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JPMorgan (JPM) to Buy 75% Stake in Volkswagen's Payment Unit

Published 09/09/2021, 01:23 AM
Updated 07/09/2023, 06:31 AM

JPMorgan Chase (NYSE:JPM) JPM recently signed a deal with Volkswagen AG (OTC:VWAGY)’s VWAGY subsidiary, Volkswagen (DE:VOWG_p) Financial Services, a bid to enter into the automotive industry and bolster digital payment competencies. Under this, the bank will take a controlling stake of almost 75% in the automaker’s payments platform, Volkswagen Payments S.A.

The financial terms of the deal, expected to close in the first half of 2022, remain undisclosed. The German auto manufacturer’s payment division will come under the purview of JPMorgan’s Wholesale Payments business.

Volkswagen Payments S.A. operates a leading payments platform devised for the auto industry in 32 markets globally. The platform enables customers to buy and lease cars, pay for parking tickets and electric vehicle charging, among other services. It advances varied digital payments offerings across the auto ecosystem, while also refining the payments experience for its customers.

Volkswagen’s payments platform is a “natural fit” for JPMorgan’s Wholesale Payments unit, which offers an integrated payments experience to its end users. The bank has been serving its clients for more than 45 years in Luxembourg, from where Volkswagen Payments S.A. will continue to operate, after the deal’s completion.

Following the deal’s closure, both companies intend to create a joint operating model, including the rebranding of the payments business. This rebranding will likely aid in connecting with other companies across the auto industry.

Volkswagen Financial Services will stay as a shareholder, retaining 25.1% interest. The payments platform will continue to expedite payments across the Volkswagen chain in support of all the worldwide Volkswagen Group brands. Over time, the two companies intend to develop a platform to cover markets outside the automotive sector, where “mobility-focused payments will become central.”

The global head of Merchant Services at JPMorgan, Max Neukirchen, said, “Auto payments encapsulate many of the characteristics of the wallet of the future more generally. Partnering with a leader in the field gives us a great opportunity to be at the heart of that."

Dr. Christian Dahlheim, head of Volkswagen Group Sales, remarked, "With its many years of banking experience and global market presence, J.P. Morgan is the ideal partner for Volkswagen Payments S.A. to implement the requirements of the Volkswagen Group's brands for customized automotive payment solutions worldwide."

Our Take

Of late, JPMorgan has been undertaking strategic buyouts. The company has been on an expansion spree and has announced several acquisitions, including OpenInvest, a 40% stake in Brazil's C6 Bank, the U.K.-based robo-advisor Netmeg and 55ip. These are expected to help boost its fee income. The current deal, along with others, will likely keep supporting the bank's plan to diversify its revenues and fortify the digital banking capabilities.

In the past six months, shares of JPMorgan have gained 2.1%, underperforming 4.9% growth recorded by the industry.

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Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Similar Steps by Other Banks

A growing number of financial services organizations, including banks, are resorting to convenient, frictionless digital services for their customers and clients.

In July 2021, Northern Trust NTRS automated its document capture function in its alternative asset servicing business by rolling out a machine learning-powered capability. This underpins the company’s efforts to digitize alternative asset servicing and enhance asset owner clients’ experience through a multi-year investment.

In the same month, Sterling Bancorp (NASDAQ:SBT) STL announced its investment in the parent company of BrightFi, Verdigris Holdings, Inc., to expand Sterling’s digital offerings, and facilitate innovation in the banking and financial industry. Sterling had also announced Banking as a Service (BaaS) partnership with BrightFi this April.

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