. The company is building a solid digital services portfolio and digitizing the money movement process for clients. WU is also boosting the efficiency of operations and remains on track to achieve annual cost savings of $150 million by 2022. Western Union expects constant-currency revenue growth of 3-4% for 2021, indicating a turnaround from a 3% decline in 2020.
Shares of Mastercard have lost 0.4% over a year compared with the industry ’s 21.4% decline.
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While shares of American Express have gained 42.4% during this time period, Visa and Western Union have lost 3.6% and 26.4%, respectively.
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