Between Apple’s falling share prices, Amazon’s HR woes and the great Ashley Madison data dump of 2015, last week was an all-around great time for gossip in America. And with so much scurrilous (and potentially spurious) data floating free in cyberspace, it might have been tough to keep track of everything else swirling around in the payments and commerce ecosystem.
But as always, PYMNTS has your back with our weekly data dive — guaranteed to enable you to hold court at the physical or virtual water cooler this morning.
This week in the hopper — digital currency gets a big thumbs up, Visa seems headed towards a big European buy and Snapchat looks like it might be in some pretty big financial trouble.
Visa’s $21B Path To Visa Europe
The rumors of Visa buying its sister firm, Visa Europe, have been circulating for some time. In early May, unnamed sources told Bloomberg that the world’s largest payments network had approached its European counterpart with a$15 billion to $20 billion buyout deal.
Last week that deal seems to have taken a step closer to becoming a reality — and a more expensive reality than initially forecasted.
According to reporting by Sky News, Visa has “proposed the outline” of a Visa Europe takeover for $21 billion.
A substantial — though unspecified — amount of that big upfront payment would be deferred, with payouts tied to performance milestones, according to unnamed sources.
During its earnings call last month, Visa officials disclosed that the two firms are in continual discussions over a proposed buyout and that the intention is to finalize a deal by October. At $21 billion, the deal is orders of magnitude higher than this time last year, when it was projected to be in the $10 billion range, and significantly higher than in 2013, when ranges for a purchase were cited at between $3 billion and $10 billion. Visa Europe is owned by 3,000 banks across Europe and holds a put option, which will require Visa to purchase it within 285 days of its exercise.
In 2013, there was talk that Visa Europe and its owner banks would create its own payments network to compete with Visa Inc., as well as other card schemes. Whether that was designed to drive up the value of the network or create enough anxiety to get Visa Inc. to the table is a matter of mere speculation.
However, while by all accounts the deal is moving forward full steam ahead, it still faces a few challenges. Surprise, surprise. French bank members of the Visa Europe consortium have opposed a deal with Visa Inc. thus far.
Visa Europe, with the 16 billion transactions it processed last year, is strategically valuable to Visa from a scale perspective and for enabling Visa to operate as a true global network. While an expensive acquisition, JPMC Analyst Tien-tsin Huang reported last year that it would mean $1.2 billion in additional annual revenue for Visa.
X-Border Payments Get Faster, Digital Currency Gets A Little More Legit
Earthport is a firm known for making cross-border payments faster, more transparent and less expensive for merchants and FIs. Its proposition is to simplify the movement of money around the world by adding a software layer on top of the network of intra-bank relationships. The bottom line is that Earthport clients, through a single connection, are able to access a “simpler, more cost-effective global payments network,” which means faster and more secure payments from and to anyone, anywhere.
Until last week, Earthport has offered two options for moving money on its rails: fast and very fast. The fast option works through what is essentially Earthport’s global ACH network and takes about a day for funds to clear. The faster option connects to the various “faster payments” schemes around the world and can even enable transactions in an hour.
But why be merely fast when you can be instant?
A question Earthport answered with the announcement of its latest partnership with Ripple Labs.
Ripple Labs is the creator and controller of the Ripple protocol, an open-source distributed ledger or blockchain application that allows for the exchange of value in real time. Different from bitcoin, Ripple functions as a payment network (that supports a variety of currency exchanges), whereas bitcoin is designed to function as both a currency and a payment network.
“We want to be at the front leading [the innovation for our clients]. We’ll do the integration. We’ll do the due diligence, handle compliance and put together the whole model,” Earthport President Jonathan Lear told MPD CEO Karen Webster in an interview about the news.
“And then we will industrialize this for our clients. We don’t want clients worrying about new innovations. We want them to lean on Earthport as the expert in cross-border payments so that we can drive that innovation for them.”
Lear noted that adding “real time” to its already fast and faster global payments capabilities gives his clients the ability to have the best of both worlds: the ability to leverage a new “instant payments” capability via a very new payments protocol by doing so through a regulated, compliant and very secure network partner like Earthport.
And while this is a big innovation for Earthport in perfecting its offerings for clients, Webster noted it might be a bigger step forward for the blockchain. It has long been lauded for its ability to provide a secure and verifiable path for moving payments data but is avoided by many mainstream players due to its newness and unfortunate associations with various unsavory characters. The legitimizing effect of getting the stamp of approval from an already respected player like Earthport might be the start of the distributed ledger living up to its positive potential.
“We have an existing, proven and regulated process that can now enable this new technology right within that framework. We don’t think anyone else has done that or could do that to the extent that we have,” Lear noted.
Snapchat’s Ugly Numbers
While Snapchat started the month with reports that it’s valued at right around $16 billion, it’s ending on reports that all may not be well in its financial house. The firm’s financials were leaked last Wednesday (Aug. 19), and those numbers seem written in an awful lot of red ink.
The company lost $128 million through the first 11 months of last year, with a relatively paltry $3 million in top line over the same period. This is the same firm that flatly rejected a buyout offer of $3 billion from Facebook.
But things may not be quite as grim as they appear. Some media outlets have noted that Snapchat still has many avenues to turn around what was truly a grim operating performance for the last year.
Snapchat came by its most recent valuation as a result off $538 million in common stock sold (with an allotment that came in at $650 million). As of yet, no details are on file with the Securities and Exchange Commission as to who the buyers or sellers of the common securities actually were.
In early 2015, Chinese eCommerce giant Alibaba invested $200 million in Snapchat — joining the ranks of other well-known players such as Yahoo and Kleiner Perkins Caufield & Byers, among others.
Snapchat makes the entirety of its money in the general market for apps — which itself is becoming narrower and more commoditized. Users are less likely to download every app imaginable than they were even two years ago and instead divide their time between a handful of favorites.
Snapchat’s red ink comes as even firms like Facebook are looking beyond the app realm and even beyond the devices that apps call home, like smartphones. Facebook, for example, has put $2 billion into Oculus, a virtual reality firm.
But Snapchat does have a large and frequently engaged audience, and its progress, according to some analysts, is expected for a social media platform of its age and development.
“If Snapchat is at a similar point right now in its business lifecycle as 2012–2013 Twitter, the new funding probably gives them a multi-year runway,” Mike Dempsey of venture capital analytics firm CB Insights told Gawker.
So, the takeaway this week is all about value: the value of Visa Europe to Visa’s international network ambitions, the disappearing value of Snapchat (or so it seems) and whether Earthport’s embrace of the blockchain is the boost it needs to prove that it has any real value at all.