Truelayer shows costs of open banking land grab

Truelayer, the generously funded open banking start-up, indicated just how costly its expansion plans have been. It reported operating losses of £30.1m in 2021, according to documents deposited at UK Companies House. 

The London-based fintech is investing at pace to establish a dominant position in the emerging market for open banking payments. Along with its competitors – Tink, Token, Yapily etc – the company aggregates connections to thousands of banks into a one API. Merchants can use this single connection to offer consumers the option to pay with bank transfers from most well known banks.  Clients include Cazoo and Revolut

If shoppers do shift quickly from cards to open banking, the prize for aggregators such as Truelayer could be significant. But costs may be higher and revenues lower than some commentators have suggested. 

There are a great many banks. Each has a slightly different API and aggregators require a very large and expensive product team to keep on top of all the changes and updates. And many markets have not yet agreed standards for basic features, such as refunds. This adds to the complexity. Importantly, as long as the API aggregators remain outside the money flow or not taking merchant risk, they will normally be restricted to charging per click rather than ad valorem. This means that achieving margins comparable to the merchant acquirers is going to be challenging. 

Whatever the future holds, Truelayer has made a fine start and claims to have 50% share of the emerging open banking payments market in UK, Ireland and Spain. The company claims 22% higher payment conversion than its competitors, saying that merchants report “on average one in three people choose to pay straight from their bank account through TrueLayer when presented with a choice.

The product strategy is to widen geographical reach and deepen functionality to include the features merchants have come used to expect with other payment methods. In 2022, Truelayer has established connectivity to banks in Austria, Belgium, Denmark, Finland and Portugal alongside a European HQ (with a payment institution licence) in Dublin. The company has launched variable recurring payments (open banking’s equivalent of direct debits) and also developed an out of box integration with WooCommerce.

Revenue increased 86% to £2.6m in 2021 on the back of a 7-fold increase in total payment volume.

Cost of sales increased to £1.3m, roughly in line with revenue. Gross margins ticked up 3ppt to 52%. 

Administration expenses ballooned to £33.7m “in line with the company’s commitment to growth… largely due to increased headcount.” During the course of 2021, staff numbers grew from 125 to 231 and are believed to have reached c.400 by August 2022. At this point,  CEO Francesco Simoneschi announced a 10% cut in the workforce saying that his firm now operates “in a very different context and more challenging market conditions.” To his credit, the co-founder put the employee communication on the company blog. 

Operating loss was £30.1m before £3.5m of tax credits. After a fair value adjustment to convertible loan notes issued in 2020, accumulated losses now stand at £103m. 

Fortunately, Truelayer is very well funded. $70m series D investment was secured in April 2021 and a further $130m in September 2021 from Tiger Global Management and Stripe. Acquisition by Stripe would seem a plausible exit.

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