Truelayer, the leading open banking payments provider, is finally beginning to grow its revenues but, despite cost-cutting, the business remains a long way from profitability.
Reporting results for 2023, Truelayer says that payment volume doubled to £21bn and had reached an annualised £25.5bn by the end of the year. Momentum is growing and the company’s website now claims annualised volume of £29bn from 120m transactions. Truelayer’s multiple partnerships and blue chip customer relationships are beginning to deliver.
Truelayer describes itself as “Europe’s leading open banking payments network” but has dropped a previous claim of market leadership in four European countries. Instead, it reports “significant market share” in UK, Ireland, Spain, France, Germany and Netherlands.
The London-based fintech is investing at pace to establish leadership in the crowded market for open banking payments. Along with its competitors – Tink, Token, Volt, Yapily etc – Truelayer aggregates connections to thousands of banks into a single API. This allows merchants to offer consumers the option to pay from almost any bank through a single connection with Truelayer. Capability now extends to pay-outs and customer onboarding too.
Customers include Coinbase, Revolut and William Hill. Truelayer has some good case studies. For example, lastminute.com found that offering openbanking payments grew average order value by 20% and was a helpful resilience tool during the Crowdstrike outage.
Revenue tripled to £12.43m in 2023 but Truelayer is having to work hard for the money. Open banking transactions, at least for high-ticket items, are much cheaper than cards. Truelayer’s take rate is just 5bps which compares to 30-90bps for a traditional merchant acquirer. However, most open banking deals are believed to be priced per transaction. By this measure, Truelayer’s average of c.12p is reasonable but you still need to sell a lot of transactions at this price to justify a unicorn’s valuation.
Simoneschi understands this. Speaking in June, he told journalists that “scale is everything…. We are an infrastructure business. That means we are likely going to spend a lot of time and a lot of years building and spending money before actually earning.”
Cost of sales rose fourfold to £4.64 with gross margins falling 7ppt to 63%.
With Fintech investors less generous than of late, management has kept an eye on costs. Total employee expenses were down 7% at £43m. One third of engineering and product staff were laid off and total staff numbers fell from 434 to 346. But Truelayer kept on selling. Client care and sales numbers rose slightly.
Overall, administrative expenses were 4% lower at £62m.
Despite the reduction in development resource, Truelayer has been busy launching new products.
Variable Recurring Payments (VRP) is widely expected to transform the openbanking payment market by offering a modern replacement for direct debits. Truelayer says it is now processing 1m VRPs each month.
Management is also very pleased with progress from Signup+ which combines account set-up with making the first payment in a single action. And Truelayer has launched Payment Links which allows merchants to send an openbanking payment request via a text or email.
The payout product is also growing quickly, notably in Belgium, France, Netherlands and Portugal.
With a fast growing number of transactions flowing over a steady cost base, the operating loss narrowed a little to £54m from £61m in 2022. Accumulated losses now stand at £198m. With £51m cash in the bank at the end of 2023, Truelayer has another 12 months to become cash positive or will need to take additional capital.
Management is pleased with the 2023 results, saying “overall this was a significant year for the company and has laid strong foundations for continued growth and success in 2024”.
If shoppers do shift quickly from cards to open banking, the prize for API aggregators such as Truelayer could be significant. Transaction volumes are finally beginning to grow but competition between the specialist open banking vendors is reported to be ferocious. Consolidation is inevitable. In the past few weeks, we’ve seen GoCardless buy Nuapay and Paypoint acquire OB Connect. And Kevin, a well-funded Lithuanian open banking competitor couldn’t find a buyer and is now in liquidation.
The future is likely to favour open banking vendors with wealthy and committed backers. Truelayer should be one of winners but there is a long road still ahead.
Paymentsense, parent company of the Dojo brand which has taken the UK market by storm, has reported its first operating profit and refinanced its debt mountain with a new facility which does not expire until 2030.
Paymentsense is the brainchild of two low-profile serial entrepreneurs – Juan Farrarons and George Karibian. The duo intend to keep their foot on the gas, saying “the investors in the business continue to prioritise long term growth over short term profit.”
According to documents filed at Companies House by Typhoon Noteco, the ultimate UK holding company of Paymentsense and Dojo, payment volume for the year to March 2024 rose 29% to £43bn, continuing the astonishing growth witnessed since 2021. The number of transactions processed was up 32% at 2.2bn with ATV falling 2% to £19.24. This mirrors a consistent trend across the market as low ticket transactions continue to move from cash to cards.
Revenue rose 37% to £409m. The overall take rate increased 6bps to 0.96% and revenue per transaction was up 3% at 9.8p.
Paymentsense cleverly built the Dojo brand around the PAX A920. Other providers can re-sell PAX devices but only Paymentsense sells Dojo. In just a few years, the eye-catching white terminals have become ubiquitous on Britain’s high streets. Initially, known for its keen pricing and generous contract-buyouts, Dojo has begun to increase prices and the service, based on a branded PAX A920, is no longer cheap. Standard pricing is £30/month for a terminal (rental + “platform fee”) + 5p per transaction + 0.75% debit or 1.2% credit for processing.
Dojo has made a push into integrated payments in partnership with software vendors (ISVs) and claims 400 ePOS partners. This brings a better quality of merchant – higher transaction volumes and less likely to churn. And the customers seem happy. In this case study, a small restaurant chain reduced till discrepancies by 90%, saving 10 hours of admin per week.
The combination of price increases and ISV distribution is making Dojo’s underlying metrics look very good indeed. Although Dojo only grew customer locations by 3% to 150K, volume per location was up 25% at £284K and revenue per location up 34% at £2,700.
Total gross profit rose 36% to £218m.
In advance of the refinancing, management took steps to reduce costs saying that the business has “undergone a restructuring process…. streamlining various business units, optimising the organisational hierarchy and reallocating resources to key growth areas.”
30% of the sales team was axed although with additional recruitment in back-office functions total staff numbers rose from 960 to 1136. Employee costs were up 17% to £83m at an average of £73K each..
Management continues to invest in scaling the “cloud native next generation card acquiring Dojo platform” which it hopes will allow the business to expand into larger merchant segments as well as new territories. The business says that becoming an acquirer was a critical support for its growth strategy. Paymentsense has now received an e-money license for Ireland which it uses for a new Dojo business recently launched in Spain. Paymentsense believes that the hospitality-heavy Spanish payment market is ripe for a modern restaurant-focused payment proposition.
There is an intriguing subplot revolving around the company’s swanky central London office in the Brunel Building at Paddington, a location shared with the Premier League. Management reported £6.8m of property income generated by subletting unused floors of the Brunel building but has now committed to staying in the Brunel and leasing additional space. Before this decision, Paymentsense looked seriously at moving to the nearby Paddington Cube and is in dispute with its prospective landlord. The case will go to trial in 2025 although these matters are normally settled out of court.
Adjusted EBITDA rose from £69m to £94m with margin held steady at 23%.
Net debt rose £98m to £596m requiring interest payments of £91m, up from £62m in 2022. Paymentsense will need to maintain its fast pace of growth to support the higher interest payments associated with its new, long term debt. Total debt is equivalent to 6x EBITDA, still chunky, but down from 7x EBITDA in 2023.
Paymentsense made an operating profit for the first time of £32m, a very welcome milestone but not yet enough to cover the increasing cost of servicing its expanding mountain of debt. The business remains loss making at a pre-tax level although deficit was cut to £59m in 2023 from £141m the previous year. Accumulated losses now stand at an eyewatering £644m. Paymentsense has consumed a remarkable amount of capital.
Nevertheless, with its debt refinanced, management will be delighted with the 2023 results. All UK metrics are looking positive and the business is getting good at converting additional payment volume into profits. Continued growth in the UK will be challenging as Dojo maintains its higher price points and new entrants such as Shift4, Toast and a revitalised Global Payments compete for SME POS payments. Much may be riding on the Spanish expansion.
PAX, registered in Bermuda, listed on the Hong Kong stock exchange and with its main operations in China, blamed “global economic uncertainty” for its steadily declining topline. Although profitable and generating plenty of cash, PAX’s share price is bombed out. The market capitalisation is just $625m and the stock yields 10% at a PE of 5.
On the positive side, over 50% of sales are now Android “smart terminals.” This is a segment in which PAX, with a range of elegant keenly priced devices such as the A920, had early market leadership. Android offers terminal vendors the opportunity to upsell value added services – such as app stores – to bank and PSP customers. Critically, service revenue is recurring and can be secured under long-term contract.
PAX’s turnover from services, including maintenance and installation, is growing quickly from a low base, up 33% to $21m. Of this, $8m was software as a service revenue linked to the Maxstore product which brings together terminal management, reporting and a white-label app store. The apps themselves are supplied by 3rd parties and include booking, loyalty, labour scheduling and many more. Here’s a full list.
Maxstore generates big numbers. The service connects 12m terminals, 2m merchants, thousands of app developers and manages 215m push tasks annually.
Yet total service revenue of $21m in the last six months equates to less than $4 per installed terminal each year. There is a long way to go for Maxstore to make up for the long-term decline in device sales which fell 17% in H1 to $365m.
Competitors – notably Castles, Newland and Ingenico – are releasing new Android devices themselves and PAX will need to innovate to retain its leadership. PAX has launched a number of new models including the A8900 and A99 portables and the IM25 for unattended. The company is, very sensibly, extending into ECR hardware with new Elys series.
The devices are put together at the new PAX Smart Terminals Industrial Park at Huizhou, China, built at cost of $91m and featuring production lines, R&D and “well equipped dormitories” with a total floor area of 261.000 square metres.
Although PAX sells its product worldwide, most revenue comes from Europe and Latin America. In H1, the business was hit by a notably poor performance in LATAM where sales fell 21% to $137m. Brazil was particularly weak which management blames on the economy as well as slowing demand as the terminal market has matured. EMEA was more resilient, revenue was down just 4% to $137m with the region now accounting for 37% of global sales.
The best European markets were Italy, UK and Hungary with “fluctuating demand” reported in Germany and Spain. The A920PRO is reportedly selling well. PAX believes it has a major opportunity with the growing deployment of EV charging points following the EU’s AFIR directive.
In the US, PAX has seen a sharp slowdown in demand from ISOs and banks. Like many other payment businesses, it is reorientating sales to ISVs.
In APAC, PAX is buying its Australian distributor for up to $20m, depending on performance.
Cost of sales fell 19% to $205m resulting in a 10% decline in gross profit to $180m. Gross margin rose 2ppt to 47%, mainly due to the depreciation in the Renminbi reflecting PAX’s cost base in mainland China.
Management has taken a firm line with controllable costs. Employee expense was cut 18% to $50m. Staff numbers have been cut by 10% to 1596 staff, earning on average 9% less at an average of $31.4K.
R&D spend was steady at $39m.
Operating profit fell 21% to $69m. The operating margin fell just 1ppt to 18%, an impressive performance by most standards. But investors won’t be questioning how PAX makes money today. The worry is how it will continue to generate cash if terminal sales keep falling.
The summer’s results season showed a mixed picture from Europe’s three leading payment businesses.
Adyen stood out once again. Revenue grew 24% in the first half of the year as its omni-channel strategy helped drive volumes on both sides of the Atlantic. Adyen now boasts 357 “unified commerce” merchants processing over $10m in eCommerce and POS transactions. The in-store retail business is growing swiftly and Adyen now has almost 500K terminals in the field.
Worldline disappointed once again. Revenue was up just 3% and EBITDA fell 1% with management blaming Europe’s slowing economy and bad spring weather. It’s never a good sign when a payment business complains about rain.
The major Greek banks sold most or all of their merchant services units to international players during 2022/3 for a total of almost €1bn. Haris Karonis, founder of Viva Wallet, has predicted the banks will regret divesting these businesses but, so far, it’s hard to say they were wrong. Only Cardlink (Worldline) is making a profit and not a big one at that.
Greece should be a good market for payments. The domestic cash to card switch has a long way to run and there are plenty of high-margin cross-border transactions from tourists. Less positively, the new government in Athens has made it clear that it will legislate to reduce merchant services fees for SMEs if the acquirers don’t voluntarily take action.
Large or small, all merchant acquirers eagerly await the annual Nilson rankings which list the European players by transactions and payment volume. The 2023 numbers give a top ten of Worldpay, Nexi, Barclays, Fiserv, Adyen, Worldline, Global Payments, JP Morgan, Credit Agricole and Elavon but some observers have questioned the methodology. Several of the fast-growing digital acquirers such as Stripe, Nuvei, Paysafe and Checkout don’t even figure in the top 45 according to Nilson.
Wherever a business sits in Nilson’s league tables, competition is getting hotter as domestic champions in Asia move westwards. For example, two market leaders from India have announced European expansion plans in response to tougher market conditions at home.
Juspay, a payment orchestrator backed by Softbank, has hired James Lloyd, ex Citibank, to boost its European presence from a new base in Dublin. Juspay claims 300 processor connections and $500bn volume from 500 enterprise customers.
In corporate activity, Shift4 is buying Givex for C$200m (€132m) at a very generous c.30x EBITDA. Givex is most famous for its gift cards but has grown its retail POS portfolio to 1.900 merchant locations following the acquisition of Counter Solutions in the UK. Software accounts for 10% of worldwide revenue. Givex Pay (provided by Adyen) provides an extra 20%. Moving this volume to its own products will be an early win for Shift4.
Dejavoo, a US POS technology vendor offering white label solutions to PSPs (primarily with Castles hardware) has acquired Z-Credit, an Israeli equivalent. But we already knew this.
DNA Payments, a London based acquirer/PSP owned by two Kazakh former bankers, is reported to be considering purchasing the acquiring business of Card Complete, the largest player in Austria. Card Complete is losing money and needs significant technology investment. Unicredit, the Italian bank, is Card Complete’s largest shareholder and has been trying to sell its stake for some time.
Turning to fundraising, two start-ups targeting the complicated but fast-growing world of marketplace payments have secured new money.
Revenew, founded by two former Checkout execs, has raised $4.5m to help marketplaces and other merchants with complex payment needs to manage their costs, including reconciling IC++ pricing from multiple acquirers.
Trustap, based in Cork, Ireland, which offers escrow payments built on Stripe’s APIs for marketplaces, has raised a total of $9m.
Visa and Mastercard continue to prosper in Europe. The two schemes’ combined payment volume rose 11% in Q2. You can read more at Business of Payments.
Visa is very pleased with its sponsorship of the Paris Olympic Games which, it claims, saw a significant increase in foreign card spend in France, notably with visitors from US, Brazil and Japan. Theatres and museums saw the largest boost. Adyen also published statistics from its merchants in France which highlighted that 25% of US spending used dynamic currency conversion to pay in dollars, not euros. Good news for merchants and for Adyen that together share a 3% mark-up on each sale.
The UK’s Payment Systems Regulator is proposing to cap Interchange on eCommerce transactions from EU cardholders at UK merchants at the pre-Brexit levels of 0.2% or 0.3%. This is likely to save British businesses £150-£200m each year, a sum which ultimately finds its way to European banks today. Unsurprisingly, these banks are objecting.
Visa and Mastercard pass interchange to the issuing banks. The two schemes make their own cross-border profits from additional fees and foreign exchange commissions. For example, Visa’s USD/EUR mark-up is 0.21%. The ex-CEO of Wise (who knows something about FX) explains how it works.
There is a threat looming. Visa and Mastercard’s dominance of cross-border consumer payments will be challenged by increased inter-operability of the new wave of mobile-centric domestic payment schemes and standards. This will allow people to spend money abroad without needing a credit card.
Alipay, the very popular payment method in China, is a good example. Alipay is now interoperable with 30 other Asian QR based wallets and 14 of these are already connected to its European platform. This means Alipay’s 400,000 European merchants can accept payments from the most popular wallets used by visitors from Philippines, Indonesia and elsewhere.
The emergence of software vendors as a key distribution channel is the biggest shake-up the payment industry has seen for many years. Who is winning? Nick Dunse from Shuttle, a business that connects shopping carts and payment processors, counts 1986 software platforms of which a remarkable 59% use Stripe.
Shuttle’s figures refer to number of connections rather than payment volume. Adyen has relatively few ISVs but is signing the large ones. Latest examples include One Iota, a UK in-store ePOS vendor which counts Hugo Boss among its clients.
ISVs can more than double their revenue from their core business of selling software by adding payments and other financial services to the merchant bundle. Toast, a US restaurant software provider is a textbook example (see chart below). Alexandre Dewez explains the economics.
Acquirers need to buy, build or partner with ISVs to secure this new distribution channel. A good example is Swedbank, which participated in a €20m funding roundfor Yabie, a Swedish ePOS start-up focused on small retailers and cafes. The investment is paying off. Yabie generated €12m sales in 2023 from 11,000 merchant customers processing with Swedbank although it will partner with Adyen to support clients outside the Nordics.
Other partnership news is coming thick and fast as the ecosystem reassembles itself around ISVs.
Cardstream, a UK based gateway, has ambitions to support ISVs with its new payment-facilitator-as-a-service proposition. Surfboard, a Swedish ePOS and SoftPOS vendor, is the first customer and will take a joint proposition to market.
FreedomPay, the US POS gateway, is also looking to grow its European business, supplying ISVs with acquirer-agnostic terminals and transaction routing. It has announced new partnerships with Zonal, a UK ISV focused on hospitality (using Castles devices) and LS Retail, a mid-market retail ePOS vendor based on Microsoft Dynamics. LS offers acquiring from Adyen and Elavon.
New Shopping
2023 was a record year for self-checkout with over 217,000 machines delivered worldwide, up 12% on the previous year. Europe is the fastest growing region with growth powered by large scale implementations at grocery and pharmacy chains in the UK and Germany.
Nexi has partnered with shopreme, based in Graz, Austria to bring integrated payment/mobile checkout to merchants, initially in DACH markets with Italy and Nordics to follow.
Smart carts offer a half-way house between self-checkout and fully autonomous shops. The sensors and cameras sit in the shopping trolley not the store’s shelving units.
Aldi is trialling Caper Carts, a digital shopping trolley supplied by Instacart, at an outlet in Austria, having already introduced the carts in the US. This is Aldi’s second such pilot, the first using technology from Shopic which attaches to existing carts, didn’t last long.
Photo: Stephan Ruschen
Home shopping was meant to be transformed by voice commerce enabled by Amazon’s 500m Alexa devices. The reality is that these gadgets are not generating revenue despite the massive investment. “We’re worried we’ve hired 10,000 people and we’ve built a smart timer,” a disappointed employee told the press. It’s time for a rethink.
Will AI give natural language commerce the boost it needs? Dan Wagner, a colourful British entrepreneur, is back with Rezolve, an AI powered conversational commerce plug-in which, he confidently expects, will be adopted by most leading eCommerce websites. Rezolve has reversed into a SPAC listed on NASDAQ and now commands an improbable valuation of $1.7bn. If you’ve experience working with Rezolve, let me know.
Biometrics
Most Europeans and most Americans can pay for things simply by using the biometric authentication already set up with their mobile phone. Yet vendors continue to experiment with alternative payment flows in which the biometrics are stored by the merchant or PSP.
Payeye, a Polish start-up which is pioneering payments based on iris and facial recognition, has signed a partnership with Worldline to commercialise its eyepos 3terminal outside Poland. Recognising that the technology may take some time to mature, the terminal also takes cards. ITcard remains Payeye’s domestic partner.
A fascinating battle is emerging for control of eCommerce guest checkouts. A number of global players are vying to improve conversion rates by securely storing shoppers’ payment credentials to enable one-click shopping.
Apple Pay is the market leader and makes its money through charging the credit card issuers c.15bp of the transaction value. Others, such as Stripe and Shopify, hope their pay buttons will encourage more merchants to choose their payment processing or commerce software.
Although most one-click checkouts back the transaction onto a credit card, Visa and Mastercard are worried about disintermediation and have put renewed focus on Click to Pay, their own guest checkout product.
As predicted, eService, the largest acquirer in Poland, has terminated LitePOS, its softPOS product based on MyPinPad’s technology. eService will now sell Global Payments’ TOM (terminal on mobile) instead. This micro-merchant proposition retails at 5 PLN (€1.10) per month + transaction fees.
UK vendors have begun to realise that “the biggest banks are not prioritising building up their capability or technology,” sparking calls for thegovernment to rescue open banking from its current disappointing state. For example, Yapily’s CEO has called for early legislation to create a permanent entity to manage the open banking ecosystem, oblige the banks to take the technology seriously and mandate a funding model that no longer relies on voluntary contributions.
Valuations are beginning to reflect a growing realisation that open banking will take longer to mature than many had hoped. Paypoint, a UK ISO and bill payment specialist, has bought a majority share of OB Connect at a valuation of just c.£30m. This is a great exit for the management and a fine return on the £3m capital invested but indicates that the sector is unlikely to produce many unicorns. OB Connect, which has 25 staff, lost c.£0.8m in 2023.
Even so, open banking adoption will be slow if it relies on hosted payment pages and redirects. Customer experience needs to be slicker. Boodil, a UK start-up, believes it is first to market with an embedded solution that sits within the merchant’s own payment page. Yapily is managing the APIs behind the scenes.
Could POS payments provide open banking a boost? DNA Payments, which is having a busy time of late, has added open banking to its payment terminals. Shoppers scan a QR code produced by the POS. Ecospend, Trustly’s UK subsidiary, is providing the technology. The value to consumers, used to tapping smartphones on payment terminals, is not clear.
There is a small but growing argument for Request to Pay (RTP) as an alternative to open banking for consumer-to-business payments. Toriipay, a Polish start-up founded by former Kevin execs, believes RTP offers the standardisation missing from open banking today. RTP is a messaging system sitting on top of SEPA Instant as you can see from the video.
Crypto corner
The continual drip of bad news stories about crypto criminals hasn’t dented market enthusiasm. Bitcoin trades near an all-time high.
The UK regulator has issued over 1,000 warnings to crypto firms since October leading to the removal of 48 apps from the local app stores. It may also have led many crypto companies avoiding the UK and setting up elsewhere which is no bad thing.
It’s depressing that established brands are still mixed up with this boondoggle. Mastercard continues issuing crypto cards. These convert your favourited digital currency to actual dollars to pay the merchant although Ferrari will now let you buy one of its sports cars using crypto following requests from “wealthy customers.” The dealers receive real money. Somebody makes a spread. It’s not clear who.
In other news
Some helpful research from McKinsey on 15 technology trends you need to know. Next-gen software development comes top, closely followed by applied AI.
It’s remarkable to find Americans still writing cheques. Target, the retail giant, will finally stop accepting them but there are some things for which only a cheque will do. The cast of Saturday Night Live explain. Enjoy.
