Cashflows Europe, a merchant acquirer based in Cambridge UK, reported “a solid year” in 2021 according to documents filed at Companies House. However, management warned that investments in technology, people and marketing are not yet yielding the financial results hoped for and that the business “will likely require additional financing in the next twelve months.” The good news for staff and customers is that Cashflow’s shareholders have indicated that they will provide the additional funds.
The company offers “omni-channel native” acquiring, processing and gateway services with a focus on SMEs and small corporates, especially in the financial services sector. This is an attractive part of the market – margins are high although these merchants can bring credit risk. Cashflow’s innovations include “anytime settlement” in which customers can pay extra to have their funds released early. Here are a couple of nice case studies from Cash4U and SplitPay.
Pollen Street Capital, the private equity group which owns Cashflows, has recently installed a new management team under CEO, Hannah Fitzimons. She joined in May 2022 from Elavon and reports to a heavyweight board including Chair, Simon Haslam, formerly CEO of Network International.
Overall, the UK card market bounced back strongly in 2021 with debit volumes up 23% and credit volumes up 21%. Cashflow’s acquiring volume underperformed, rising just 15% to £3.8bn. The push into SME (and possibly additional contactless POS transactions) may be behind the sharp fall in average transaction value to £31 in 2021 from £41 the previous year.
Gross revenue grew 58% to £33.4m in 2021. Acquiring services revenue doubled from £13.7m to £28.4m partially offset by a fall of 21% in ATM revenue to £3.6m. ATM has been much slower to recover from Covid than card payments. Gross take rate rose a healthy 22bps to 0.88%.
Net revenue after interchange and scheme fees was up 51% to £16.7m. Net take rate rose 11bps to 0.44%.
Cost of sales increased 57% to £13.9m. Cashflows works with a network of independent sales organisations (ISO’s) and payment facilitators as well as selling direct to merchants. Partner commissions rose to £3.6m, representing 22% of net revenue.
Gross profit rose from £7.3m to £11.6m giving gross margins of 35% over net revenue or 69% over gross revenue. Both measures ticked up slightly over 2020.
Despite the healthy top line growth, overheads (rising 22% to £19.0m) continue to exceed net revenue. Merchant acquiring has significant economies of scale and £3.8bn payment volume is too small make up for the high fixed costs.
Although headcount was unchanged at 131, people costs rose 28% to £12.8m, possibly indicating significant wage inflation. Marketing expense doubled to £581K but remains just 3% of net revenue.
Spending on technology rose 34% to £3.8m with investments in platform enhancements delivering an “API centric technology stack” centred around a “vertically focused platform specifically tailored to the needs of SME’s and small corporates.” New products in 2021 included additional payment acceptance methods and 3DSv2 to comply with new strong customer authentication regulations.
Impressive credit management saw exceptionally low fraud losses of just 3bp compared with 30bps in 2021. The chargeback ratio was also very respectable, falling 2bps to 6bps
EBITDA losses improved slightly from £8.1m to £7.4m