Higher interest rates coupled with fears of long-term price inflation continue to erode company valuations. Strawhacker calculates that sale multiples for mature payment businesses have fallen from 11 times EBITDA to between eight and nine times. This take us back only to pre-pandemic levels and shouldn’t be a cause for panic. But the impact on high-growth cash-consuming companies is more profound. For example, Checkout.com has reduced its valuation from $40bn just 18 months ago to just $9.2bn today.
Latest documents from the Wirecard trial show Markus Braun retrospectively created supervisory board minutes and described compliance as “crap.” Wirecard was a fraud, no question. But beneath the criminality were some real businesses that live on today. Santander created PagoNxt out of Wirecard’s core technology, Deutsche Bank hired the product team and Nomupay, an Irish start-up, picked up Wirecard’s licences in Turkey and Asia.
Nomupay itself just raised $54m to invest in expanding operations and improving the product offer. It claims to be live in 20 countries and works for regional operations of Spotify, Ikea and Facebook. Much of the business is likely based on the 20,000 Asia merchant customer relationships that Wirecard bought from Citibank in 2018 but Nomupay also has an EU licence through the recent acquisition of Click2Sell in Lithuania. One to watch.
Small businesses buy insurance and mobile phone packages online. Yet the payment industry has, so far, managed to resist all attempts at comparative shopping. The UK regulator’s latest attempt to inject more competition into the market has borne fruit with the launch of Statement. This start-up, which has raised £1.5m pre-seed funding, allows merchants to upload their merchant service invoices and get an automatic, tailored quotation from a range of suppliers. If it works, this should be a real winner and long overdue.
Payment companies like embedded payments because the integrations make merchants less likely to churn. But there’s a fine line between a sticky customer and a hostage. Toast, the US restaurant ISV which includes payment processing as standard, has added $0.99 to all online orders over $10. Toast’s new fee is paid by diners. The money goes direct to Toast and is on top of the 3% commission the ISV already charges merchants. Why? Because it can. Restaurants are hopping mad but can’t avoid the tax without switching to a new software provider which takes a great deal of time, effort, staff training and money.
Large merchants can avoid getting locked into abusive vendor relationships by running payments in-house. Zalando Payments, owned by the German eCommerce retailer, reports excellent progress with €27bn processed in 2021. After charging its parent a chunky 2.7% processing fee, Zalando Payments generated revenues of €276m with a profit of €40m. Two thirds of its turnover comes from processing; the remainder from an in-house BNPL product.
Toast and Shopify, both leaders in small business software are making moves on corporate clients. Toast is partnering with FreedomPay, an enterprise-grade POS payment gateway with a strong position with Oracle’s POS clients, to gain distribution into larger customers. The FreedomPay tie-up will make it easier for Oracle clients to defect to Toast without having to switch out their capital-intensive POS infrastructure.
Shopify announced that Shop Pay, the one-click checkout powered by Stripe, will be available as a standalone product. Enterprise customers using 3rd party commerce platforms can now access Shopify’s vast database of stored card credentials without needing to take any other software modules. The greater the number of retailers using Shop Pay, the larger the database of stored credentials becomes and the more powerful the Shop Pay proposition becomes. Shopify published a compelling case study showing a client considering leaving for Checkout to save money but deciding to stay because of Shop Pay.
Separately, Adyen announced a partnership with Shopify that, it says, will help Shopify better serve enterprise clients. Commenting on the same deal, Shopify merely said its Adyen integration had been enhanced to include iDEAL and Cartes Bancaire.
FIS is having second thoughts about demerging Worldpay as a stock-market listed company. Reports suggest it may sell a majority stake to private equity for $15-20bn, rather less than the $43bn FIS paid for the business in 2019. Advent, who helped buy Worldpay from Royal Bank of Scotland back in 2010 is rumoured to be in the running. So is GTCR, another US investor.
Worldpay is also rumoured to be one of three potential bidders for those parts of the sprawling PayU empire lying outside the PSP’s growth markets of India and Turkey. The other bidders are said to be Nuvei and Raypd. Poland, where PayU inherited the in-house payment service of Allegro, the online retail giant, is the largest PayU unit on sale.
Staying in Poland, we’re big fans of Blik, the wildly popular mobile payment standard which claims 60% of all eCommerce transactions in that country. A local analyst suggests this figure is slightly exaggerated. If you include recurring and foreign transactions, the share falls to 35%-45%. Still impressive but not quite so dominant.
In Italy, Banco BPM says it now has no plans to sell its merchant services unit. Instead, it is demanding an upfront payment from a potential partner in return for a long-term commercial agreement. Nexi, the incumbent, Worldline and BCC Pay (a joint venture including the Italian Co-operative banks) are said to be in the running.
Market Pay, the French acquirer spun out of Carrefour, continues its expansion plans with the acquisition of Novelpay, a Franco/Polish POS payment software developer. Novelpay also brings a distribution relationship with PAX which gives Market Pay European cost leadership in the supply of product from the world’s second largest terminal vendor. Market Pay has already bought dejamobile, bringing Softpos capability and Acoustic, an enterprise POS platform managing 60,000 terminals.
New Shopping
We’re keeping a close eye on autonomous stores. This new form of shopping moves transactions from the retailer’s ECR to the shopper’s phone and presents a clear threat to incumbent POS acquirers in many markets. Auchan has launched its first checkout-free store in Poland. Auchan uses technology from Trigo which is already powering checkout-free stores for Tesco, Rewe and Aldi. In contrast, Amazon Go closures continue. It’s not Amazon’s technology at fault but a lack of retail basics, according to industry commentators.
Whatever the technology, some shoppers will try and game the system. Several UK supermarkets have begun insisting customers show a receipt before leaving self-checkout stores. This gives yet another reason to switch to digital receipts although customers are often resistant to giving the email or phone number needed to deliver them. Singapore start-up Pi-xcels (pronounced pixels) can send a digital receipt to the shopper’s phone in the same tap as an Apple Pay payment. Having shown this at MPE back in March, Pi-xcels already has a proof of concept live with Ingenico.
Smart carts offer a middle way between a standard self-checkout and a fully autonomous store. Carrefour seems keen. It is said to have ordered 5000 from Tel Aviv based vendor Cust2mate and will be deploying in two French hypermarkets later this year. Morton Williams in the US has reportedly purchased 100s of the same model cart. Shoppers using smart carts pay using the integral PINpad which will please incumbent processors.
People love paying with contactless by tapping cards or their phone on the POS terminal but other form factors remain very niche. Statistics from Poland show smartwatch payments get a boost every summer as people head outdoors but are still very small by number. Maybe wearable gift cards will give the market a boost. Zara has ordered 18,000 contactless keychains which can be loaded and reloaded with a closed-loop gift card. UK based Multi-Pay is providing the technology.
We’ve all got a biometric device in our pocket but that’s not stopping vendors searching for even more convenient ways of identifying ourselves so we can automatically pay for stuff. Facial recognition will soon be live at 20K Seven Bank ATMs in Japan but there are some obvious drawbacks. A man in Brazil has been arrested for taping photos to a dummy in order to trick mobile banking facial recognition. Police confiscated a large pile of photos and 17 card machines.
Palm recognition payments is lower risk although, if we’re all still carrying phones, still largely pointless. Undeterred, following Amazon’s announcements last month, WeChatPay is piloting at palm payments at metro stations in mainland China. A bold move in a country still haunted by its mismanagement of the Covid pandemic.
Product
The EU published proposals for a third payment services directive (PSD3). These ideas lack the radicalism of PSD1 and PSD2 which together created the European payments industry as we know it today. The latest suggestions will enhance consumer protection but won’t boost cross-border payments to the same extent as the earlier directives. Neither does PSD3 address the chaotic customer experience preventing widespread adoption of open banking transfers in place of cards.
Although much of the industry appears to have moved on from PSD2, the impact of badly implemented strong customer authentication (SCA) continues. Fraud specialist Forter reports that 20% of 3DS2 attempts fail and the problem is worse on mobile, especially in Germany. The fraudsters themselves may have moved on. Forter reports increased alternative payment fraud, especially gift cards.
We’ve not heard much from Verifone in a while but the US giant is back with a new logoand a renewed brand positioning as “the payments architect.” Verifone has suffered greatly through multiple ownership changes and strategic U-turns but still processes over $500bn annually. There is a huge opportunity to cross sell eCommerce and acquiring to its POS customers so a brand promise about simplifying complexity makes perfect sense.
Lisbon is the latest city to go contactless on its trains and buses. Littlepay, a POS payment gateway specialising in mass transit, will process the transactions. Unicre and Cybersource are the acquirers with Indra supplying the validators. Littlepay which is owned by Vix, a transport ticketing giant, is making good progress and has clients live in Finland, Spain, UK, France and USA.
Mass transit drove contactless uptake in London and other metro centres around the world but the Netherlands are first with an entire national transit system working tap-in and tap-out with contactless. And the validators take credit cards which will be a relief to visitors often mystified by Dutch refusals to accept Visa and Mastercard.
Dutch payment exceptionalism will be declining swiftly following Mastercard’s decision to retire Maestro and switch its customers to Mastercard debit. The same is true in Belgium and in Germany where girocard will in future be co-badged with Mastercard debit or Vpay. 15m girocards will be upgraded by the end of this year. The switch means cardholders can use girocard to make online purchases for the first time which will give the domestic scheme a significant boost.
Giro seems on good form to face the future. What of Carte Bancaire, its French counterpart? 2022 results show payment volume grew 5.5% to €685bn, accounting for two thirds of household current spending and 20% of entire Eurozone card volume. Ignore Carte Bancaire at your peril.
Nexi has quietly launched its first pan-European terminal with devices from Castles and software built in-house by the new Nexi Digital Finland hub. The terminal is called nPay and will be available first via NETS in Nordic markets and subsequently in Italy.
As China opens up to international visitors again, the lack of international card acceptance outside major centres is unhelpful for travellers and merchants alike. The two leading local payment wallets are lining up the international schemes to allow visitors to pay anywhere in China by linking their international credit card to an Alipay or Wechat wallet. Mastercard is working with Alipay and Visa with Wechat. We may see the partnerships reciprocated. If Ali/Wechat generated a virtual Visa/Mastercard to pay at POS outside China, it would immediately bring the wallets an international acceptance network.
Infrastructure
IDC research revealed that just 5% of financial institutions believe they have “future-ready” paytech installed today. Global spend on “outdated” payment systems reached $22bn last year as banks run fast to innovate on legacy platforms. It’s easy to see why investors are pouring capital into cloud payment processing software and services.
Berlin-located Payrails, which offers payment platform as a service, just raised $13.5m from a high-grade investor base including Andreeson Horowitz. UK start-up Shape Technologies just launched a similar offer specifically for ISO’s and ISV’s. And LoopingOne, a marketplace payment infrastructure platform based in Amsterdam, raised €2m seed funding. Ebury, a unit of PagoNxt, was an early investor.
While banks are badly in need of new payment tech, one commentator suggests merchants don’t recognise the same problem. A payment recruiter posted that he’d not worked a “head of payments” role for a year. His conclusion is many merchants believe they have payments set up properly now. As a result, they are recruiting for operational not strategic positions while often merging payments with their core product teams.
SoftPOS
We’ve seen another month of partnership and product announcements as the SoftPOS ecosystem slowly assembles. But we’re still waiting for major news of customer success.
Investors have backed MyPinPad, one of the earliest SoftPOS vendors, with an extra $13m of cash and a new branding reflecting its “strong and secure fusion of connection, confidence and trust.” MyPinPad has accumulated losses of £34m but recently revealed it was providing the technology to Tietoevery’s SoftPOS launched last month with Axxtrans, a Swedish ISV.
TECS, the Austrian POS provider bought by Bluefin last year, has built and certified its own SmartPOS application.
Worldline has launched SoftPOS in Poland with a special offer including no standing charges for two years and no processing fees on the first €22,000 transaction. The standard price list was already a very generous €1.5 per month + 0.25% per transaction. “Free” is always a great marketing proposition but risks opening thousands of loss-making merchant accounts that don’t trade.
Rubean is winning most SoftPOS tenders in Germany at the moment and scored another success with RS2. The Malta-based processor has recently launched a direct-to-merchant business in Germany and hopes Rubean’s SoftPOS will help attract new customers.
Although we’re seeing relatively few merchant announcements, it was good to learn that LVMH, the luxury retailer, will be using Tap to Pay on iPhone (Apple’s proprietary softpos) for queue busting and clienteling.
Openbanking
UK vendors tell us they have the best open banking regulatory framework in the world but are confused about why the market has been so very slow to take off. Reports of a vendor roundtable from Money 20/20 suggest the industry is mainly talking to itself. Without a scheme or industry consortium to set the rules and communicate the advantages to shoppers, open banking payments risk remaining a well-funded solution looking for a problem.
What next? Andrei Cazacu from Truelayer (one of the open banking API aggregators) gives a set of reasons not to panic and Simon Lyons from OB Connect has put forward a ten point plan including absorbing variable recurring payments into the current BACS direct debit system.
London-based Volt, which aggregates open banking aggregators, has raised $60m, at a $350m valuation, to build out its global acceptance network. The CEO said he was “staying focused and humble.” Meanwhile, both Shopify and Worldpay announced that Volt would be their preferred partner for open banking payments. This potentially gives Volt presence on hundreds of thousands of checkout pages although gives no guarantee of volume. Shoppers may still choose to pay with cards.
Two other vendors brought good news. Token will partner with Flutterwave to give African merchants the opportunity to accept open banking payments from European shoppers. And British savers can now top up their Government National Savings & Investments accounts with an openbanking payment. Ecospend, a division of Trustly, is behind the scenes.
We are beginning to see innovative start-ups build customer experience around core open banking APIs. UK-based Atoa, raising $6.5m says its USP is to reduce merchant fees by up to 70% compared with cards by accessing Yapily’s open banking aggregation service. The user experience is based on QR codes which works for table service restaurants but not retail. The transaction fee of 0.6% does not look like a bargain.
Crypto corner
Increasingly assertive regulators are putting the brakes on the remaining madcap crypto ideas that still have funding in place. In Frankfurt, Bafin has called time on BCB Group, a London based crypto processor that was trying to buy a German bank. Protecting depositors is now the name of the game.
The British Government still likes the idea of the country becoming a global crypto centre leading Ministers to demand that crypto assets should be regulated as financial services, not gambling. There’s nothing wrong with casinos provided punters know the odds are against them. But there is a clear risk of legitimising scams and ponzi schemes by describing digital currencies as securities when they are just bets on red or green.
Digital currencies are also well suited to money laundering as well as gambling. Bitcoin Suisse which works with Worldline to help merchants accept crypto at POS, reports growing interest in using crypto to buy small, high value, easily transportable itemssuch as watches.
The UK has also moved a step closer to a central bank digital currency (CBDC). The initiative, known officially as the digital pound but unofficially as Britcoin, has strong political support and was backed by a new joint study between the Bank of England the Bank of International Settlements in Basle. Officials say the digital pound might not be built on blockchain technology and would be limited to £3-5000 per person to avoid competing with banks.
Other news
Sifted lists start-ups from Adyen alumni including Tebi, June, Solvimon, Silverflow, and Atoa. It’s a very impressive roster and shows the massive boost Adyen has brought to Amsterdam’s payment ecosystem.
Adrian Mol, founder of Mollie, the Dutch PSP he named after himself, gave a fascinating interview with Sifted. We learned that Mollie will be profitable by 2024, that he would like to layoff 5% of staff every year; and that his parents did not name him after Adrian Mole.
With AI in the news, it’s worth reading the memo that raised $100m for a European start-up with no customers and no product.
The Flagship Consulting/Paypers Global Overview of Payment Providers. A great, free resource including plenty of definitions. One to download and keep handy for your next strategy project. Flagship have also helpfully posted what they learned from the Spring conference season.
Useful research on payment orchestration from Spreedly showing over half of organisations manage more than five payment integrations.
And finally
Payment professionals looking for a Summer holiday destination can now safely travel to St Helena – the small rock in the South Atlantic where Napoleon died in exile. The island’s merchants are finally accepting card payments. Ryft, a small UK fintech, has built a bespoke onboarding solution to comply with local regulations.
