And then there were three

June 19, 2017

Our secure transactions industry has completed a new round of restructuring. The Safran Group had been looking for an acquirer for months or even years for its Morpho unit, until the decision was announced in October 2016: Advent, which owns Oberthur was to acquire the Safran I&S (Identity & Security) unit. The European competition authorities decided they approved the merger with a single exception: the banking card personalization activities in France, known as CPS Technologies. The final part of the news comes up this week: CPS Technologies is acquired by G+D (Giesecke & Devrient).

After this move, the industry evolves from four to three players: Gemalto, OT-Morpho (which will get a new name in a couple months) and Giesecke & Devrient. 

 

We may wonder if this move is a sign showing our industry reaches maturity as the Boston Consulting Group (BCG) established its "Rule of Three" in 1976, saying “a ‘stable, competitive’ industry will never have more than three significant competitors. Moreover, that industry structure will find equilibrium when the market shares of the three companies reach a ratio of approximately 4:2:1.” We can only acknowledge that the current marketshare ratio in the secure transactions industry is far from complying with the BCG prediction.

 

Limiting the number of major players in an established mature market has both positive and negative aspects. It will undoubtedly limit price wars and keep margins at an acceptable level for the whole industry.

 

At the same time, a too high level of market concentration may lead industry players into complacency that would lead to slowing down innovation.

 

 However, the secure transactions industry evolves in a global market with global competitors. If the three leaders ever fail to be the most innovative, one may suppose new entrants will be fast in taking advantage of the situation, and come up with new technologies that will bring more features and performance to customers for a better price.

After some time, the game may no longer be limited to three leading players… 

 

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