EUROPEAN COMMISSION DG Competition

Only the English text is available and authentic.

REGULATION (EC) No 139/2004 MERGER PROCEDURE

Article 6(1)(b) NON-OPPOSITION Date: 05/07/2019

In electronic form on the EUR-Lex website under document number 32019M9357

EUROPEAN COMMISSION

Brussels, 5.7.2019 C(2019) 5220 final

PUBLIC VERSION

In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description.

To the notifying party

Subject: Case M.9357 – FIS/Worldpay Commission decision pursuant to Article 6(1)(b) of Council Regulation 1 No 139/2004 and Article 57 of the Agreement on the European Economic 2 Area

Dear Sir or Madam,

(1) On 28 May 2019, the European Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 by which Fidelity National Information Services, Inc. (“FIS”, US or the “Notifying Party”) will acquire sole control over Worldpay Inc. (“Worldpay”, US or “WP” or the “Target”). FIS and Worldpay are collectively referred to below as the “Parties”.

1. THE PARTIES

(2) FIS is a global provider of financial services technology, offering retail and institutional banking, payments, asset and wealth management, risk and compliance and outsourcing solutions.

1OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty on the Functioning of the European Union ('TFEU') has introduced certain changes, such as the replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The terminology of the TFEU will be used throughout this decision. 2 OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').

Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË

Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.

(3) Worldpay is a global payments technology company, providing merchant acquiring services and related technology services to merchants.

2. THE OPERATION

(4) On 17 March 2019, FIS, Worldpay, and FIS’ wholly-owned subsidiary Wranger Merger Sub. Inc. entered into a merger agreement, pursuant to which FIS would acquire sole control over the Target by way of a purchase of shares. The proposed concentration will be structured as follows. FIS’ wholly-owned subsidiary, Wranger Merger Sub. Inc., will merge with Worldpay. Worldpay will be the surviving entity in the merger and it will continue as a wholly-owned subsidiary of FIS (the “Transaction”).

(5) The Transaction would therefore give rise to a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

3. EU DIMENSION

(6) The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (FIS: EUR 7 132 million; Worldpay: EUR 3 324 3 million).Each of them has an EU-wide turnover in excess of EUR 250 million (FIS: [Confidential] Worldpay: [Confidential]), but none of them achieves more than two- thirds of their aggregate EU-wide turnover within one and the same Member State.

(7) The Transaction therefore has an EU dimension pursuant to Article 1(2) of the Merger Regulation.

4. RELEVANT MARKETS

(8) The Transaction combines two providers of payments technology services. The Parties’ activities overlap in relation to card payment systems.

(9) Card payment systems allow a cardholder to use a card (e.g., a credit or debit card) in order to pay for a product or a service without using cash. They connect merchants to financial institutions to cover the whole transaction from the moment the client pays at the point of sale ("POS") until the moment the merchant account is credited.

(10) An electronic payment transaction starts with a consumer using his/her payment card to purchase goods or services from a merchant. The merchant then seeks its merchant acquirer’s authorisation for the transaction. This authorisation request is initiated from the merchant’s physical card reader (a POS terminal for card-present transactions) or at a virtual POS (e.g., a web-based portal which enables similar 4 functionality for card-not-present transactions).The authorisation request is then transmitted to the merchant acquirer. The merchant acquirer validates the transaction and forwards it onto the appropriate scheme network for authorisation. The merchant acquirer can carry out this step itself or outsource it to an acquiring processor.

3Turnover calculated in accordance with Article 5 of the Merger Regulation. 4 For the purposes this decision, “POS terminals” refers to physical POS terminals and not to virtual POS.

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the fact that the merger would eliminate an important competitive force.That list of factors applies equally regardless of whether a merger would create or strengthen a dominant position, or would otherwise significantly impede effective competition due to non-coordinated effects. Furthermore, not all of these factors need to be present for significant non-coordinated effects to be likely. The list of factors, each of which is not necessarily decisive in its own right, is also not an exhaustive list.

Finally, the Horizontal Merger Guidelines describe a number of factors, which could counteract the harmful effects of the merger on competition, including the likelihood of buyer power, the entry of new competitors on the market, and efficiencies.

In addition, the Commission Guidelines on the assessment of non-horizontal mergers under the Merger Regulation (the "Non-Horizontal Merger Guidelines") distinguish between two main ways in which vertical mergers may significantly impede effective competition, namely input foreclosure and customer foreclosure.

For a transaction to raise input foreclosure competition concerns, the merged entity must have a significant degree of market power upstream.In assessing the likelihood of an anticompetitive input foreclosure strategy, the Commission has to examine whether (i) the merged entity would have the ability to substantially foreclose access to inputs; (ii) whether it would have the incentive to do so; and (iii) whether a foreclosure strategy would have a significant detrimental effect on competition downstream.

For a transaction to raise customer foreclosure competition concerns, the merged entity must be an important customer with a significant degree of market power in the downstream market.In assessing the likelihood of an anticompetitive customer foreclosure strategy, the Commission has to examine whether (i) the merged entity would have the ability to foreclose access to downstream markets by reducing its purchases from upstream rivals; (ii) whether it would have the incentive to do so; and (iii) whether a foreclosure strategy would have a significant detrimental effect on consumers in the downstream market.

5.2. Overview of Affected Markets

Both FIS and Worldpay supply POS terminals to merchants in the UK. The Proposed Transaction gives rise to a horizontally affected market regarding the supply of POS terminals in the UK.

In addition, FIS offers ISO services and PTTS to merchant acquirers in the UK. Worldpay is active in merchant acquiring in the UK. The Transaction gives rise to affected markets regarding the following vertical links in the UK: (i) ISO services

(upstream) and merchant acquiring services (downstream), and (ii) PTTS (upstream) and merchant acquiring services (downstream).

5.3. Supply of POS Terminals in the UK

FIS offers traditional POS terminals to merchants in the UK (not mPOS). FIS does not offer merchant acquiring services in the UK. It providers POS terminals (and related services) that are merchant acquirer agnostic, which means that merchants can use POS terminals supplied by FIS with their chosen third-party merchant acquirer. FIS is responsible for supplying the POS terminal (with associated software) and for providing maintenance and/or support services for the POS terminals. FIS does not manufacture the POS terminals it supplies to merchants. Rather, it sources them from Verifone and Ingenico.

Worldpay offers traditional POS and mPOS terminals to merchants in the UK. Worldpay supplies POS terminals only to merchants for which it carries out merchant acquirer services. Worldpay does not manufacture the POS terminals it supplies to merchants. Rather, it sources them from Verifone, Ingenico, and Miura.

The market for the supply of POS terminals in the UK is only affected based on the number of new POS terminals supplied in the country in 2018. As shown in Table 1 below, taking into account the installed base of POS terminals in the UK as of 2018, the Transaction would not result in an affected market in this relevant market.

Table 1 – Supply of POS terminals in the UK by number of POS (2018)

Total Market Metric Size (000 POS) (%) (000 POS) (%) (000 POS) (%)(000 POS)

FIS Worldpay Combined

Installed [10- [10- 2,671 [Confidential] [0-5]% [Confidential] [Confidential] Base 20]% 20]%

New POS [20- [20- 720 [Confidential] [0-5]% [Confidential] [Confidential] Supplied 30]% 30]%

Source: Form CO

The Transaction does not give rise to serious doubts as to its compatibility with the internal market regarding a possible market for the supply of POS terminals in the UK for the following reasons.

First, following the Transaction, the combined entity would have a share of [20- 30]% in this market (in terms of new POS terminals supplied). In terms of all POS terminals installed in the UK in 2018, the combined entity would only have a share of [10-20]%. According to the Horizontal Merger Guidelines,combined market shares below 25% may indicate that the concentration is not likely to impede effective competition.

Second, the share increment contributed by FIS remains below [0-5]%, regardless of the metric used for the estimation of market shares in the relevant market. In terms of new POS terminals supplied, the HHI delta would be below 75, which again is unlikely to indicate competition concerns.

Third, the combined entity will continue to face competition constraints by at least 10 competitors including POS terminal manufacturers (such as Ingenico and Verifone), merchant acquirers (such as Barclaycard and Global Payments), payments facilitators (such as PayPal/iZettle and Square), ISO providers (such as Paymentsense and Retail Merchant Services), and independent software vendors (such as Shopkeep and Lightspeed). Third party reports suggest that there have been at least 15 new entrantsthat started offering POS terminals in the EEA in the past 5 years.Many of these suppliers provide both traditional and mPOS in the UK, such as First Data, YouTransactor, Datecs, Feitian Tech, and BBPOS.

Fourth, the Parties are not each other’s closest competitors. FIS supplies merchant acquirer agnostic POS terminals on a standalone basis. In contrast, Worldpay offers POS terminals only to merchants that are using its merchant acquiring services. In this sense, Worldpay competes more closely (not with FIS but) with merchant acquirers who offer POS terminals, such as Barclaycard and Global Payments. Moreover, each of FIS and Worldpay focus on different customer segments. Approximately [70-80]% of POS terminals installed by Worldpay are provided to small and medium-sized merchants, while [the majority] of FIS’ installed base at the end of 2018 were provided to large merchants with multiple retail branches.

Fifth, the vast majority of respondents in the market investigation did not raise any competition concerns in relation to the proposed Transaction in a possible market for the supply of POS terminals in the UK.

The Transaction also does not give rise to serious doubts as to its compatibility with the internal market, even if the supply of POS terminals in the UK were to be sub-segmented by type of POS device. In this context, the activities of the Parties would overlap only in traditional POS, given that FIS does not supply mPOS. In a possible market for the supply of traditional POS terminals in the UK, the combined entity would have a share of less than [20-30]% and the share increment of FIS would remain low, namely below [0-5]%.The combined entity will continue to face competition by several suppliers of traditional POS terminals, such as Verifone, Ingenico, Barclaycard, and Global Payments. The market investigation did not reveal any substantiated competition concerns in relation to the proposed Transaction in a possible market for the supply of traditional POS terminals in the UK.

Finally, the Transaction does not give rise to serious doubts as to its compatibility with the internal market, even if the supply of POS terminals in the UK were to be sub-segmented by customer size.

a)In a possible market for the provision of POS terminals to smaller customers in the UK, the Parties confirmed that their combined market share would not exceed [30-40]% (based on the number of merchants served).The share increment contributed by FIS would remain very low, i.e., less than [0-5]%. Post-Transaction, the combined entity will likely face competition by at least five competitors (Barclaycard, PayPal/iZettle, Global Payments, Elavon, and First Data), each holding a share of 5% or more. The combined entity will face strong competition in this space in particular from mPOS terminals suppliers (PayPal/iZettle, Square, SumUp) who are specifically targeting smaller merchants.The market investigation did not reveal any competition concerns in relation to the Transaction in a possible market for the supply of POS terminals to smaller merchants in the UK.

b)In a possible market for the provision of POS terminals to medium-sized customers in the UK, the combined entity would hold a share of less than [20-30]% and the share increment contributed by FIS will remain low (less than [0-5]%). In this possible segment, the merged entity will continue facing strong competition from several players, including POS terminal manufacturers (such as Ingenico and Verifone), merchant acquirers (such as Barclaycard and Global Payments), ISO providers (such as Paymentsense and Retail Merchant Services), and independent software vendors (such as Shopkeep and Lightspeed).The market investigation did not reveal any competition concerns in relation to the Transaction in a possible market for the supply of POS terminals to medium-sized merchants in the UK.

c)In a possible market for the provision of POS terminals to large customers in the UK, the combined entity would hold a share of less than [20-30]% and the share increment contributed by FIS will remain low, namely less than [0- 5]%. In this possible segment, the merged entity will continue to face strong competition from several players, including POS terminal manufacturers (such as Ingenico and Verifone), merchant acquirers (such as Barclaycard and Global Payments), ISO providers (such as Paymentsense and Retail Merchant Services), and independent software vendors (such as Shopkeep and Lightspeed).In particular, Verifone and Ingenico will likely exert strong competitive constraints on the merged entity in this space, as they supply POS terminals on a standalone basis and large retailers often buy the POS terminal separately from the merchant acquiring services.The market investigation did not reveal any competition concerns in relation to the Transaction in a possible market for the supply of POS terminals to large merchants in the UK.

In light of the above considerations supported by evidence collected over the course of the market investigation, the Commission concludes that the Transaction does not give rise to serious doubts as to its compatibility with the internal market as regards its impact on competition in the possible market for the supply of POS terminals in the UK (and its plausible sub-segmentations in terms of type of device and size of customer).

5.4. ISO Services in the UK (upstream) – Merchant Acquiring Services in the UK (downstream)

FIS offers ISO services in the UK only to one merchant acquirer, Elavon, on a non-exclusive basis. On top of recruiting merchants directly, Elavon is using at least one ISO other than FIS, namely, Retail Merchant Services. As Worldpay offers merchant acquiring services in the UK, a vertical link arises between the markets for ISO services in the UK (upstream) and merchant acquiring services in the UK (downstream).

5.4.1. Input Foreclosure

The Transaction is unlikely to give rise to input foreclosure concerns. The combined entity would not have the ability to foreclose its downstream competitors in merchant acquiring by restricting access to its ISO services for the following reasons.

a)Input foreclosure may raise competition problems when it is essential for the downstream product, e.g., when that product could not be manufactured or effectively sold on the market without the input.Based on the market investigation, today ISO services do not seem to be essential for merchant acquirers to enter and succeed in the UK market. Merchant acquirers can sign up merchants and maintain the customer relationships as an in-house activity, instead of outsourcing it to an ISO.

b)For input foreclosure to be a concern, the combined firm must have a significant degree of market power in the upstream market.However, FIS has a very limited position in ISO services in the UK. FIS only offers ISO services to one merchant acquirer in the UK, Elavon. Elavon does not rely significantly on FIS for merchant recruitment. Merchants recruited by FIS represent approximately [a very small proportion] of Elavon’s customer base (in terms of transaction volume) and [a very small proportion] (in terms of value).In addition to recruiting merchants directly, Elavon is using at least one ISO other than FIS, namely Retail Merchant Services, which has recruited approximately five times more merchants for Elavon than FIS has.

c)The merged entity would have the ability to foreclose downstream competitors if, by reducing access to its own upstream products and services, it could negatively affect the overall availability of inputs in the market. Yet, FIS only holds a share of less of [0-5]% (by value of transactions) and [0-5]% (by transaction volume) in ISO services in the UK. There are much larger players in ISO services in the UK, including Paymentsense, Payment Merchant Services, Handepay, Payzone, and Retail Merchant Services. These five players account for 66% of merchants recruited via ISOs in the UK.In the course of the Commission’s market investigation, one merchant acquirer stated that it had not even been aware that FIS provided ISO services in the UK.Post-Transaction, Elavon and other merchant acquirers could switch to one of these alternative suppliers of ISO services, assuming the combined entity were to restrict access to its own ISO services.

d)When assessing input foreclosure, the Commission considers whether there are effective and timely counter-strategies that downstream rivals can deploy e.g., to be less reliant on the input.In this case, downstream rivals could counter any attempt of the combined entity to restrict access to ISO services by recruiting more merchants directly, i.e., making more use of their in-house sales force.

None of the respondents in the Commission’s market investigation raised concerns regarding foreclosure of access to ISO services that could exclude merchant acquirer rivals of the combined entity.

As the Commission found that the combined entity would have no ability to foreclose merchant acquirers in the UK, it is not necessary to assess in detail whether there is an incentive to foreclose or the overall impact of the transaction on competition.

5.4.2. Customer Foreclosure

The Transaction is unlikely to give rise to customer foreclosure concerns. The combined entity would not have the ability to foreclose its upstream competitors in ISO services by foreclosing access to a significant customer base for the following reasons.

a)As shown in Table 2 above, Worldpay faces significant competition in the market for merchant acquiring services in the UK by at least five rivals with shares exceeding 5%. Post-Transaction, PTTS providers will be able to continue offering services to each of these players and also to the many new merchant acquirers that regularly enter the market in the UK.

b)When assessing customer foreclosure, the Commission takes into account the existence of different uses for the upstream product. These can ensure that a sufficiently large customer base remains for that product post-merger. Merchant acquirers are not the only purchasers of PTTS. The Notifying Party estimates that in 2018 in the UK, merchant acquirers represented approximately 30-40% of the total demand for PTTS.POS manufacturers and card scheme operators also buy PTTS and according to the Notifying Party, they represented approximately 30-50% of the demand for PTTS in the UK in 2018. Post-Transaction, upstream rivals could compete to supply PTTS to card scheme operators and POS manufacturers, assuming the combined entity were to stop purchasing these services from third parties.

(93) None of the respondents in the Commission’s market investigation raised concerns regarding foreclosure of access to the downstream market of merchant acquiring for upstream PTTS rivals of the combined entity.

(94) As the Commission found that the combined entity would have no ability to foreclose PTTS suppliers in the UK, it is not necessary to assess in detail whether there is an incentive to foreclose or the overall impact of the transaction on competition.

5.5.3. Conclusion

(95) In light of the above considerations and the evidence collected in the course of the Commission’s market investigation, the Commission concludes that the Transaction does not raise serious doubts as to its compatibility with the internal market as a result of either input or customer foreclosure on the markets for PTTS and merchant acquiring services in the UK.

70 See paragraph (73) above.

71 Non-horizontal Merger Guidelines, paragraph 61 and 66.

72 See Notifying Party’s reply to RFI 4, question 2.

73 This conclusion stands irrespective of whether there is a separate market for PTTS to merchant acquirers or whether the market includes PTTS to merchant acquirers, card scheme operators, and POS manufacturers.

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6. CONCLUSION

(96) For the above reasons, the European Commission has decided not to oppose the notified operation and to declare it compatible with the internal market and with the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the Merger Regulation and Article 57 of the EEA Agreement.

For the Commission

(Signed) Margrethe VESTAGER Member of the Commission

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