Domenica Nexi and Sia, two large Italian companies active in the digital payments sector, they approved an agreement to merge and create a new group that will have an estimated capitalization of more than 15 billion euros. The new company will be one of the ten most valuable companies listed on the Milan stock exchange. The two companies have signed a “memorandum of understanding”, ie a document in which they both agree to the integration (Nexi, the largest company, will incorporate Sia). The merger is not yet final: the final approval of the decision-making bodies of the two companies and that of the authorities, such as the Antitrust Authority, are required.
The merged company will be one of the largest in Europe in the digital payments sector, and according to some analysts it could create the right conditions to increase the use in Italy of electronic payment methods such as credit cards and debit cards, a goal that among other things, it is shared by the government, which wants to discourage the use of cash to combat tax evasion.
SIA is controlled by Cassa Depositi e Prestiti (CDP), the investment vehicle of the Italian state; Nexi is instead controlled by Mercury UK Holdco Limited, a consortium that brings together the Advent, Bain Capital and Clessidra investment funds. Nexi’s investors will have around 70 per cent of the new group, while Sia’s will have 30 per cent. Eventually, the new company will have CDP as the main shareholder, with 25 percent of the shares; Mercury will have 23 percent and Banca Intesa 7 percent. Over 40 percent of the shares will remain available on the market.
The goal of the merger is the creation of a “leading Europe” digital payment company, as it says in the press release relating to the operation, in which there is also talk of strong expansion both in Italy – where the new group would already have 70% of the market share – and above all abroad.
What is Nexi
Nexi was born in November 2017 from the union of two historic Italian companies: the Central Institute of Italian Popular Banks (ICBPI), born in 1939, and CartaSi, a company founded in 1986 that for years has been one of the main card managers of credit in Italy.
Nexi is a company that deals with providing digital payment services to banks and other institutional clients such as the public administration. The services she is most famous for areaquiring, i.e. the supply and management of POS, and theissuing, i.e. the issuance of credit cards and other digital payment methods, and the management of all the systems behind them. Nexi provides these services to banks, not to the end customer. If a shopkeeper wants to install a new POS, he turns to his trusted bank, and it is then the latter that will contact Nexi. Nexi works with all major Italian banks and also with many international banks.
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Nexi provides many other services to banks and institutional clients, and while this remains its core business, it has recently begun to develop some end-user products. The best known is probably YAP, an app that allows you to manage a digital prepaid card and exchange money.
What is SIA
The Interbank Company for Automation (SIA) was founded by the Bank of Italy, the Italian Banking Association (ABI) and some Italian banks in 1977, with the initial intention of creating the National Interbank Network, i.e. the infrastructure which digitally connects all financial institutions. In the 1980s SIA helped launch the Bancomat circuit.
SIA also provides a variety of services to banks and other customers, but the company is primarily known for being a payment processor: that is, the creator and manager of the infrastructure underlying the banking system, who ensures that all the steps in the payment systems take place correctly. For this reason, SIA has many central banks all over the world among its clients.
Because the two companies want to merge
Although there are many points of overlap between the Nexi and SIA businesses, “the two companies are complementary”, he told Post Valeria Portale, director of the Innovative Payments Observatory of the Politecnico di Milano. SIA works upstream of the payment process, on infrastructures, while NEXI works further downstream, on the tools and services that make payments possible. This means that the two companies, together, can “serve the entire digital payments ecosystem”, as we read in the press release official released by SIA. It means that the new group will be able to cover all the necessary steps for the payment, from the creation of the infrastructure to the management of the single transaction.
The new group is also a giant, both by Italian and European standards, which overall has issued 120 million cards, will have 5,500 employees and a presence in 15 countries, especially in Europe. Having a large group is important, because the digital payments market is consolidating: various companies are joining together to be stronger internationally, as the French payment company Worldline did in February buying for 7.8 billion euros the competitor Ingenico. Back then, Worldline said it was the “European champion“In payments: it is the same title to which the new group formed by Nexi and SIA aspires.
Fabrizio Palermo, who is the CEO of CDP and therefore one of the main supporters of the merger, he said al Sole 24 Ore that the objective of the operation is the creation of a “champion”. Palermo however said that CDP’s strategy is to create “national champions”. However, the meaning is the same: to create a company that is able to preside over an important market and to compete with large companies from other countries. For example, in the automotive sector Volkswagen is a German national champion; in the food sector, Danone is a French national champion. The new group formed by Nexi and SIA should become the Italian national champion in the digital payments sector.
Getting too big could also pose a risk. Both Nexi and SIA, Valeria Portale recalls, are companies that have invested heavily in innovation in recent years, and care must be taken that consolidation does not cause a reduction in the drive for innovation and the level of service. At the same time, however, we must remember that “the competitive area is no longer just Italy, but all of Europe”.
CDP’s Palermo also said the merger is functional to the government’s strategies to incentivize digital payments. The government has for some time announced a series of measures to encourage the use of credit cards and ATMs, in the hope of reducing the use of cash, often associated with tax evasion. Among the measures under consideration, which according to the government should start next December, there is a refund system (cashback) for those who will use the cards to make purchases.
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Italy is one of the countries in Europe that use electronic payments the least: they are only about 24 percent of the total. According to data from the Innovative Payments Observatory, Italy ranks 24th out of 27 in the European Union for the number of transactions per capita made by card. About 80 percent of all transactions are still done in cash. As the sector strengthens with the merger between Nexi and SIA – this is the reasoning – electronic payments should be equally strengthened, because banks and other financial institutions will have a stronger partner. “Having a very cohesive ecosystem can push for the adoption of digital payments,” says Portale.
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