Truelayer – revenues finally growing but still a long way from profitability

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.

Founded by Franceso Simoneschi in 2016, Truelayer is backed by a stellar rosta of investors including Stripe, Tiger Global and Anthemis. It has received total funding of $272m according to Crunchbase. The most recent round of $130m in 2021 valued the business at $1bn.

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.

[Update: Truelayer has raised an additional $50m from existing investors.]

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.