Renovite was just acquired by JP Morgan Chase. In recent years, Stripe and Block have been putting out products to help merchants in the e-commerce and internet age, which banks and payments traditional payments processors have not been able to keep up with. In the past ten years alone, Stripe and Block have climbed the ranks of payment processing and placed within the top ten payment processing companies in the country.
While JP Morgan Chase still processes the most payments in the United States (processing $1.89 trillion in transactions), they are starting to position into a more technology-driven payments system, instead of traditional systems. With companies switching from in-person retail to a more online model, merchants need to have the option of processing both kinds of payments. This can be attributed to much of Stripe and Block’s success as they have been able to create seamless online and in-person payment processing while also retaining a large number of clients and merchants.
The motivation behind the switch from a traditional payment processing model to a technology-driven model appears to be the stalling of revenue in their payments division. Many of the services offered by the newer fintech processing companies like Stripe have not been offered by JP Morgan, and thus, their revenue in the space of payments has stalled. CEO Jamie Dimon recently said that JP Morgan will acquire more startup fintech processors in the coming years, to reposition the financial institution towards growth.
Dimon has made a series of five acquisitions in the past two years all within the fintech startup space. Renovite is the most recent transaction, but an ESG investing platform and a roboadvisor have also been acquired to add to the product suite that JP Morgan will offer their clients. Fintech companies pose a considerable threat to JP Morgan’s strong foothold within the payments space, and Dimon has been actively trying to fend off these threats by acquiring such companies. These companies have built brands and have used technology to differentiate themselves on levels such as efficiency when compared to JP Morgan’s traditional payments processing arm. With valuations in this space becoming astronomical in the past few years, and with lots of fragmentation, Dimon is forced to start repositioning his business through M&A.
The current market environment, with higher interest rates and high inflation, makes it difficult to go through with transactions at higher price points. With JP Morgan’s stock falling almost 25% from its height, Dimon has been forced to think about the higher expenses and acquisitions such as Renovite. Although, a concern about a slowdown in M&A activity exists, with fundamental changes in the payments industry, bigger players like JP Morgan are not worried about investing in these technologies earlier on to protect their business in the long run against players like Stripe.
Renovite has been in talks with JP Morgan since last Fall, and JP Morgan has been running tests with their software for months. Many of their clients are happy with the expanded suite of products and services that Renovite allowed JP Morgan to add. With a cloud switch that routes payments to various providers within seconds, JP Morgan decided on buying the company outright instead of being their client. Moreover, JP Morgan was able to integrate the platform with relative ease as Renovite was designed to be “plug and play.” There is very little coding required and JP Morgan’s client base is happy with the very region-specific payments optionality the platform allows as they are allowed to expand their geographic addressable market.
JP Morgan’s investing style in these startups has normally been to take passive minority stakes in fintech. This transaction was fairly unique in that sense, as they bought out Renovite entirely. This may be a signal that JP Morgan felt that the technology was too valuable to give up, and this trend of M&A seems to be continuing across the larger players in the payments space.
Congratulations to both JP Morgan and Viren Rana from Renovite.
