Shares in merchant acquirers — some of the biggest financial technology, or fintech, stocks — edged up on Tuesday after being pummeled by the bank crisis. The crisis involving Silicon Valley Bank and others smacked Fiserv stock as well as shares in Global Payments and Fidelity National Information Services.
FIS stock jumped 7% to close at 53.32 on the stock market today. FISV stock climbed 6% to 110.53. GPN stock advanced 5.4% to finish at 101.20.
The fintech companies have exposure to Silicon Valley Bank, a subsidiary of SVB Financial as well as Signature Bank.
Amid the bank crisis, federal regulators have taken steps to protect depositors at Silicon Valley Bank of Santa Clara, Calif., and Signature Bank, the latter of which was closed on Sunday.
Big Banks To Gain Customers?
Signature Bank connected crypto firms to the traditional finance system. Silicon Valley Bank still operates under a slightly different name, Silicon Valley Bank N.A.
Amid the bank crisis, FIS shares had tumbled 21% while Fiserv stock retreated 11%. GPN stock plunged nearly 14%.
"The primary reason for the weakness in FIS stock and Fiserv stock is investor concern that the current crisis will cause a prolonged — or even permanent — shift in deposits out of small- and medium-sized banks (FIS's and Fiserv's core customers) and into large banks," SVB MoffettNathanson analyst Lisa Ellis said in a note to clients.
She added: "If customer deposits shift en masse to larger banks (as has been happening over the last couple of days), this shift will pressure both FIS's and Fiserv's core bank processing and issuer processing businesses."
What Merchant Acquirers Do
SVB MoffettNathanson's parent company, SVB Securities Holdings, is a separate entity. It has not directly impacted by the events at Silicon Valley Bank.
Meanwhile, merchant acquirers serve as middlemen between banks and retailers. They have contracts with retailers to handle the processing of credit cards and other transactions. Merchant acquirers face growing competition from the likes of privately held Stripe, Adyen and Checkout.com.
At Mizuho Securities, analyst Dan Dolev said in his note to clients: "While FISV stock does have some exposure to SIVB and SBNY, it appears to be minimal and unlikely to impact 2023 growth."
Fintech stocks have generally underperformed the S&P 500 in 2023 even before the bank crisis hit last week, Jefferies analyst Trevor Williams said in a note.
Williams said that 2023 "was already expected to be a more challenging year for core processing, with elongated sales cycles (particularly on deals with larger banks) as a headwind to growth."
Bank Crisis: Fallout Coming?
Williams added: "Though we in no way pretend to know what the fallout on the broader banking industry is likely to be from recent events, we believe it's safe to assume that demand for solutions from core processors/bank technology providers is likely to come under incremental pressure as banks grapple with higher funding costs/compressing net interest margins."
With Tuesday's gain, FISV stock has gained 9% thus far in 2023. FIS stock is down 20%. GPN stock has edged up 1%.
Rising interest rates have pressured fintech stocks as well as fears over a U.S. recession.
Fintech companies belong to a few IBD groups, including financial software and finance-investment management. The biggest IBD group of fintech stocks ranks only No. 85 out of 197 industry groups tracked.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
