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.
Fighting fraud has always been a dilemma for digital merchants. Set the anti-fraud thresholds too low and risk losing substantial sums to the criminals; set them too high and risk turning away good customers.
That’s where Ravelin and a growing set of data-rich AI powered start-ups can help. These businesses examine transactions “on the fly” and provide fraud scores used to determine whether a transaction should be accepted, rejected or paused for further investigation. There’s some good background in this interview with Martin O’Riada, its CIO. He used to work in law enforcement and seem a very thoughtful man.
Customers such as Just Eat certainly do seem happy. At a client conference I attended most of the talking was by its clients (big tick) who felt comfortable enough to come on stage to discuss common challenges such as how to set up an anti-fraud team. It’s no surprise that 100% of contracts up for renewal in 2021 were retained.
Administrative expenses were up 47% to £14.7m with headcount growing from 75 to 91. Ravelin “has adopted a remote-first workforce” and says many UK staff have chosen not to return to the office. Since the company is now “where possible .. exploring hiring staff in less expensive locations outside the UK,” this might be a career mistake for some.
The company is some way from profitability despite the strong revenue growth. Losses before tax rose to £5.9m from £2.8m the previous year “in line with group expectations.” Operating margins fell from -50% to -54%. A tax credit of £1.2m narrowed the company’s overall loss to £4.7m.
Ravelin has raised a total of £30m from a blue chip rosta of investors including Draper Esprit and Passion Capital. At year end, the company had £13.3m in the bank “providing sufficient liquidity for… 2022 and beyond.”
Strong Customer Authentication (SCA) has reduced online fraud in Europe by mandating 3SD2 in many transactions. At first sight, this would seem to be a threat to Ravelin and its competitors because online merchants many now have less need to buy additional services to help decide which transactions are likely fraudulent. But Ravelin says it has turned SCA to its advantage by launching its own 3DS2 solution, expanding fraud coverage to include non-payment frauds such as promotional code abuse and returns/refunds abuse, as well as expanding its geographical reach to countries outside the scope of PSD2.
Fighting fraud is wack-a-mole. For every loophole closed, the criminals find another. This means continued opportunity for Ravelin and its peers but based on the company’s website claim of 4bn fraud scores produced annually, 2021 revenue amounted to just 0.3p per score. Anti-fraud services are a volume game with significant prizes for the vendors that can get to scale. Expect consolidation.
Sabadell is believed to be insisting on a trade buyer for the unit. Having ruled out a sale to private equity, three international processors – Nexi, Worldline and Fiserv – are reportedly still in the running to buy Spain’s second largest merchant acquirer which accounts for 16% of the market. The EBITDA multiple is not available, but the suggested sale price of €400m suggests a very similar valuation to Bankia, another merchant acquirer, sold to a Global Payments JV in 2021.
Spain’s domestic payment industry has had a difficult couple of years. The merchant acquirers are more tourism dependent than most. Many were badly hit by the pandemic and associated travel bans but business has since bounced back as borders reopened. With total payment volume of c.€258bn and strong cash to card trends, Spain remains a very promising market for inward investment.
Sabadell’s payment volume was up 31% in the twelve months to June 2022 at €41.9bn with 14% of volume as eCommerce according to Nilson. Sabadell has 438K points of sale (physical and online) across 214K merchant outlets. Revenue for the whole cards business (issuing and acquiring) was up 14% in H1.
Sabadell is outsourcing merchant acquiring primarily because it needs to raise extra capital to support its transformation plans. Outside Spain, Sabadell partners with EVO Payments in Mexico and Square in the UK, through its TSB subsidiary.
In Spain, the successful bidder will likely also get a long-term partnership arrangement with Sabadell for lead referral. This will help the bank maintain its customer relationships and prevent a competitor bank using merchant acquiring to establish a bridgehead with Sabadell’s merchants.
None of the three suitors has much business in Spain today. For each, the deal would represent a springboard into one of Europe’s largest payment markets helped by a strong distribution partnership with this leading retail bank with over 1,500 branches. For Fiserv, Worldline or Nexi, the business case to buy Sabadell’s merchant acquiring unit is primarily about cutting costs through consolidating processing and product development with their other European businesses. There will also be opportunities to sharpen up local sales and marketing and introduce leading products from other markets such as Clover.
Nexi and Worldline are both highly acquisitive. Nexi has recently bought merchant service businesses from banks in Croatia and Greece. Worldline has made two purchases in Greece and set up a JV with ANZ in Australia.
According to Reuters, the Sabadell board has already reviewed offers and will move quickly to the final stages of the auction.
Most contact centres need to take money from customers. Traditionally, people would simply read their card details over the phone. Today, sensible businesses know they need to keep sensitive customer data away from both their staff and their enterprise software. The risk of breaching PCI, GDPR or even the California Consumer Privacy Act is simply too great. That’s where PCI PAL and a small band of competitors comes in.
The UK based contact centre payment specialist reported strong revenue growth, up 62% to £11.9m, in its H1 2022 results. Its home market continues to develop strongly but PCI PAL has also begun generating serious traction in North America which now accounts for 28% of sales. Management estimates the total addressable market is £300m pa – based on 10m agents worldwide at £30 pa per seat – so there is a long way to go.
The company says its new cloud-based solutions have helped gain market share. 89% of revenue is recurring which means PCI PAL has the “hallmarks of a strong and growing cloud company and SaaS business model”, according to Simon Wilson, its Chair. One of these hallmarks is high and growinggross margins – up 11ppts to 84%.
The switch from installed software to the cloud has been accompanied by a new partner-focused channel strategy. This also seems to be working well. 217 new contracts were signed in the first half; 85% from a blue-chip rosta of partners including many leading contact centre software vendors and BPOs such as Genesys, Sitel and Capita. The deployment model looks slick. New customer accounts are live five months after signature on average.
Most contracts are £15-20K pa but its largest is 5,000 seats. Although most new contracts are “mid-market,” 43% of revenue is from customers paying over £100K pa. Customers seem happy. Churn is just 3%.
The company prides itself on its employees. Wilson says he is pleased to “attract first class technical talent despite the enormous impact of the Great Resignation,” and grew headcount from 71 to 103. Creditably, “in a year where jobs markets have been turned upside down…we have achieved top quartile employee retention.”
Administrative expenses were kept under control, rising just 37%. The company’s investment in North America – where over-enthusiasm can often sink new market entrants – looks to be very measured.
Operating losses narrowed to £2.02m from £3.85m with “excellent progress towards break even … in the coming year, with monthly profitability following shortly after that point,” according to CEO, James Barham.
Adjusted EBITDA, the company’s preferred measure of profitability, showed a loss of £1.9m with positive contributions from EMEA outweighed by investment in North America.
The only blot on an otherwise bright set of results is £0.8m of legal fees to defend a patent case brought by Sycurio, a competitor formerly known as Semafone. It’s hard to establish the total risk but the company estimates total defence costs could be £3.7m if the cases reach court.
Few businesses were as badly hit by Covid than Global Blue. In normal times, the tax-free shopping specialist helps travellers get VAT refunds quickly and securely. But during the Covid lockdowns, customers stayed at home and revenue dropped an eye-popping 89% in its 2020/21 financial year.
Global Blue furloughed staff, cut costs and took extra investment including an additional €211m in July this year from Certares Opportunities Fund, which now has a stake of 13%. Silverlake remains the dominant shareholder in the NYSE listed company.
Sales in store – the value of retail transactions to which Global Blue applies one of its services – bounced back strongly from €0.9bn in Q1 21/22 to €3.7bn in Q1 22/23 although sales remain well below the €5.7bn recorded in the same quarter of 2019. Tax Free Shopping volume was up €1.8bn to €2.8bn, Advanced Payment Solutions (AVPS) which is mainly dynamic currency conversion (DCC) grew £0.6bn to €1.1bn.
Total revenue bounced back by €39.4m to €56.1m in Q1 2022/23 but remains well below the €100.5m generated in 2019. The improved revenue performance has been at the expense of some margin erosion. Overall take rate fell from 1.9% to 1.5% with margins lower in Tax-Free but holding steady in AVPS.
Complementary Retail Tech (CRTS) is a new division that includes two UK based acquisitions, ZigZag Global, an e-commerce returns platform, and a majority stake in Yocuda, an e-receipts platform. Revenue from the two businesses was up from €2.8m to €4.0m on the back of higher eCommerce retail sales and a greater volume of returns.
Global Blue kept tight control of total operating expense, down 8% from €62.7m to €62.6m.
Adjusted EBITDA, the company’s preferred measure of profitability, swung from a loss of €10.7m to a profit of €6.8m. This positive result remains below the €39.5m recorded in the 2019. The turnaround was strongest in the Tax-Free Shopping division with adjusted EBITDA growing €19.7m to €20.5m.
Overall operating losses were sharply reduced from €51.5m to €14.7m. In 2019, the business was at break-even.
Global Blue says that it has enough resources to meet its needs for next 12 months but the business is cash hungry. It pays refunds to consumers before it receives that VAT from the merchants, typically in 30 days. The more volume it processes, the more working capital it needs. Despite the Certares investment, Global Blue warned that it will need additional cash to fund growth, “meet debt service requirements and interest payments under our indebtedness, fund general corporate uses… and expand our business through acquisition.”
Management updated on the state of global travel. 61% of travel corridors (by 2019 revenue) are now open, 8% restricted in some way and 31% (China and Russia) effectively still closed.
Chinese residents are still subject to onerous quarantine when returning home. This presents a major barrier to outbound travel. China accounted for 40% of tax-free spending in Europe before the pandemic but Global Blue is convinced the customers will soon return citing “strong pent-up demand.” More than 80% of Chinese who were travelling to Europe pre-Covid say they will be back within a year of borders reopening although there is no certainty when they might start flying to Europe. “We believe a recovery of Chinese travel to Europe may take a few more months and that it may be a slow recovery, spanning across a few quarters.”
Russians would, no doubt, like to travel as before but have less money and fewer places that welcome their visits. Global Blue has sold its take in its Russian JV but retains an option to buy it back should the macro position improve. One final headwind is that the UK, a major inbound destination which accounted for 14% of Global Blue’s revenue pre-Covid, has bizarrely abolished tax-free shopping completely as part of the Government’s plans to “level up” the UK.
China and Russia aside, the strong recovery seen in Global Blue’s Q1 numbers has kept going into July and August.
High spending Americans (strong dollar) and Gulf (strong oil price) are visiting Europe again and making up for lost shopping time. Management says Tax-Free Shopping volume is now running at 71% of 2019 levels, up from 58% in Q1. Sales are particularly strong in continental Europe with like for likes almost back at 2019 levels. Indeed, Portugal, France and Switzerland are running well ahead of 2019.
Access Group, a hyper acquisitive software roll-up, has acquired Pay360 from Capita for £150m, net of cash, at an EBITDA multiple of 14.3. The purchase will give Access scale in direct debits and brings complementary expertise in card payments.
As a stand-alone, specialist business, Pay360 doesn’t fit with the new, slimmed down Capita which says the transaction will “reduce indebtedness and provide additional liquidity.” Completion is expected in late Q4 2022.
Pay360 is a payment gateway and payment facilitator with a strong position in the UK public sector. It processed £8.6bn in 2021 at an ATV of £60.50. The business also claims to “manage and support” a further £40b of “other” payments which are likely to be mainly low margin direct debits. Pay360 is a very healthy business. EBITDA was £10.5m in 2021 and profit before tax was £7m. Trading this year has continued positively. EBITDA margin in H1 2022 was 21%.
Access Group hired industry veteran Andrea Dunlop in 2020 to build Access Paysuite, its payment division, mainly through acquisition. The Pay360 deal is transformative as it is by far the largest purchase so far. Pay360 will bring an experienced management team, deep expertise in card processing, to complement existing strengths in direct debits, and a set of blue chip customers. This scale will be helpful as the market moves to Variable Recurring Payments.
Paysuite has already bought three direct debit specialists – Eazipay, Eazy Collect and Rapidata – which together deliver £12bn processed from 5.000 customers. Clients include Cineworld and Paypoint.
Paysuite will no doubt be looking to cross-sell Pay360’s capabilities to Access Group’s 60,000 business customers although it will need to work hard to retain Pay360’s existing base. These customers may see the change of control as a trigger to reassess their vendor contracts. This could be a particular issue with accounts which have a strong existing relationship with Capita itself. A further challenge will be to rationalise systems from the four companies now comprising Paysuite so that customers are offered a simple set of propositions that easily integrate with their ERP and other enterprise software products.
AIB Merchant Services recovered strongly from the pandemic in 2021 with full year revenues and profits both up on the previous year.
Dublin based AIBMS is a JV between Fiserv and Allied Irish Banks. In Ireland, it is the largest domestic merchant acquirer serving all business types, large and small. Lead generation is primarily via the bank network. In the UK, AIBMS mainly supplies SMEs through ISO relationships such as Fidelity Payment, Card Saver, Cardcutters and Payment Plus. Finally, there is a more internationally focused, high-risk business with domain expertise in gambling and gaming. AIBMS can pay out in 18 currencies and offers multi-functional Merchant IDs (MIDs) which greatly simplify multi-currency and multi-channel operations for complex merchants.
Merchant service charges rose 51% to €601m in FY 2021 with other fees (terminal rental, chargeback fees, DCC etc) rising 29% to €40m. Total fee and commission income for the international business rose 82%, in Ireland by 36% and in the UK by 28%.
Excluding Interchange and scheme fees, net fee and commission income (net revenue) rose 19% to €97m. Management says the improved performance was due to “economic activity returning to pre Covid-19 levels…. And the consumer shift from cash to card.”
Strong cost and risk controls saw total operating expenses up just 2% to €51m. Staff costs rose just 6% and processing costs by 9%. Management had been worried about “merchant chargeback risk and negative balance risk” but credit losses were down from €2.7m to €1.7m. Cautious risk management saw merchant deposits (as protection against future losses) rise 49% at €19.6m.
This operational leverage drove net operating income up 40% to €47m with margins expanding 700bps to 49%. However, AIBMS does not yet feel confident enough in the future to resume dividends to its parents “due to the difficult trading environment and uncertainty.”
Post Brexit, AIMBS still running on temporary regulatory permissions and is seeking a UK Payment Institution licence to keep trading. The company says this should be live in early 2023.
AIBMS sells Fiserv’s Clover POS products and has added a set of apps from Dublin-based Loylap covering gift cards, loyalty and order ahead. It has also launched a new merchant portal with deep insight capabilities including the ability for merchants to compare their sales with similar businesses located close by. The payment industry has been testing similar products for some time but it’s always proved tricky to get small businesses to access the data often enough to want to pay for it.
Focused on Britain’s High Street heartland, Lloyds Cardnet suffered more than most during the Covid lockdowns. But as the nation got back to business during 2021, results have improved significantly. Management is pleased that trade has now “returned to normalised levels” although, looking forward, it warned that the cost-of-living crisis might be “negatively impacting on consumer discretionary spend in retail, travel and hospitality sectors.”
In the 2021 annual filings at Companies House, Cardnet reported a small recovery in payment volume but, with good cost control, this resulted in a much bigger uplift in profitability.
Cardnet is a joint venture between Lloyds Bank and First Data (Fiserv) with the bank holding 51%. Lloyds provides sales and marketing through its business banking network. First Data runs the back office and supplies several products including Clover. Cardnet also has relationships with 3rd parties including Liberis for Merchant Cash Advance and Qikserve for a mobile ordering app.
Total payment volume rose 4% to £66bn on the back of significantly higher total transactions – up 13% to 1,062m. Increasing use of contactless for everyday transactions is the most likely factor driving down ATV 8% to £62.15.
Credit, although a small proportion of the total, outperformed. Volume was up 18%. Debit transaction count grew 12% but ATV was sharply lower.
Net revenue (reported by Cardnet as fees and commission income) rose 11% to £275m with the take rate ticking up 3bps to 0.42%. Profit before tax rebounded 48% to £43m giving a very healthy operating margin of 15.6%. After two years with no dividend, Cardnet was able to pay out £39.5m after year end.
UK’s Tech Nation announced the 51 start-ups participating in its next six-month accelerator programme. It was heartening see six interesting Paytech businesses included and we’re looking at them in detail.
BR-DGE is a payment orchestrator focused on the travel sector. BR-DGE’s website claims connections to over 100 PSPs including Worldpay, Adyen, Stripe and NMI which it makes available to merchant customers through a single API. Here’s a good explanation of payment orchestration from Flagship Partners.
Edinburgh based BR-DGE has been around a little while. It was founded in 2014 and has received two rounds of investment, totalling $3.3m according to Crunchbase. The money has mainly come from Anne Gloag, the founder of Stagecoach, a large bus company. Co-incidentally, Brian Coburn, BR-DGE’s CEO, is the former CIO of FirstGroup, another transport operator.
Competitive differentiation is more likely to based on the ability of the orchestrator to advise its merchants how best to route transactions rather than on the sheer number of connections available. There is a clear opportunity to apply AI and machine learning to the problem although, as a technical service outside the money flow, orchestrators cannot make the generous ad valorem margins of the acquirers.
Payment orchestration is a highly competitive market and BR-DGE is sensibly focusing on the travel vertical. These merchants are classed as “high risk” by the payment processors and have most to benefit from applying intelligence to transaction routing. Details of customers are scarce. The website highlights only FirstGroup (using BR-DGE primarily for resilience) and Travel Counsellors.
UK based competitors to BR-DGE include Cellpoint Digital, which also specialises in the travel sector (and recently won Virgin Atlantic) and Apexx Global. Both have made significant recent fundraises. Wider afield there are Ixopay,Zooz and Gr4vy. It’s unlikely many of these will stay independent in the long term. Acquirer agnostic PSP’s and issuer/processor software vendors will likely need to add orchestration capabilities. For example, PPRO recently acquired Alpha Fintech.
Card Industry Professionals
This is quite an unusual choice for Fintech 5.0. Card Industry Professionals (CIP) is not really a technology company at all. Instead, CIP is an Independent Sales Organisation (ISO) that resells other vendors’ products. ISO’s normally work with very small business customers and differentiate through sales and service excellence rather than features or technology leadership.
Founded by Ciaran Savage, CIP is based in Grimsby, a hotbed of ISO success due to the number of businesses set up by alumni of Cardsaver, bought by Worldpay in 2010. CIP has 13 staff on the payroll which it supplements with a network of 130 self-employed sales agents around the country. It received £850K investment in April this year from Northern Powerhouse and Midlands Engine investment funds which will be used to expand the distribution network.
The ISO market is fiercely competitive but potentially very lucrative for those who can build a winning business. Cardsaver went for an undisclosed sum but Handepay which processed £3bn annually, was sold for £70m to Paypoint in 2020.
CIP resells Elavon and EVO Payments merchant accounts and adds either a standard or Android SmartPOS terminal or, for online merchants, a hosted payment page from Cardstream. ISO’s typically receive rental payments from merchants for the POS terminals and, most importantly, commission payments from their merchant acquirer partners.
In common with many ISO’s, CIP is now selling bundles of ePOS software, acceptance hardware and merchant accounts. ISO’s typically adopt a highly driven sales culture focused on energetic lead generation and flexible price negotiations. Selling software is a different business. Sales calls are longer and agents need to have a deep understanding of merchants’ business processes.
The website is not live yet. All we know about Clowd 9 is that it was founded by Suresh Vaghijani, former CEO of Tribe Payments and former MD of GPS. Vaghijani would appear to be building a cloud-native competitor to his former employers. According the Tech Nation blurb, Clowd 9 will be a technically advanced issuer/processor platform and a “flexible, reliable, environmentally sustainable global payment processor.” Chair is Peter Selman, a former Goldman Sachs banker.
Collctiv
An example of the clever value added services that can be easily built on top of Stripe’s payment APIs, Collectiv is an simple way for people to set up “pot” of money for specific purposes and have friends and family contribute. This is a great idea for anyone sharing expenses for a holiday or managing match fees for a sports club. And there is a gap in the market since Paypal closed its Money Pools service.
Collectiv provides an app and user interface. It sends people a message (text or email) which includes a payment link taking them to Stripe’s hosted payment page. Stripe does the rest, including handling the money, which means that Collctiv does not need to be regulated.
The service is free for consumers although a 2% donation is asked. The company says, 70% of customers choose to pay up. If Stripe charges Collctiv (say) 1.5%, you can see the economics quite clearly. To reach profitability, Collctiv will need to scale quickly. £200m payment volume would be needed to cover £1m of operating expense. And this assumes that all users chip into the tip jar.
Collctiv is founded by Amy Whitell, and has Crunchbase says it has raised £840K. The business is based in Manchester and has 18 staff according to LinkedIn.
Helpful
Founded by Evan Michaels, a former marketing consultant, Helpful’s concept is to create branded digital wallets with a green tinge. It says that its pre-pay Mastercard “drives behaviour change, by making every day actions, climate actions.” Most likely, this will be through offering cashback for spend at merchants whose green credentials meet with Helpful’s approval. And, we assume, are also willing to fund the cashback in order to generate footfall.
Additionally, Helpful says that using its digital wallet at checkout saves 80% on Co2 emissions. It would be very interesting to see the calculation.
Meanwhile, although Helpful’s website say its proposition is “aimed at the music and creator industries” the only customer implementation featured is support for a bottle recycling scheme in Glasgow. Helpful provided a digital wallet into which deposit return fees were paid.
Helpful doesn’t charge for most consumer transactions. Foreign currency transactions are loaded a chunky 5% and ATM fees are £3 per withdrawal.
The HQ is in London but Helpful’s development is in Belarus. The Mastercard is provided by Railsbank and Helpful asks its customers to use openbanking (via Plaid) to load money onto the card. The business is actively looking for seed funding.
Dapio
Dapio (formerly Paymob, not the Egyptian one) is based in London with development also in Belarus. It plans to launch a SoftPOS aimed at micro-merchants in UK and EU with distribution through both direct sales and partnerships with ISVs. Partners will be offered a commission on the processing fees which Dapio, itself, will have marked-up from its, unnamed, acquirer partners. However, no partnerships have yet been announced and merchants are currently asked to join a waitlist. Pricing is 1.5% for all transactions.
Still at a very early stage, SoftPOS technology allows any Android device to become a contactless payment terminal. This reduces the cost of payment acceptance by removing the expense of a dedicated card reading device. Although as SumUp will sell one for just £19, the cost of a PINpad is maybe not the barrier it once was. More interesting is the opportunity for larger merchants to combine the ECR and payment terminal in a single device and it’s very likely that the technology will spark new use cases we’ve not considered yet.
Dapio was founded by Kosta Du, has 21 staff (according to LinkedIn) and has recently received $3.4m seed funding from Flutterwave, the Nigerian fintech. This may give an indication of a pivot to African markets where the cost of POS terminals is still a hurdle to widening card acceptance.
Competition in SoftPOS is fierce with at least 20 start-ups working on this globally. Some of our favourites are Phos, MyPINPAD, SoftPOS.eu and Paycore.
ACI Worldwide reported a mixed performance with its Q2 results as it enters the second year of its turnaround. The global move to real-time payments is creating healthy demand from banks but the merchant side of ACI’s business has struggled.
Relocated to Miami in 2019, ACI has been selling software to financial institutions since the early 1980s and now claims 6,000 direct customers worldwide including 1,000 financial institutions and intermediaries. It serves more than 80.000 merchants indirectly through banks and PSPs.
Total revenue excluding interchange was up 18% year on year in Q2 to $236m. Net Adjusted EBITDA, ACI’s preferred measure of profitability, rose 10% to $66m with margins stable at 28%. There was a £1.8m exceptional cost in H1 for European data centre migration.
Banking sales were up 24% to $141.9m but the proportion of recurring revenue fell from 56% to 43%. This suggests ACI is still charging hefty upfront licence fees despite the long-term industry tend to SaaS. Segment adjusted EBITDA was up 29% with margins remaining a very healthy 49%.
Many countries are busy converting their domestic payment networks to real-time processing and ACI announced recent wins in Oman, Japan and South Korea. According to Odilon Almeida, ACI’s CEO, “There is a revolution coming right [now], real-time payments, and [banks] understand that they need to modernize.”
Future banking revenues should be boosted by new product development. Almeida explained that “work is underway on our next-generation, real-time payments cloud platform, and we expect the release of the minimum viable product in the first quarter of 2023. This is the next generation Base 24.”
Base 24 was first launched in 1982 and is intrinsic to the operations of many core payment platforms. Customers will be looking forward to upgrading to a modern, cloud-native version.
Merchant revenue fell 2% to $36.5m. Segment adjusted EBITDA fell 40% and margins contracted from 35% to 21%.
Despite the weak numbers, ACI remains optimistic about its merchant business. “I can tell you that we are still estimating a very strong year for merchants in the year to go,” said Almeida.
New merchant wins included Deutsche Payment. ACI hopes future growth will also be boosted by new products such as ACI Smart Engage which lets merchants offer goods and services directly to consumer smartphones using location, voice and image recognition technology.
ACI’s third business line is a Speedpay, a US bill payment service that it bought from Western Union in 2019. Revenues were up 8% in Q2 due to “really strong growth in government tax payments year-over-year.”
Overall, ACI’s net income grew from $6.5m to $13.3m with the margin (net of Interchange) improving from 3.0% to 5.6%
Subsequent to the Q2 results, ACI announced that it had divested its online banking software business to One Equity Partners for $100m. This will reduce annual revenues/EBITA by $15m/$5m in H2.
