After decades of strong growth, many payments companies now trade at roughly 25% below their 10-year average valuations and nearly 50% below their prior peak. Shareholder returns have also lagged severely, with payments delivering a total shareholder return of –6% over the past four years, compared with 20% for the S&P 500 overall.
The scale of this investor reset is unprecedented. For decades, the payments sector ranked as one of the highest-quality growth sectors, supported by strong secular growth and models built on recurring revenue. As recently as a few years ago, payments’ historical shareholder returns were on a par with those of high-tech companies, buoyed by consistent double-digit earnings growth and multiple expansion.
The shift reflects more than a change in investor sentiment. Volume growth has slowed as digital payments penetration has risen and cash-to-card conversion has matured. Competition across the sector’s largest businesses has intensified, separating a relatively small number of share takers from a much larger group of share donors. At the same time, the AI trade has drawn investor capital and attention away from payments.
AI is also directly reshaping payments itself, but investors remain skeptical about whether it will create lasting value across the sector or whether its benefits will vanish over time because of competition. Our research, however, suggests that AI could instead widen existing competitive differences. Companies that already perform well are using it to lower costs, improve products and services, and strengthen their positions with customers. That makes it harder for slower-moving competitors to catch up, which increases the cost of falling behind.
Together, these forces have raised the burden of proof across the sector, even for companies with strong long-term positions.
The Quality of Growth Is Coming into Focus
The broad repricing of payments has altered what investors are willing to reward. As sector growth slows and long-standing tailwinds fade, investors are looking more closely at the underlying sources and economics of growth. Divergence in shareholder returns across different payments segments shows the scale of that shift. (See the exhibit.)
Three developments are especially noteworthy:
- Underlying performance is becoming easier to see. For years, an expanding pool of addressable transactions, low inflation, and the e-commerce boom lifted revenues throughout the sector, enabling many companies to expand without taking meaningful market share. Successive rounds of consolidation added another layer of activity, making it harder to distinguish organic performance from acquisition-driven growth. As those trends abate, investors can more readily distinguish businesses that are gaining share from those ceding it. Across most payments segments, a small number of share takers are pulling away from a much larger group whose members face structural challenges.
- Volume growth alone is no longer enough. Transaction-based revenue remains central to the payments industry, including many vertical software acquirers. But investors are discounting growth driven primarily by processing volume and instead placing greater value on revenue supported by deeper customer engagement and higher switching costs. Companies can build these more protected revenue streams by attaching multiple products to a transaction, creating network effects, or playing a broader role in optimizing transaction activity end to end.
- Costs are growing faster than revenue. Operating expenses have risen by 9% annually over the past three years, compared with revenue growth of 7%. As sector growth slows from high single digits to mid-single digits, stubbornly high cost bases threaten to push margins into reverse. Structural complexity, driven by fragmented technology platforms and geographically dispersed operations, is a major factor. Higher wages and increased spending on technology add to the pressure.
Payments leaders can still command premium valuations, but companies today must demonstrate durable revenue quality, operational focus, and operating leverage to prove that they can sustain profitable growth.
Exposure Varies by Business Model
The payments industry is diverse, and some business models face more challenges than others in exhibiting the durable growth characteristics that today’s investors favor. Five points stand out:
- Acquirers and traditional processors are most at risk. Scale without product velocity no longer carries the advantage it once did. In small-business-segment acquiring, vertical software vendors must increasingly own their categories to create sticky client relationships. This pattern began in the US and the UK but has become a global trend. Substitution is another risk. Legacy providers are becoming easier to replace as merchants and other clients get better at orchestrating payments processing and routing transactions on the basis of price, authorization rates, and service levels. When pushed behind third-party software, providers lose the direct client relationship and the pricing power that supports their valuation. Although some enterprise acquirers have succeeded in gaining market share through product velocity and end-to-end transaction optimization, many incumbents have been less successful despite heavy capital spending. Their shrinking valuations make it harder for them to buy the specialized capabilities they lack.
- Vertical SaaS commands a premium, but the advent of AI has investors questioning its edge. The top vertical SaaS-based acquirers trade at roughly 2.8 times the valuation multiple of traditional acquirers and processors. These businesses tend to dominate a specific industry or geography, embed payments deeply in their customers’ operations, and run on a unified technology backbone. That focus supports retention and revenue visibility while limiting the technical debt and costly migrations that burden more fragmented competitors. Investors have recently grown more cautious about software, however, concerned that AI could erode product differentiation. But for leading vertical platforms, AI is more likely to strengthen existing advantages. Their distribution, workflow integration, industry expertise, and financial services capabilities are difficult to recreate. AI is helping them extend these strengths by quickly adding functionality and capturing more value from commerce that is already moving through their platforms.
- Issuing is a rich business for sophisticated players. Leaders remain highly profitable and are taking share, but the conditions supporting those returns are becoming more demanding. The cash-to-card tailwind is fading, and account-to-account schemes are expanding in many countries. Regulation continues to create headwinds, especially in large markets such as Brazil and Australia, and companies face the possibility of expanded caps in the EU and lower debit interchange rates in the US. Agentic commerce raises the bar. As AI agents expand their presence in the purchasing journey, the competition to be “top of wallet” will begin earlier. At the same time, discovery, personalization, authorization, and fraud prevention will require greater investment and operating sophistication. Those demands may be difficult for smaller issuers to meet. For the strongest players, however, the greater burden could reinforce an advantage that is already showing up in some of the sector’s strongest TSR.
- Networks need to prove that they can grow beyond the core. Although their core franchises remain formidable, slower growth in payments value is increasing networks’ reliance on value-added services and emerging sources of transaction growth, including agentic commerce. Investors are questioning how far networks can expand beyond their existing customer bases and whether newer investments in core banking, digital assets, and cybersecurity are as defensible as their core payments franchise. Some investors view these areas as adjacencies where networks still need to establish their right to win. However, their strong valuations give networks considerable M&A capacity and an enviable ability to scale the products and capabilities that they add. As a result, they remain well positioned for the next era of payments.
- New payments segments show promise, but are unproven. New scaled opportunities are emerging in BNPL and digital assets. Both segments are still at a relatively early stage in their development, but companies in each have attracted significant investor interest because of their potential for sustained profitable growth. It remains to be seen which ones will develop into large, enduring franchises.
Regaining Investor Confidence Requires Hard Choices
The continuing reset in investor expectations will necessitate a number of hard actions by payments executives and boards. These changes involve material multiyear corporate pivots that demand bold action on three fronts:
- Simplify and focus on areas where you can sustain competitive differentiation. Investors are placing greater value on focus and simplicity as they distinguish category leaders from laggards. Leading companies should doggedly pursue robust expansion paths for their core franchises, and incumbents must make difficult choices about the segments, verticals, and geographies where they can build a differentiated position—and then redirect capital accordingly. Portfolio simplification and cost rationalization are critical, but executing those choices may be harder than defining them. Corporate momentum, internal incentives, and concern about near-term market reactions can all slow change. Leaders must therefore be bold in their actions, drive transparency on progress across their organization, and reset investor guidance early enough to give major strategic and operational initiatives time to take hold.
- Invest in long-term durability. To drive high-quality, sustainable growth, vertical SaaS acquirers should look for opportunities to expand their geographic reach and feature sets without sacrificing focus or a common architecture. Traditional acquirers should move quickly to add more predictable revenue streams such as subscriptions, leasing, and financing. Issuers should continue to build scale to fund richer propositions while pursuing growth in B2B payments, connected commerce, and other areas. Networks should strengthen their role as a neutral trust layer, including through tokenization across e-commerce and agentic transactions.
- Align your investor base with the business that you are becoming. For decades, payments was a blue-chip growth story, but the market must now segment the sector into companies built for expansion and those oriented toward value. Growth-focused firms will need to clearly demonstrate their ability to create durable competitive advantage to drive market share, while setting clear public guidance that links directly to their TSR algorithm, especially in the era of AI. Conversely, companies facing slower growth must decide whether they should conduct an investor reset.
In an environment where payments is no longer a darling equity sector, companies must act decisively to determine where they can outperform, improve the rate and quality of their growth, and align their strategy, capital allocation, and investor proposition with that reality.
