A Comprehensive Look at the Modern Payments Value Chain (2024)

Posted on by Jerry Ng

I. The Payments Value Chain: Layers, Drivers, and Key Edges

Think of the payments ecosystem as a stack, from foundational network rails up to merchant-facing software. Each layer has its key drivers — capabilities that confer an edge in the market — and specific market share leaders or standouts.

  1. Payment Networks & Issuers
    • Examples: Visa, Mastercard, AmEx, Discover, plus issuing banks (Chase, Citi).
    • Key Drivers/Edges:
      • Global Acceptance & Trust: The biggest networks have decades of reliability, brand recognition, established regulatory compliance.
      • Interchange & Fee Structures: They wield substantial pricing power to set interchange rates.
      • Fraud & Risk Tools: Investment in security protocols like EMV, tokenization.
    • Market Share: Visa and Mastercard together hold the lion’s share of global card-based payments (often cited at 70-80%+ in many markets).
  2. Merchant Acquirers & Processors
    • Examples: FIS, Fiserv (First Data), Global Payments, Chase Merchant Services, Adyen, Stripe, PayPal/Braintree, dLocal.
    • Key Drivers/Edges:
      • Scale & Reliability: Handling billions in GMV, ensuring minimal downtime.
      • Global vs. Local Coverage: Some excel at cross-border (Adyen, dLocal); others focus on US scale (Stripe, PayPal).
      • Pricing & Value-Added Services: Fraud detection, BNPL, analytics.
    • Market Share:
      • Adyen: ~2–3% of total global acquiring volume, but ~20% share in large enterprise e-commerce (cross-border).
      • Stripe: rumored $1T+ in annual processing; strong with SMBs and developer-led integrations.
      • PayPal: $400B+ quarterly TPV includes branded & unbranded (Braintree).
      • dLocal: specialized in emerging markets, smaller absolute share, but rapidly growing (~40% yoy revenue).
  3. Commerce Enablement Software
    • Examples: Shopify, NCR Voyix (retail/hospitality), Toast (restaurants), BigCommerce, Salesforce Commerce Cloud, WooCommerce.
    • Key Drivers/Edges:
      • Ease-of-Use & Integrations: For SMBs, user-friendliness + plug-ins. For enterprise, robust APIs and composability.
      • Vertical Depth: Toast dominates restaurants with features like menu engineering, table management; NCR excels with large chain retailers.
      • Ecosystem & Network Effects: Shopify has an extensive app ecosystem, driving lock-in for merchants.
    • Market Share (rough approximations):
      • Shopify: ~10% of U.S. e-commerce GMV, behind Amazon’s ~40%.
      • Toast: Possibly ~10–15% of U.S. restaurant POS in the SMB/mid-market range.
      • NCR: A legacy giant for big retailers and quick-service restaurants (QSR), with an extensive installed base of terminals and enterprise relationships.
  4. Marketplaces & Aggregators
    • Examples: Amazon, eBay, Etsy.
    • Key Drivers/Edges:
      • Massive Consumer Demand: Aggregators centralize product search, user trust, and logistics.
      • End-to-End Control: Amazon’s logistics (Fulfillment by Amazon) + ad platform.
    • Market Share:
      • Amazon controls ~38–40% of U.S. e-commerce market share, making it the leading aggregator.
  5. Stablecoins & Crypto Rails(new/emerging layer)
    • Examples: Tether, USDC, Stripe’s Bridge.
    • Key Drivers/Edges:
      • Instant, Low-Fee Cross-Border: Potential to bypass slow bank wires in developing or high-inflation markets.
      • Programmability: Could enable micropayments or automated escrow.
    • Market Share: Hard to quantify, but Tether (USDT) and USDC dominate stablecoin usage. Stripe’s Bridge aims to make stablecoin usage seamless for mainstream businesses.

II. Recent M&A: Motivations from Both Sellers and Buyers

Below are key deals illustrating why each side transacted and how it aligns with (or departs from) their core strategies. After each listing, we’ll connect it to the value chain layer.

1. Shopify & Deliverr (Sold to Flexport)

  • Original Deal:
    • Buyer (2022): Shopify paid $2.1B for Deliverr, a fulfillment startup.
    • Seller: Deliverr specialized in “fast shipping” software + network for small merchants.
    • Buyer’s Rationale: Shopify wanted to build its own logistics network (vertical integration) to match Amazon-level fulfillment for Shopify merchants.
  • Later Divestiture:
    • In 2023, Shopify sold the bulk of its logistics assets (including Deliverr) to Flexport.
    • Seller’s (Shopify) Rationale: Realized that logistics is capital-intensive with less synergy for a purely software-based model. Freed up resources to focus on commerce software.
    • Buyer’s (Flexport) Strategy: Flexport is a global freight forwarder and supply chain software firm. Acquiring Deliverr fits their ambition to manage end-to-end shipments for e-commerce sellers.
  • Layer: Commerce Enablement + Logistics Side Quest.
  • Why It Makes Sense:
    • Shopify = “asset-light” pivot.
    • Flexport = deepening e-commerce fulfillment capabilities beyond freight forwarding.

2. Stripe & Bridge

  • Buyer: Stripe, a leading online payment processor.
  • Seller: Bridge, a stablecoin infrastructure startup with multi-jurisdictional licenses (in 48 U.S. states + EU).
  • Deal Value: $1.1B, rumored ~20–25x forward revenue.
  • Buyer’s Rationale:
    • Accelerate cross-border stablecoin adoption (Bridge’s compliance + licensing = huge head start).
    • Expand Stripe’s “platform of platforms” strategy into near-instant settlement, micropayments, emerging market payouts.
  • Seller’s Rationale:
    • Gains Stripe’s global scale and huge developer base, ensuring Bridge’s tech is quickly commercialized.
  • Layer: Merchant Acquirer/Processor + Stablecoin Rails.
  • Why It Makes Sense:
    • Stripe invests in next-gen payment rails to strengthen developer offerings, while Bridge needs a big distribution partner to achieve mainstream impact.

3. NCR ATM Sale to Veritas Capital

  • Seller: NCR, rebranded as NCR Voyix, historically known for hardware (ATMs, POS).
  • Buyer: Veritas Capital, a private equity firm focusing on technology-enabled businesses.
  • Deal Size: Estimated around $2.5B in 2023.
  • Seller’s (NCR) Rationale:
    • Unloading the ATM business to become more SaaS and software-driven in retail/hospitality.
    • Aims for higher valuation multiples typical of software-led businesses.
  • Buyer’s (Veritas) Strategy:
    • Acquire the stable, cash-generating ATM unit. Possibly streamline operations or combine with other portfolio assets in financial services.
  • Layer: Commerce Enablement hardware vs. pure software pivot.
  • Why It Makes Sense:
    • NCR can now focus on recurring-revenue POS solutions (Voyix) for hospitality/retail.
    • Veritas sees potential in an established ATM network that can still yield steady returns.

4. PayPal & Braintree

  • Buyer: PayPal (2013).
  • Seller: Braintree, a fast-growing unbranded processor powering Uber, Airbnb, etc.
  • Deal Size: $800M (~19x forward revenue at the time).
  • Buyer’s Rationale:
    • Gain “unbranded” gateway for enterprise merchants, funnel them into PayPal’s ecosystem for potential upsell (PayPal wallet, Venmo).
  • Seller’s Rationale:
    • Access PayPal’s large merchant base, global scale, compliance resources. Braintree was smaller and could accelerate expansion with PayPal backing.
  • Layer: Merchant Acquirer/Processor.
  • Why It Makes Sense:
    • PayPal addressed a gap in high-volume, enterprise processing. Braintree overcame scaling challenges and gained brand synergy.

5. Toast’s Small Tuck-Ins

  • Buyer: Toast, the restaurant-focused SaaS + payments provider.
  • Sellers: Various small software startups in scheduling, inventory, back-of-house automation. Often deals <$100M.
  • Buyer’s Rationale:
    • Bolster its vertical stack to be the “one-stop shop” for restaurants—beyond just payments/POS, also staff scheduling, menu analytics.
  • Sellers’ Rationale:
    • Integrate into a leading restaurant POS ecosystem for broader distribution.
  • Layer: Commerce Enablement (vertical).
  • Why It Makes Sense:
    • Toast cements its advantage in a specialized domain, while acquired startups get scale and synergy.

6. Adyen: No Major M&A

  • Strategy:
    • Prefers organic expansion. Adyen invests internally in R&D for a unified, single platform.
  • Rationale:
    • Maintains control over technology stack, ensuring consistent codebase and margins.
  • Layer: Merchant Acquirer/Processor.
  • Why This Makes Sense:
    • Adyen’s brand is about reliability, simplicity, and synergy across geographies. M&A can introduce integration complexity.

III. Key Edges/Drivers in Each Layer — Plus Standouts

Payment Networks/Issuers:

  • Drivers: trust, acceptance, network scale, interchange leverage.
  • Standouts: Visa (~50% share of U.S. credit cards), Mastercard (~31%).
  • Edge: Ubiquity. Hard to displace, though stablecoins might nibble at cross-border usage.

Merchant Acquirers/Processors:

  • Drivers: broad coverage, advanced risk/fraud, local payment support, developer APIs.
  • Standouts:
    • Stripe (SMB + developer-friendly, strong brand).
    • Adyen (global enterprise, high authorization rates).
    • PayPal/Braintree (massive user base, brand trust).
    • dLocal (emerging markets, local compliance).
  • Edge: Speed, reliability, specialized features (e.g., stablecoins with Stripe, cross-border local methods with dLocal).

Commerce Enablement Software:

  • Drivers: user experience, SaaS ecosystem, vertical integration (inventory, order mgmt.), channel expansion.
  • Standouts:
    • Shopify: major e-commerce platform with ~10% US e-comm share, strong brand in SMB and moving upmarket.
    • Toast: 10–15% share in restaurant POS, highly tailored features.
    • NCR Voyix: large chain retailers/fast-food presence, pivoting to SaaS.
  • Edge: deeper operational solutions = loyalty from merchants. R&D or acquisitions can further lock in vertical needs.

Marketplaces & Aggregators:

  • Drivers: huge shopper base, frictionless shipping, trust.
  • Standouts:
    • Amazon: ~40% of US e-commerce, overshadowing smaller marketplaces.
    • eBay, Etsy: niche or specialized aggregator.
  • Edge: scale, brand, integrated ad & logistics. Potential to become a “payments-as-a-service” (e.g., Buy with Prime).

Stablecoins & Crypto Rails:

  • Drivers: compliance, low-cost cross-border, speed, bridging on/off fiat ramps.
  • Standouts: Tether (USDT), USDC, now Stripe Bridge bridging stablecoin utility for mainstream.
  • Edge: early compliance and licensing can create a moat if mainstream adoption grows.

IV. Market Share Summaries

  • Global E-Commerce: ~$5 trillion total in 2022, Amazon capturing ~40% in the US. Shopify is the #2 in the US with ~10%.
  • Merchant Acquiring: Traditional incumbents (Fiserv, Global Payments, FIS) hold large slices but are less visible in pure online. Stripe and Adyen are strong in e-commerce, each with billions in GMV.
  • Restaurant POS: Toast competes with Square/Block and legacy NCR. Toast is rapidly gaining share (~10–15%), Square is also popular in micro-merchants, while NCR still dominates big chains.

V. Why These Insights Make Analyzing Companies Easier

  1. Layer Identification:
    • First, identify which layer(s) a company operates in (networks, acquiring, commerce software, marketplace, or stablecoins).
    • Check synergy: is it purely software (Shopify)? Is it bridging multiple layers (Amazon, Stripe)?
  2. Key Drivers/Edges:
    • Evaluate if a firm’s “edge” is aligned with its growth strategy. (e.g., Toast’s vertical integration -> deeper restaurant loyalty; Stripe’s stablecoin push -> cross-border expansion.)
  3. M&A and Divestitures:
    • Are they strengthening a core advantage (Stripe acquiring Bridge) or retreating from a low-synergy business (Shopify’s logistics exit, NCR’s ATM divestiture)?
    • Do the multiples paid or received seem justified by the synergy or capital relief?
  4. Market Share & Standouts:
    • Understand if a firm is a dominant player (Amazon, Visa) or a specialist (dLocal, Toast) with high growth potential.
    • Market share can indicate moat (e.g., Amazon’s aggregator model) or a niche that’s under-penetrated (dLocal in emerging markets).

VI. Final Thoughts: Putting It All Together

  • Focus on Core: Many “purely software” players prefer asset-light strategies to preserve margins, seen with Shopify and NCR’s spin-offs.
  • M&A That Makes Sense: Aligns with the buyer’s main quest (e.g., Stripe + stablecoin infrastructure, Toast + restaurant-specific tuck-ins) and offers the seller scale or a capital exit.
  • Ecosystem Partnerships: Common in commerce enablement (Shopify & Stripe) but fierce competition within each layer (Stripe vs. Adyen vs. PayPal for the same merchants).
  • Stablecoin Outlook: Stripe’s Bridge signals an emerging push for frictionless cross-border, though broad adoption depends on regulatory clarity.

By mapping who does what in the value chain and why they acquire or sell certain assets, it becomes far easier to analyze each company’s strategy. You can quickly see if they’re reinforcing their profitable core (Shopify’s divestiture, NCR’s pivot, Stripe’s stablecoin bet) or venturing into new territory that either expands synergy—or risks a distraction.

In Summary

  • Value Chain Layers: From card networks to stablecoins, each layer has unique success drivers.
  • Companies: Many either focus on one layer (Toast for restaurants, dLocal for emerging-markets acquiring) or straddle multiple (Amazon, PayPal).
  • M&A: Tends to succeed when it fortifies a company’s main strategic edge—like bridging stablecoins for Stripe, or adding specialized software for Toast—but can backfire if it drags a software firm into asset-heavy realms, as Shopify discovered.
  • Market Shares: Amazon at ~40% US e-comm, Shopify ~10%, Stripe topping $1T+ in processed payments, Adyen strong in enterprise cross-border, Toast & NCR battling for restaurant/hospitality POS, etc.

Armed with these distinctions, you should find it simpler to see where each firm adds value, how they compete or cooperate, and whether new M&A deals or divestitures truly align with their strategic sweet spot.

Sources of Information

  • Stratechery Articles and Interviews
    • Shopify Earnings, Software Self-Awareness, Rebels and the Arms Dealer
    • Stripe Acquires Bridge, Stablecoins, Platform of Platforms
    • Adyen Earnings, Adyen’s European Context, Adyen vs. Stripe
    • An Interview with Lisa Ellis about Payments
    • An Interview with Michael Morton About E-Commerce Winners and Losers
  • Company Earnings & Press Releases
    • Shopify Q3 2024 Earnings Call and Bloomberg coverage
    • PayPal Q3 2024 Financial Releases
    • Public statements from Stripe (Bridge acquisition), Adyen (H1 2024 results), Toast, and NCR Voyix (ATM sale to Veritas Capital)
  • Industry Data & Market Estimates
    • eMarketer / U.S. Census Bureau statistics on e-commerce (2019–2024)
    • Third-party analysts (e.g., The Information, Bloomberg) for private company data (Stripe, Deliverr)
    • App tracking changes post-Apple’s ATT from Meta (public statements)
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Published by Jerry Ng

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