Will An Investment in Vantiv Inc (VNTV) Debit Acquirer Pay Off?

Investment Risks

Vantiv processes, stores and transmits sensitive data and it has ultimate liability to the payment networks and member financial institutions to protect this data in accordance with payment network requirements. The loss of merchant or cardholder data by Vantiv could result in significant fines and sanctions by the payment networks or governmental bodies. Heartland Payment Systems and Global Payments have experienced data breaches in 2009 and 2012 respectively.

Vantiv faces potential disintermediation risks from micro-merchant aggregators and disruptors like Square. Square consists of a card reader, which allows its users to accept credit cards through their mobile phones by swiping the card on the Square Reader and two mobile apps Square Register and Square Wallet. Square Register serves as a point-of-sale system for businesses to accept payments and track inventory; while Square Wallet enables ndividuals to pay with their names at local businesses. According to a Ferbuary 2013 Los Angeles Times report, Square claimed that it is processing about $10 billion in transactions on an annualized basis. It has to be noted that Square currently serves clients with lower transaction volumes than Vantiv and correspondingly lower service requirements.

Vantiv’s financial sponsor, private equity firm Advent International and Fifth Third Bank still own significant amount of shares in Vantiv, after the initial public offering and recent secondary offering. Any sale of shares by them will put downward pressure on Vantiv’s stock price.

Conclusion

While others may think that Vantiv deserves a valuation premium over its peers due to its stronger growth prospects, I think that its high leverage increases Vantiv’s financial risk and current valuations on par with peers reflect that.

The article Will An Investment in This PIN Debit Acquirer Pay Off? originally appeared on Fool.com and is written by Mark Lin.

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