Digital transformation is an ever growing trend that has completely transformed consumers’ behavior and businesses’ digital presence. Moreover, the rise of the millennial generation has required firms to find a solution that will satisfy this tech-savvy audience. In addition, the spread of COVID-19 has tremendously boosted the growth of e-commerce. Customers’ expectations for secure and easy payment methods have given rise to rocketing demand for tech enabled payments options.
Global Payments is a world leading provider of payment technology and software solutions for card, electronic, check, and digital-based payments. It operates in three segments: Merchants, Issuer, and Business and Consumer Solutions. According to Nilson Report and eMarketer, in 2021, the global card purchase volume is 30 trillion dollars, global retail volume is 25 trillion dollars and the global e-commerce volume is 5 trillion dollars. Global Payments not only captures these three thriving markets but also the under-digitized global business to business (B2B) payments worth 125 trillion dollars. That’s a 155 trillion dollar target addressable market that this Fortune 500 firm holds various competitive advantages to dominate:
• Software leadership: The company owns innovative, comprehensive technology-based solutions that enable customers to operate their business more efficiently and simplify the payments process, regardless of the channel through which the transaction occurs.
Most importantly, Global Payments offers cutting-edge vertical and product specialization tailored to the specific needs of each industry. It has 9 vertical software offerings and partnerships across 70 verticals that represent 50% of total U.S. gross domestic product. The company cooperates with 6 of the top 10 biggest quick service restaurants worldwide, which results in more than 175 million online orders, and generates 2 million telemedicine visits on its software.
Its unrivalled software integrates commerce-related functionality such as payroll, email marketing, gift and loyalty, etc. into a single merchant digital ecosystem. This convergence of payments and software allows Global Payments to become one of the largest merchant acquirers in the small and medium-sized business segment with net revenue retention of 115% and 2020 bookings of 290 million dollars.
• Unmatched physical and virtual reach: The company fosters unique collaborations with Amazon and Google, leading to an extensive pipeline of expansion opportunities. Existing opportunities for annual payment card transactions are estimated to be 225 billion dollars. These collaborations promise opportunities to expand to new geographies worth 500 billion dollars and capture new entrants worth 640 billion dollars.
• B2B at scale: The company focuses on the rapidly expanding B2B market with a massive total addressable market of more than 280 billion dollars in worldwide invoices and 125 trillion dollars in payment flows. This differentiated strategy allows Global Payments to grow exponentially because B2B is growing 4 times faster than the worldwide consumer payment flow, estimated to be at 30 trillion dollars. B2B transactions account for 10% of the company’s revenue.
Global Payments generates revenues through various avenues. In the Business and Consumer segment, revenues include fees from millions of cardholders connected to the program it manages. In the Issuer segment, revenues are derived from processing contracts with financial institutions. The Merchant segment collects revenue from services coming along with every transaction as well as subscription and licensing fees. In the third quarter of 2021, revenues reached 2.20 billion dollars, growing 14.5% Year over Year.
Overall, Global Payments’ revenue growth is strongly backed by the tailwinds from B2B market growth. We believe there is ample headroom for the company to grow in the long term thanks to key growth drivers such as (1) exclusive distribution partners, i.e. Google and Amazon, (2) rapidly expanding target addressable markets and (3) substantial free cash flow for reinvestment.
