Global Payments European merchant revenue growth dropped to 7% in Q2 as the effect of the EVO acquisition dropped out of the year-on-year comparisons. The Atlanta based acquirer/processor reported “notable strength across our faster-growth geographies, including Poland and Greece” and said it was “pleased to see trends start to stabilize in the United Kingdom.”
The integration of EVO’s European businesses has enhanced Global Payment’s existing strong footprint in the UK (where Global inherited a decent merchant portfolio from its 2009 acquisition of HSBC merchant services), Spain (80/20 JV with Caixa Bank) and Czech Republic (partnering with Erste Bank). EVO also brought two extra joint-ventures with local banks – PKO BP in Poland and National Bank of Greece.
Starting with the UK, management says that, after several years of weaknesss, business is showing “some signs of stability” and Global Payments now has a “strong pipeline of new business.” Hospitality and unattended are the bright spots and Cameron Bready, CEO, highlighted winning Virgin’s hotel business.
Although Global Payments has spent heavily in the US on buying a number of vertically focused ISVs, most of these businesses do not actively market their products in Europe. However, Global did buy a UK software business called Bleep which provides an ePOS solution for high-capacity retail such as stadiums. Rebranded as Global Payments, it is winning deals at a number of UK football clubs such as Birmingham City.
Commerz Global Pay, the joint venture with Commerz Bank in Germany, went live and is “off to a fantastic start.” Bready said he was “already seeing strong lead generation” and confident of building “a scale business in this attractive market.” Management says it will launch its POS software in Germany later this month and will bring it to Ireland, Poland, Austria and Romania over the next 12 months.
Global also reported the acquisition of “an early-stage technology development company” which it did not name. This is Yazara, a SoftPOS vendor originally from Turkey, which was already supplying Global in a number of markets. Bready said it was “strategically important for us to bring this technology in-house to unify our offerings globally and to control the entire value stack enabling our solutions.” This is a good move although Yazara’s other customers may not be so happy with a key competitor controlling the business.
Looking ahead, management recognises that a business built primarily from acquisitions needs rationalising. Bready said “we remain committed to sharpening our strategic focus and simplifying our business.” Global has begun a “thoughtful and methodical assessment of our assets” and promises to give more details at an investor day in September. Analysts expect the sale of a number of under-performing US software businesses.
Visa and Mastercard continue to prosper in Europe with total total scheme volume rising 11% in Q2 to €1.206 trillion, outpacing retail sales growth by some distance. The average transaction value (ATV) fell 2% to €32.89 as low-value purchases continue to migrate from cash to card.
Visa still processes more than Mastercard in Europe but the margin is narrowing. Mastercard has been successful in winning issuer portfolios from its arch rival and is growing more quickly. In Q2, Mastercard’s volume rose 12.3% compared with 10.5% at Visa.
Speaking about the Q2 results, Michael Miebach, Mastercard’s CEO said he believed the pandemic forced Europe to digitise more quickly but that the continent still offers great growth potential. “If you look at the economies in Germany, in Italy, there’s significant cash … that we can go after,” he explained. Where markets are already digitally mature, he still sees opportunities saying “The Nordics is a good example of that. There’s a whole new set of business models coming up… So I’m excited about the Europe outlook, and we continue to invest there. Bottom line.”
One of Mastercard’s main growth drivers is the conversion of Maestro cards – mainly in Germany and Netherlands – to debit Mastercard. The switch seems to be going well and Miebach reported seeing spend per card doubling because they can now be used online and outside their home country. 14m cards were converted in H1.
Visa is fighting back. It has resigned Lloyds Bank in the UK for debit and won its credit portfolio back from Mastercard, gaining an additional 10m credentials for consumer and commercial cards. Visa also renewed its commercial card contract with Raiffeisen and expanded consumer debit and credit in Czech and Romania, bringing 2m more cards. Visa has pushed hard on its Olympic sponsorship and claims to have added 100.000 merchant locations in France and issued nearly 6m Olympic branded cards.
Of course, cash isn’t going away. Together, Visa and Mastercard processed €271bn cash transactions in Q2. The total volume is flat but the transactions are gently declining (down 3%) as the ATV rose 5% to €159.
Both schemes have updated investors on lawsuits. In the UK one large legal action has been rumbling on since 2013 in which over 1150 merchants made a claim relating to excessive interchange fees. Visa says it has settled 475 merchants but £500m of claims still remain to be agreed. Meanwhile, the UK Competition Appeal Tribunal is hearing a class action related to interchange fees on commercial cards for which Mastercard is on the hook for damages of up to £1bn. Finally, a new lawsuit has begun in Portugal in which merchants are claiming damages of €400m from Mastercard for excessive interchange fees.
In product news, contactless is now the standard way to pay at POS. 80% of Visa’s face to face transactions outside the US are contactless with 55 countries at >90% contactless at POS.
Mastercard reiterated its commitment to phasing out PAN card entry for eCommerce in Europe in favour of one-click checkout. This is primarily delivered by the mass adoption of network tokens to support stored-credentials used by merchants for account-based checkout. Tokens have been a huge success. Worldwide, Mastercard says tokenised transactions were up 49% year on year. Visa has over 10bn tokens generating, it says, an incremental $40bn eCommerce revenue for merchants and saving more than $600m fraud.
Both schemes are still pushing Click to Pay for guest checkout but it’s tough going in the face of entrenched competition from PayPal, ApplePay, Stripe, Shopify and others. Mastercard says Click to Pay transactions “more than doubled” and it is “working with our merchants and bank partners to drive adoption.” Visa is integrating Click to Pay and Visa Passkey which enables cardholders to authenticate themselves using biometrics. Visa says it has “hundreds” of issuers representing more than 50% of eCommerce volume in pilot.
Visa Direct, a product which allows money to be sent to Visa cards, is finally delivering results. Total transactions were up 41% to 2.6bn in the quarter and European volumes using Visa Direct for person-to-person transactions “nearly doubled.” In the UK, Weavr, a fintech, is using Visa Direct to offer employee expense reimbursement, reward, recognition and earned wage access.
Neither scheme disclosed numbers relating to open banking although Visa said Tink, its open banking business, “continues to sign new partners.” With the continued growth in push-payment fraud, Visa sees an opportunity to sell its fraud expertise to banks. Visa Protect -a risk scoring solution – has piloted with Pay.UK and showed “average of 40% uplift in fraud detection” when applied to A2A transfers.
Banco Sabadell remains committed to selling its merchant services business to Nexi although the deal is on hold as the Catalan bank focuses on defeating a hostile takeover from BBVA, a larger Spanish competitor.
Speaking during the Q2 2024 results call, Sabadell CEO Cesar Gonzalez-Bueno confirmed that, “all necessary regulatory approvals have been secured, and the deal will be finalised following the conclusion of the hostile tender offer.” He went on to say that there are no break clauses, and the sale to Nexi is expected to proceed around mid-2025, approximately almost two years later than initially planned.
BBVA has not made any statement about whether the sale to Nexi would proceed should it be successful in buying Sabadell. BBVA has a good in-house merchant services offer. It could deliver considerable synergies by merging the two businesses and has less need of Nexi’s technical expertise and product roadmap. Nexi has indicated that the deal is “not automatic.”
Nexi had agreed to pay €350m for Sabadell’s merchant services unit which processes about 20% of card payments in Spain through 380,000 merchants. The sale price was reported to be based on a run rate of €30m EBITDA. However, Sabadell also disclosed that the delayed sale is not expected to impact the bank’s profit and loss statement, implying that its merchant services business is currently operating at breakeven point.
Profitable or not, Sabadell continues to display healthy topline growth. Merchant payment volume increased by 9% to €14bn in Q2 and consistently maintains a yearly run rate of over €50bn. Meanwhile, the average transaction value has decreased by 3% to €31.50 as the adoption of contactless payments continues to drive the conversion of low-value cash transactions to card payments.
Significant write-downs at PagoNxt, Santander’s merchant payment business, masked a good underlying performance reported with the bank’s Q2 2024 financial results. Notably, economies of scale in payment processing helped double EBITDA to €69m.
PagoNxt was created when Santander consolidated its payment assets into a single unit containing Getnet, a multi-national merchant acquirer, Ebury, a London based trade finance specialist, Superdigital, a Latin American financial marketplace for the economic inclusion of the underbanked and PagoNxt Payments which offers wholesale A2A capability based around its Payments Hub.
The refocused Getnet is the second largest acquirer in Latin American and has good positions in Spain and Portugal where it sells through Santander’s large domestic banking networks. Santander also has a strong footprint in the UK where Elavon is the bank’s preferred payment partner today. It’s not clear if or when Getnet will replace Elavon in this relationship.
Returning to the Q2 2024 results, global merchant payment volume at Getnet rose by 9% to €54bn. This is the slowest increase in volume yet reported by PagoNxt and reflects the impact of the loss of its German merchants. ATV ticked up 6% to €20.85.
Payments Hub which offers a single API connection into a number of A2A platforms including SEPA, Faster Payments and SWIFT, is growing fast from a low base. Total transactions increased from 79m to 405m in the first half of 2024.
PagoNxt is successfully turning increased volume into sales revenue. Turnover was up 8% to €300m with the good performance attributed to Getnet in Europe, Chile and Mexico, where it deployed DCC for the first time, as well as higher sales at Ebury.
Management is keen to reduce its dependence on Santander and was pleased to report that 22% of total PagoNxt revenue is “open market”, that is sourced from its own distribution, compared with 14% last year.
Higher volumes have begun to deliver economies of scale. Unit transaction costs at Getnet fell 9% to 3.7 cents, allowing operating expenses to hold steady at €297m despite the growing size of the business.
PagoNxt is now consistently profitable on an underlying basis. EBITDA doubled to €69m in Q2 as the margin grew 8pp to 20.1%. Management believes that it is on course to reach the medium term target of 30% EBITDA margins.
Net operating profit before the write downs was €4m compared to a loss of €18m in the same quarter of 2023. After the write downs, PagoNxt lost €258m.
2023 was a difficult year for Cardnet as the Lloyds Bank/Fiserv joint venture was hit by the impact of the cost of living crisis on its core UK high street merchant customers.
Despite UK retail price inflation running almost 10% in 2023, Cardnet’s total payment volume fell 8% to £54.6bn. Credit slightly outperformed, dropping just 3% to £14.7bn. Debit volume was down 9% at £39.9bn.
Gross revenue from merchant service fees fell 3% at £314.3m. The decline was cushioned by price increases. Revenue per transaction rose 8% to 31.1p
After deducting interchange, scheme fees and Fiserv’s costs, Cardnet’s net revenue was down 12% at £52.8m “primarily driven by the impact of the cost of living crisis on activity levels along with client attrition.” Fiserv’s fees rose from £8m to £14.5m.
Cardnet’s owners want to return the business to growth. Melinda Roylett, ex PayPal and Square, has been appointed as MD and is rumoured to have been given some very aggressive targets. Her plans have been backed with £13m spend on a “Strategic Investment Programme,” up from £6m in 2022. These costs helped drive up overall operating expense 37% to £35.5m.
Cardnet, 51% owned by Lloyds, aims to recruit new merchants by leveraging the bank’s corporate relationships. A good example is Lloyds’ partnership with PayPoint, one of the UK’s largest ISO’s. This deal will see Cardnet become the exclusive supplier of merchant services to Paypoint’s 60.000 small business customers.
PayPoint currently writes business for both Cardnet and EVO (now owned by Global Payments) but chose to standardise on Cardnet because of the wider banking product set that Lloyds brings. PayPoint currently has about 10,000 merchants with Cardnet and 20,000 with EVO. The remaining 30,000 take merchant services from other suppliers and will be a key target for the new partnership. In return, Cardnet has promised to make significant product investments through its Fiserv relationship and to launch a merchant rewards scheme based on PayPoint’s Love2Shop loyalty products.
Cardnet has no staff of its own. All employees are managed by Lloyds or Fiserv and recharged to Cardnet. Salary costs rose 24% from £14m to £17m.
With revenues down and costs up, the bottom line suffered. Profit before tax was down 40% at £23.2m, although the overall margin remains an impressive 16%.
The shareholders have dipped into reserves to pay a dividend of £34.5m. This is rather lower than the £54.1m they shared in 2022.
Despite the growth plans, Cardnet’s fortunes remain closely tied to the UK high street more generally. Management’s outlook is rather downbeat, saying “The business is aware that the combined effects of higher consumer cost of living and interest rates reducing at a slower rate than originally expected have negatively impacted consumer discretionary spend in retail, leisure, travel and hospitality sectors.”
Discover’s Q2 results showed a sharp slowdown in the volume processed by its 25 network partners. These are third-party schemes, such as RuPay (India) or SIBS (Portugal), which cobadge with Discover to gain access to its global acceptance network.
In contrast to the strong cross-border growth reported by both Visa and Mastercard, Discover’s network partner volume was down 22% in Q3 to $8.1bn. Management said that Ariba Pay, a longstanding Discover partner which helps businesses settle invoices, was the main contributor to the poor performance in partner volume.
Diners Club International, which is still largely a series of national franchises, also had a challenging quarter, with volume down 5% to $9.4bn. The decline was attributed to unspecified issues in India where the cards are issued by HDFC Bank.
It’s obvious why Klarna is selling. KCO competed with key distribution partners such as Stripe and Adyen and the very generous sale proceeds will bolster Klarna’s balance sheet and help grow its lending business.
But it’s less clear how KCO’s new owners will make a return on their investment. Stand-alone gateways have been under considerable pricing pressure in recent years, and many have ended up vertically integrated into the larger merchant acquirers.
In banking news, BNP Paribas and BPCE, which together handle c.30% of card payments in France, will invest €100m each and pool their payment capabilities to create a joint-venture with the scale to compete with Worldline and Nexi. Technology will be “home grown” and most likely a continuation of Partecis, an in-house platform based on ACI products. While there’s plenty of scope for synergy in France, the JV will find its hoped for international expansion rather more challenging as PagoNxt, Santander’s payment unit, demonstrated when it recently closed its German operations.
IDC, a London-based research firm, has published vendor evaluations for online and omni-channel retail payments. The full reports cost $20,000 each but the top ranked firms have helpfully made their sections available free of charge. Stripe comes top for online payments although is marked down for being expensive. Adyen is first for omni-channel but customers are warned that its all-in-one solution may lack flexibility.
Viva Wallet’s lawsuit with JP Morgan ended in a London courtroom with both sides claiming victory. JPM paid an eye-popping $800m for 48.5% of Viva in 2022, primarily to gain access to SME customer onboarding tools for European markets. Haris Karonis, Viva’s founder, claimed that JPM then deliberately blocked his company’s launch in the US so that the giant American bank could buy the rest of Viva on the cheap. JPM counter-claimed that Karonis failed to understand how far Fintech valuations had fallen.
It’s taken four years and 14 of the original 31 banks have exited the consortium but the European Payment Initiative (EPI) has finally launched wero, the long-long-awaited domestic European payment champion. Wero, a combination of “we” and “euro”, is live for person-to-person money transfer, initially for customers of co-operative and savings banks in Germany and KBC in Belgium. French banks come on stream in the autumn.
Shoppers will be able to make eCommerce payments with wero from early 2025 and Computop, the German PSP, has already begun asking merchants to register to be part of a pilot. In-store payments will follow in 2026.
The consensus from payment experts is that for wero to succeed the EPI needs to focus ruthlessly on user experience and keep the member banks firmly in the background. And “I need a wero” is the only song that will do as you can hear in this short commercial.
Even though wero is at least six months away from being ready for eCommerce, its launch sparked the unexpectedly early closure of Paydirekt/Giropay, a domestic competitor to PayPal launched by the German banks in 2016.
Insiders tell me that the service termination was badly handled. Giropay switched off its old integration interface at the end of June even though many acquirers had not yet migrated to the new version.
Meanwhile, Klarna has announced the closure of Sofort, the German online bank transfer service which it bought for $150m in 2013. Merchants will be migrated to Pay Now, Klarna’s open banking product. This includes buyer protection which is great for shoppers but less exciting for Sofort’s many merchants in the gambling and adult sectors. These customers will be looking for alternatives.
Klarna’s new wrapper doesn’t come cheap. In Germany, Adyen is charging 1.35% + €0.20 for Klarna Pay Now transactions. For UK merchants, Mollie is asking a punchy 4.99% + £0.30.
Blik, the wildly successful Polish mobile payment standard, continues its stunning growth with payment volume up 53% in 2023 to €29bn. Blik is jointly owned by Mastercard and a number of local banks who have suddenly woken up to the importance of their investment. From now on, the banks will send their CEO’s to Blik’s board meetings.
Bancomat, the Italian domestic debit scheme, is finally getting its act together. Milan-based investment fund FIS has made a €100m investment, the board has been slimmed down to speed decision making and a new CEO appointed from Mastercard. Nexi runs the technology for Bancomat and has put the card scheme live on Apple Pay and as a payment option on Amazon.
We’re taking a keen interest in the convergence of software and payments. Flagship Consulting’s latest report shows quite how dependent many American ISV’s have become on payment and other financial services revenue.
In response, payment processors know they need to partner with ISVs and some have gone further, buying or building an in-house range of vertical software.
Intriguingly, the stock market value of payment processors that offer software is rather lower than software vendors that offer payments processing. Jevgenijs Kazanins looks at why Toast (an ISV that offers payments) is valued more highly than Shift4 (a processor that offers software) even though Toast makes much less money. His conclusion is that ISV’s are better at securing recurring revenues under contract.
European ISV’s have now realised they too can make money from processing. The opportunity is smaller than in North America because payment margins in Europe are much lower. Nevertheless, a savvy commerce software vendor can still double profit margins by embedding payments in its core merchant offer.
With so many acquirers and PSP’s pivoting towards ISV’s as their primary distribution channel, a number of start-ups have begun offering key parts of the technology stack as-a-service. Here are a few that have caught my eye.
Shape Technologies is offering payments-platform-as-a-service to payment facilitators with capabilities including onboarding, KYC and billing. Shape is founded by alumni from Cardstream and is helping put Taunton, Somerset on the Fintech map.
Fung, in Amsterdam, offers a similar product set to Shape but is also a payment institution and can handle the money flow too.
Dublin/Vilnius based Paynt, goes one step further with a full acquiring-as-a-service proposition.Subscribe
New shopping
We’re keeping a close eye on the progress of autonomous stores as one possible driver of a seismic shift in grocery transactions from POS to the shopper’s phone.
Although sceptics point out that frictionless checkout often involves more manual intervention than the vendors let on, the use cases are multiplying. For example, in a village store in Switzerland a shipping container is transformed into an unmanned convenience store (or walk-in vending machine) using technology from FastaXs.
In Europe, Mastercard is backing PayEye, a Polish start-up which is piloting its iris/facial recognition product at five locations of Empik, a large retailer of books, toys and games.
A number of start-ups are trying to make it easier for merchants and consumers to move to digital receipts. Habits are hard to shift. Despite a new legal requirement in France that paper receipts should be opt-in only, Auchan, the grocery chain, reports 60% of shoppers still ask for paper.
In the UK, Slipp, which boasts JD Sports as an early client has raised £750K. Slipp integrates with the ePOS software to send the shopper a text or email. JD Sports says using Slipp’s SMS receipts to promote its loyalty programme is increasing the number of customer sign-ups.
Anybill, from Regensberg in Germany, asks customers to scan a QR code presented by the ePOS. Pricing ranges from €4.49 to €35.99 per month per outlet.
Yocuda, a French start-up acquired by Global Blue, claims to have delivered over 2m electronic receipts to over 200,000 identified shoppers. Clients include Halfords and Decathlon.
Receipt Hero, based in Helsinki, has raised additional funds to supplement the $5.7m already invested. Receipt Hero offers cardlinking as well as QR scans. Partners include PayOne.
Pi-xcels from Singapore has an elegantly simple product that delivers an e-receipt automatically when the shopper taps their phone on the payment terminal. The product integrates with the terminal not the ePOS software and is available on Ingenico and PAX.
There’s an open question whether digital receipts can establish themselves as product category in their own right or whether merchants would prefer to buy the capability as a feature of existing POS or CRM software.
This technology, which allows any off the shelf consumer device to accept contactless card payments, was originally touted as a micro-merchant proposition but is proving most popular with large enterprises.
LVMH is leading the innovation. Liberated from the need to locate the nearest payment terminal, sales associates at Christian Dior, an LVHM brand, each have their own iPhone to serve customers wherever they are in the store. Dior has worked with Adyen, Global Blue and Vo2 Group, a Paris HQ’d tech consultancy, to add instant VAT tax refunds to the proposition.
In vendor news, Rubean, based in Munich, has raised an additional €2m capital to finance its strong growth. Sales are forecast to rise to €2.2-€2.5m this year from €1m in 2023 on the back of new distribution deals.
Rubean’s partnership with Global Payments may be threatened by the Atlanta processor’s unpublicised purchase of Yazara. The Global/Yazara tie up is likely also to be bad news for MyPinPad which local sources suggest may be replaced as supplier to eService, Poland’s largest acquirer, which Global bought last year.
In better news for MyPinPad, Ur&Penn, a leading chain of jewellers in Norway, is using its SoftPOS application to take store payments on the associate’s Android phones. 2izii is the integrator and Elavon the acquirer.
Phos, acquired by Ingenico in 2023, is making good progress building out its distribution network, announcing a key partnership with Shift4, a US processor with big ambitions in Europe. Phos is also the technology partner for BORICA, which provides SoftPOS to the three largest banks in Bulgaria. BORICA claims 1,500 “terminals” live today.
In Italy, Ultroneo has implemented MarketPay’s PayWish SoftPOS application for its Get Your Cash merchant proposition. Volumes are growing swiftly (see below) but it’s not been plain sailing. Writing on LinkedIn, one Ultroneo director explained “For nearly 12 months now we have been struggling with the teething problems of this new technology. Bug after bug, incident after incident, we have managed to stabilize the SoftPos to the delight of our customers.”
Openbanking
The UK’s incoming Labour government is making very positive noises about fintech. Quoting from its manifesto: “Financial services are one of Britain’s greatest success stories. Labour will create the conditions to support innovation and growth in the sector, through supporting new technology, including Open Banking and Open Finance and ensuring a pro-innovation regulatory framework.”
There is much that a new regulatory approach could deliver, including an open banking acceptance mark, “scheme” rules to ensure common standards for authorisation codes, refunds etc, the introduction of consumer protection and a recognition that all this cannot be provided free of charge.
Positively, the number of open banking payments made in the UK rose c.50% year-on-year to 17m in May 2024. Variable Recurring Payments (VRPs), the open banking equivalent of direct debits, now account for 11% of the total.
The increase is encouraging but compared with the 2bn debit card transactions made in the UK in a typical month, volumes remain very small.
The slow take up of open banking has implications for the large number of vendors operating in this sector. There are twenty listed on the UK government’s procurement framework alone. If revenues don’t arrive soon, only the best capitalised will be able to keep trading until the product goes mainstream.
Truelayer, hopes to be one of the survivors, having raised a remarkable total of $271m from its investors. Truelayer’s CEO has given an interview to explain that he is playing a long game, saying “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,”Subscribe
Cash
Germany is often cited as the last hold-out of the cash economy but the latest Bundesbank payment survey shows a further decline in the use of paper money. The cash share of transactions fell 7% points in 2023 to 51% and its share of volume by 4% points to 26%.
It’s no surprise that policy-makers in many countries are grappling with the implications of the world going cashless. For example, Ireland has passed an “Access to Cash” law which gives the government powers to set minimum numbers of ATMs for each area. The local banks, and their customers, will bear the cost. Revolut, wildly popular in Ireland, will likely get a free ride.
Crypto currencies are assets not money, yet vendors persist in bringing forward payment acceptance solutions at POS.
“Few have heard of SpacePay, but give it a year, and it will likely be a household name” is the bold claim from this London based start-up which graduated from Barclays’ fintech accelerator. SpacePay, which has raised $750K, says it will allow people to spend crypto at “most existing point of sale card machines.” It’s not clear how this would work in practice.
If there is a user base for crypto at POS anywhere, it’s going to be in a cross-border market such as Luxembourg where some shoppers may not want their home country authorities to know what they are buying.
Done4You, an ISO based just across the border in Namur, Belgium, has implemented crypto at POS for a petrol station in the Grand Duchy using GoCrypto’s technology. Crypto transaction are 1.25% compared to interchange + 0.5% for credit cards.
Primer API, a well-funded start-up that provides software allowing merchants to manage their own payment stack grew revenue to £2.9m in 2023 according to its latest financial accounts. 40% of turnover comes from the UK but Primer recorded sales growth in Europe, USA and around the world. Although management has trimmed costs, the UK-based business made an operating loss of £15.6m.
Founded by Gabriel Le Roux, a former Braintree executive, Primer believes it has spotted a gap in the market with large merchants with complex payment needs that have outgrown sole supplier offers from PSPs but are not willing or able to build their own payment infrastructure.
Primer claims to be the world’s first open automation platform with a drag and drop framework that merchants can use to easily build a payment stack to sell online. This offer includes Primer’s own headless checkout which merchants can configure to set up their preferred payment flow.
Management is at pains to differentiate Primer from the small army of lookalike payment orchestrators competing for business today. Primer does offer routing to multiple acquirers including Worldpay, Stripe and Global Payments, but the software also manages 3DS, fraud, sales tax and reporting,
Primer’s target market is enterprise customers that have identified payments as a significant strategic challenge and likely have already hired an experienced in-house payment product team. A great example is Conforama, the French furnishing retailer which selected Primer and has been impressed with both its products and customer support.
The company has cut back on its heavy platform development spending although investment remains considerable. Administrative expenses fell from £24.5m to £18.4m in 2023 as employee numbers were reduced from 136 to 101. Staff are spread over 26 countries. The business is fully virtual, and everyone works remotely. Management believes this enables it to hire product and client management teams located close to its customers.
The operating loss narrowed to £15.6m from £24m in 2022 although the deficit improves to £12m after banking a £3.4m tax credit. Accumulated losses stand at £43m.
Primer is well funded. It raised $50m at a $425m valuation in 2021, supplemented in 2023 with a further £16.6m convertible loan and finished the year with £28m cash in the bank.
Although expecting “significant growth” in 2024, management says it is “mindful of market conditions” and is monitoring its cost base accordingly. Nevertheless, Primer has publicised expectations of increasing revenue 200% in 2024 which would take sales to almost £6m. This would be an impressive performance but remains a long way from profitability.
FSI, a Milan-based private equity fund, has completed its c.€100m investment into Bancomat, Italy’s domestic card payment scheme. With the new capital, Bancomat will engage Nexi to refresh its core technology infrastructure and accelerate plans to expand operations outside its home market.
Bancomat is currently owned by an unwieldy consortium of 105 Italian banks led by Intesa San Paolo and Unicredit. After its investment, FSI will hold 44% of the shares and has installed a new, streamlined board of directors which, it is hoped, can take decisions more quickly and be better placed to compete with Visa and Mastercard.
Fabrizio Burlando, a former BCG consultant and long-time Mastercard executive has been appointed as Bancomat CEO. He will need to oversee a sharp change in its business model. The scheme has operated for years as a co-operative organisation working largely to recover its costs. Now having accepted private equity backing, Bancomat will need to focus on growing its top line.
Bancomat’s 2023 results demonstrate that, despite its scale, the scheme generates relatively little revenue. Total sales were up 8% to €52.5m with the bulk of this turnover coming from the operation of Pago Bancomat, its core debit card issuer and acceptance business.
30m Pago Bancomat cards in circulation today, issued by 190 member banks, and can be used at 2.5m points of sale. Total payment volume processed was €119bn in 2023, up 4%. In common with the rest of Europe, Italy has seen a marked shift to contactless transactions, stimulating card use for lower value purchases. Bancomat’s ATV was down 4% to €47.20.
Pago Bancomat revenue was up 11% to €35.8m amounting to just 1.4 cents for each of its 1.85bn transactions. This equates to 3bps of turnover compared to the c.20bps or c.$0.12 made by Visa on its worldwide card business. .
Bancomat works on a conventional four party model with Interchange set at 0.2% although there is a discount to 0.1% for transactions under €5. Merchants typically pay c.1% per transaction, leaving the balance for the costs and margins of the acquirers such as Nexi, Worldline and many small banks.
Bancomat’s recent innovations include adding acceptance to Nexi’s SoftPOS application with 22.000 devices activated in 2023 and its inclusion in the Google Pay wallet. Apple Pay is reportedly coming shortly. Bancomat has also started issuing commercial cards.
Bancomat Pay, a new mobile-app based payment product offered through member banks allows both P2P and P2B transfers. Bancomat Pay is growing swiftly from a low base. Volume was up 83% to €0.44m although revenue rose just 19% to €0.5m, equivalent to 5 cents per transaction.
FSI will likely be looking to grow Bancomat Pay internationally. Bancomat has already signed an agreement with Bizum (Spain) and SIBS (Portugal) for interoperability of their products. It is taking a similar approach to working with Bluecode (Austria) and Twint (Switzerland) and has a pilot working for the European football championship in Germany.
Reflecting the long-term decline in cash transactions, ATM volume was down 4% to €106bn and ATM revenue fell 5% to €4.4m.
Bancomat has an existing partnership with Discover, has added Discover to its ATM service and is working with Italian acquirers to put Discover live at POS. In 2023, Discover paid Bancomat €2.2m incentive fees.
Despite the higher revenues, Bancomat’s EBITDA fell from €16.6m to €5.9m due to higher operating costs.
Staff numbers rose slightly to 81 at an average cost of €104K, up 12% on 2022.
EBIT swung from a profit of €12m in 2022 to a loss of €4m in 2023 due to €16.6m write-downs and break-fees associated with the termination of its plans to create a new business unit, a “payments hub” joint venture with SIA, a technology supplier subsequently merged into Nexi.
Bancomat’s new strategy is to commission Nexi to build a new payments infrastructure but as a vendor rather than business partner.
Vectron offers Shift4 the opportunity to cross-sell payments to its 65,000 merchant locations and through a network of 300 dealers, mainly in DACH and Benelux. Vectron, quoted on the Frankfurt stock exchange, reported €3m EBITDA on sales of €37m in 2023. The move is bad news for Euronet, Vectron’s current payments partner.
Although the EBITDA multiple is high, cost per merchant location is the metric most commonly used by American payment folk when valuing ISVs. By this measure, Vectron is a bargain at just €1,300 per merchant location. In contrast, Shift4 paid $250m for Revel, a US restaurant ePOS vendor with only 18,000 locations last month.
I met with Shift4’s team at Money 20/20. They explained the company’s model is to buy old-school ISV’s that have not yet monetised payments and to aggressively cross-sell into the installed base. Merchants are then offered an upgrade path to Skytab, Shift4’s in-house ePOS product.
While many believe ISV’s will take a major share of payments distribution in Europe, there is plenty of life in the bank partnership market. Worldline is paying €120m for the merchant services business of Credem Banca at “a double digit multiple.” This would be Worldine’s fifth portfolio acquisition in Italy and builds on its current run rate of €35bn processed annually from 320,000 merchants. Nexi is Credem’s current partner and reportedly would expect to be able to retain just 25% of the merchants.
Figure 1 Wordline Italy – source Q1 results deck
The market reacted positively to Wordline’s Q1 results. Although revenue grew just 2.5%, management confirmed it was on track to deliver €200m annual costs savings including cutting 330 posts in France. Worldine’s retrenchment is already having an impact on its supply chain. Ingenico, the French terminal vendor spun out of Worldine is threatening to layoff most of its 100 staff in Belgium blaming weak demand from its largest customer.
Meanwhile, BBVA’s proposed €12bn hostile takeover of Banco Sabadell threatens to torpedo Nexi’s expansion into Spain. The Italian processor had agreed to buy Sabadell’s merchant services business for €350m. The deal includes a 10-year exclusive lead referral deal which might now be worthless. BBVA has a strong in-house merchant services proposition which it will probably prefer to sell through Sabadell’s branches instead of Nexi’s products.
In other bank partnership news, Global Payment’s JV with Commerzbank has gone live just six months after announcing the deal. The offer is very basic but to get anything to market in that time is impressive. Elsewhere, Global Payments has cemented its position in Greece by acquiring EDPS, one of the largest multi-acquirer POS terminal providers. Global inherited a joint venture with National Bank of Greece from its acquisition of EVO Payments last year.
Neo banks are also looking to add merchant acquiring to their business product portfolios. Revolut claims 15,000 merchants accept in-person payments using its simple in-house proposition of free micro card-reader, gateway and payment links. Pricing starts at 1% + 20c. Tide, the UK SME bank, offers a card reader for £89 with all transactions at 1.5%. Tide is as a payment facilitator using Adyen products and will extend to Germany shortly.
Santander beefed up PagoNxt, its payment division, with the purchase of Wirecard’s Munich operations in 2021 for a reported €100m. This was the part of Wirecard that did exist and had real customers but PagoNxt was unable to compete with Adyen, Stripe and others for new business in Germany. PagoNxt is now exiting Germany with the loss of 350 jobs in Munich and will now concentrate on Iberia and Latin America.
Nayax, an Israeli unattended payment specialist quoted on NASDAQ, has raised $63m additional capital after reporting a storming Q1 which saw a 44% increase in connected devices to reach 1.1m. Nayax specialises in unattended payments in vending, kiosks and EV charging. Its latest European win is ASO Vending which will use Nayax terminals in its 8,000 machines in Slovakia.
In other funding news, Ekko, a green payments venture based in the UK, has raised $2.5m to support its efforts to educate consumers by showing the Co2 generated by their online shopping baskets. This is an increasingly crowded market. Connect Earthdo something similar and already have partnerships with KBC in Belgium and Tide in the UK which will see Co2 figures added to bank statements. Competition is fierce. Mastercard is offering an identical service to its European issuing clients powered by Docomony, a Swedish start-up.
SumUp, the mPOS provider which claims 4m merchants in 36 countries, has raised a giant €1.5bn loan. The CFO said the cash would allow SumUp “to refinance existing debt as well as have firepower to take advantage of any opportunities that arise over the next six months.”
In a landmark report, the UK’s Payment Systems Regulator has found that scheme fees charged by Visa and Mastercard have risen 30% in real terms since 2019 with “little or no link to changes in service quality.” These largely unjustified charges are costing acquirers (and their customers) an extra £250m annually in the UK alone.
Scheme fees contain a mix of per transaction and ad valorem elements charged over different time periods and are near impossible to reconcile. The PSR reports “some of the largest acquirers in the UK told us that they need to purchase additional services or consultancy services from the schemes in order to properly understand their fees and services, and several acquirers reported their ‘accidental’ purchase of some services.”
Disappointingly, the regulator has backed away from capping scheme fees. Instead, it is proposing to oblige Visa and Mastercard to publish more detailed financial information including justification for any increases.
Vendors see a clear problem to solve and we’ve seen a growing number of start-ups offering acquirers tools to manage scheme fees and portfolio pricing. Torus from Estonia won the innovation competition at this year’s MPE conference in Berlin but you could also take a look at Finflag, based in Brussels and founded by two former PwC consultants.
The position may be even worse in France where, according to the national competition authority, average card transaction charges have risen from 0.27% to 0.44% since 2018. The French economy minister has called on the EU to act against Visa and Mastercard as soon as the new Commission is installed later this year. Switzerland is not waiting that long. Its competition watchdog has capped Mastercard debit interchange at 0.12%, well below the EU’s level of 0.2%. A decision about Visa debit is expected shortly.
French press reports that the European Payment Initiative (EPI), a consortium of French, Benelux and German banks, will launch first in Germany and Belgium (July) followed by France (September) with the Netherlands following rather later. The service, called wero, is a mobile payment wallet running on SEPA Instant Payments and positioned as a European competitor to Visa and Mastercard.
Blik, the Polish mobile payment standard backed by local banks and Mastercard, goes from strength to strength. Transactions were up 40% in Q1 with payment volume totalling €17bn. Blik now works P2P, at POS and online including a much upgraded service to support subscriptions payments.
With the pandemic’s travel bans a distant memory, payment service providers have restarted projects to include Chinese schemes in their acceptance proposition. In Germany, the Sparkasse have added Alipay+ to the S-POS app as part of the Chinese payment brand’s effort to widen acceptance on the back of its €200m sponsorship of the European football championships. Alipay+ will also be available on 50,000 terminals managed by DNA Payments, a UK acquirer.
We’re seeing a steady launch of new autonomous stores in Europe, each of them contributing to the long-term shift of transactions from POS to consumer app.
Rewe has opened its third site in Germany using technology from Trigo. Shoppers decide at the exit whether they want to “just walk out” or follow a more traditional checkout route. Rewe has also worked with Pixevia, a Lithuanian AI platform for autonomous retail that just raised an additional €1.5m to fund international expansion.
Also in Germany, toy retailer Vedes, has opened an autonomous shop at Munich Airport. This isn’t the only new technology at the airport. There’s also an annoying robot vending machine called Jeeves which takes payments via QR code.
A cheaper alternative to decorating the shelves and ceilings of stores with AI powered scanners is to put the technology in the shopping cart instead. Instacart, a US online supermarket turned technology vendor, expects to have thousands of its “caper carts” deployed in grocery stores by the end of this year. One retail blogger is not impressed.There is still too much manual keying, the carts are not big enough and you still have to pay at a standard checkout machine. Decide for yourself.
Product
Visa provided this month’s big news with a set of announcements that reposition the analogue credit card further into the digital world. This includes a new flexible credential that will allow shoppers to toggle between different card products issued by the same bank. Think Curve but restricted to a single bank’s products. Commentators have been very positive and there’s good analysis in Simon Taylor’s newsletteralthough others suggest the flexible credentials won’t be simple for merchants to manage.
Checkout.com has launched a new AI powered product called Flow which helps merchants choose the right payment methods to present to each customer. Flow then customises the checkout so that shoppers are asked for the appropriate information in the right order using the merchant’s colour palette. Retailers love being able to customise third party services with their branding.
Stripe announced last month that it was unbundling its product to allow merchants the option of using alternative processors including Adyen, Braintree (PayPal), Checkout and Worldpay. The Batch Processing newsletter gives the technical detailsbut concludes this new “orchestration” capability isn’t up to Stripe’s usual high engineering standards.
In mass transit, passengers on the Paris Metro can now use Apple Pay to travel on the network by adding the Navigo pass to their Apple wallet. Flowbird, (ticketing system), Conduent (integrator) and Worldline (processor) delivered the solution.
Electric vehicle charging is a fast-growing and highly complex niche segment of the payments industry. This case study from Computop, the German PSP part owned by Nexi, highlights the challenges. One of the toughest is to allow drivers to pay for their electricity using their preferred app rather than having to download a different one for each provider.
Open banking
Matt Jones wrote a good piece on why open banking is not happening. In short, the touted benefits – faster settlement, lower fees and no chargebacks – carry no weight with consumers. This was echoed in a panel discussion I chaired at the ePay Summit featuring two leading merchants – one from the travel sector and one from fashion – neither of had immediate plans to offer bank transfers as a payment option.
Figure 2 Panel discussion on open banking payments featuring execs from SuperDry, National Expresss, Truelayer and Ivy
For open banking payments to grow, we need an acceptance mark, scheme rules, an agreed pricing strategy, single-minded focus on customer experience and, most importantly, effective leadership from the banks. Without their active support, neither the regulator nor the payments industry can make the market happen.
There’s no lack of committees making recommendations, but the UK’s alphabet soup of open banking working groups, regulators and industry lobby organisations is hard to navigate. This month, JROC (a committee grouping the various regulatory bodies overseeing the financial system) published proposals for a “future entity” to be tasked with setting the standards needed to bring open banking into the mainstream.
The new body will have a mandate to promote open banking although it’s still not clear how it will be funded. The payments industry thinks the banks should pay. The banks are not so keen.
There are good use cases for open banking payments today such as paying of credit card bills or buying cars but none offer significant transaction volumes. Investors are getting worried and we’re beginning to see consolidation of the unnecessarily large number of open banking vendors.
Fabrick, the aggressive Italian open banking specialist backed by Banco Sella, has bought Germany’s FinAPI. The purchase price is reportedly rather lower than the “high double-digit millions” reportedly offered by Yapily in 2022. The combined Fabrick/ FinaAPI business processed more than €65bn from 800 customers in 2023.
I had a good discussion with Todd Clyde, CEO of Token, at Money 20/20. He told me that Token is taking an indirect route to market via banks and PSPs rather than direct to merchant. Token has a blue chip customer list including Mastercard, Computop and Nuvei which together process 41% of all card payments in Europe. Nobody knows when the market will move from card debit to open banking but Token believes it should be well positioned if/when it does.
GoCardless, the London based A2A vendor which has been reporting significant losses says it is now pushing for profitability. The CEO told journalists “We’re pretty close to profitability now, and we’re in a position where we’re very well capitalised – we have a lot of cash on the balance sheet.”
Trustly is one vendor making money from A2A, publicising 2023 revenues of $265m via an exclusive with CNBC. “Adjusted” EBITDA rose to $51m from $33m in 2022. Growth has been very strong in the US but an IPO is still more than a year away.
One market where open banking should take hold quickly is Poland because bank transfers (known in English as “pay by links”) were commonly used for online payments before Blik came along and swept the market. You’d expect PBLs to be replaced by open banking but PBL volume is still growing. I’m told that the open banking APIs are generally not yet at the quality of the older, direct integrations supporting PBLs.
Crypto Corner
While the introduction of ETFs has reinforced crypto’s role as a speculative asset class, these synthetic currencies could have a role in countries whose central bank money is compromised by inflation or political isolation.
But stablecoins are also not what they seem. Visa reports that 90% of stablecoin transactions come from bots rather than real people. While there’s nothing wrong with robots trading with other robots, these figures suggest that stablecoins, like other crypto instruments, cannot be considered a generally accepted means of payment.
Central banks are continuing to develop their own digital currencies (CBDCs) in response to the perceived threat from private initiatives such as Tether. The Bank of England has completed a proof of concept which demonstrates digital pounds (Britcoins) could be accepted on today’s standard POS terminals. There’s plenty of technical detail here for those interested.
Meanwhile, the Merchant Payment Coalition which groups Ikea, Auchan and other large retailers, has issued its response to proposals for a digital euro. The merchants primarily see the digital euro as a way of making B2C payments cheaper. They ask for a fixed fee per transaction “as close to zero as possible” and free of charge for low value payments. The retailers call for all other fees to be paid by consumers not merchants.
We’ve not heard much from the metaverse recently but Walmart have opened a store on Roblox and, for the first time, are selling real-world items. The user experience needs work. After trying out products on their avatars, users can load a browser window on a virtual laptop within Roblox to access Walmart.com and pay by typing in their credit card details. If this the future of retail, retail has no future.
In other news
Banking as a service (BaaS) allows Fintechs to expand quickly but comes with a regular reminder to check your BaaS providers financials. The collapse of Synapse in the US has hit over one hundred fintechs, some of whom will never recover.
In a move described by one newspaper as “Curve pivots to porn and gambling” the card-based digital wallet announced customers could now use their Curve card to pay high risk merchants, even ones blocked by their own card issuer. Eight days later, Curve announced a U-turn saying “We wish to clarify that if your underlying payment source provider does not permit certain transactions, Curve can’t allow them either!”
Klarna reports using GenAI has cut marketing costs by $10m annually, notably a $6m saving from replacing stock photographs with images generated by Dall-E. This is how Bing Image Creator imagines Klarna’s marketing department.
Here are two useful research reports to download and keep for the next time your boss asks for a strategy deck. Worldpay’s Global Payments Report is a helpful reference for statistics on the state of play in payment acceptance while Cap Gemini’s Payment Trends 2024 focuses on back office transformations needed to support decentralised finance, ISO 20022, PSD3 and other buzzwords.
Blusesnap, a US based PSP, has paid $10m to the US Federal Trade Commission in settlement for knowingly processing payments for “deceptive and fraudulent” companies. The FTC was particularly annoyed that management ignored warnings from Visa, American Express and Bluesnap’s own internal fraud monitoring team.
In other legal news, Rapyd, the London HQ’d acquirer/processor is being sued for $1.1m unpaid sales commissions by a former employee in Singapore. Rapyd’s CEO says the transactions in question were “round-tripping” and only done to boost volume on the platform. The salesperson says the client was moving their own funds through Rapyd’s multi-currency treasury products and so was eligible for commission payments.
