Author: Geoffrey Barraclough

The Payment Business

The new year has started brightly. High margin eCommerce and cross-border transactions are growing, there are encouraging signs that merchants are willing to pay for value added services and last year’s cost-cutting is boosting profitability across the industry. 

Adyen is taking full advantage and is reaping the rewards from its single-minded focus on platform investment. Net revenue was up 21% in Q1 with most volume growth coming from enterprise customers, especially in the US. Adyen has been winning share because of its ability to provide omni-channel solutions. Adyen says 515 of its “Unified Commerce” customers process in multiple regions and it now supports a total of 279K POS terminals. One happy client is Bayern Munich which uses Adyen for F2F and online payments.

While Adyen’s policy is to offer a complete payment solution to as many customers as possible, Stripe announced a major change in product strategy as it decouples payments from rest of its embedded finance products. The new, modular approach will please many merchants not wanting to be tied into Stripe’s processing but risks opening the Stripe customer base to more competition from niche specialists. 

The unstoppable rise of Stripe and Adyen and their successful move into  face-to-face payments is putting pressure on the incumbents, many of whom will be forced to consolidate to survive. Reviewing the outlook for payments M&A, TSG suggests large acquirers and private equity groups are willing buyers of profitable businesses provided that sellers recognise valuations are well down on 2021.

Insiders have told me that Global Payments has bought takepayments, a leading UK ISO with 75,000 merchants, for a reported $250m. The deal is looking like a reverse takeover because Clive Kahn, the entrepreneurial founder of takepayments will now lead Global’s sales/marketing for UK & Ireland. The deal comes as a blow to Barclaycard Payments for whom takepayments had been an important channel partner.

Token services and payment orchestration are both markets with too many vendors with sketchy business models chasing a limited pool of merchants. It’s no surprise to see consolidation.

TokenEx of the US has bought Ixopay, a Vienna-based orchestrator which works for DHL, Siemens and eToro among others. This LinkedIn discussion gives a sense of the debate within the payment industry about the value of orchestration. While merchants gain more control, orchestration risks introducing another single point of failure.

On the Continent, the Italian press reports that investors have poured cold water on the idea of merging  Nexi and Worldline, citing the cultural challenges of putting together French and Italian companies with difficult records on labour relations.

Turning to business results, Mollie, the Dutch PSP which raised an astonishing $800m in 2021, revealed operating losses narrowing to €28m in 2023 from €107m the previous year. Revenue reached €99m boosted by expansion to the UK, Germany and France while the bottom line benefited from making 10% of the workforce redundant. Adrian Mol, the founder, admitted “we hired too many people in a short time and went too far. The company is no longer efficient.”

HiPay, a Paris based PSP specialising in retail, iGaming and marketplaces reported a strong improvement in profitability in 2023 following a year of cost-cutting. An 11% increase in revenue to €65m helped turn a loss of €8m into a profit of €2m.

And from the Business of Payments blog:

• Brexit and the end of the crypto bubble hit profits at emerchantpay
• A move away from high-risk merchants caused a 20% fall in revenue at Ecommpay
• GoCardless lost another £92m and says it’s time to prioritise profitability

Turning to investment, Flatpay, a Danish SME-focused payment facilitator, raised €45m to expand out of Denmark into new markets including Germany and Finland. Working with acquirers Shift4 and Rapyd, Flat Pay has won 6,000 merchants in its home market and forecasts €3bn volume this year. Recognising the value of a software/payments bundle, management says that 25% of customers also take Flatpay’s ePOS system.

ISVs are the new ISOs

Shopify has led the way distributing payments and here’s a good explainer of how 70% of the ISV’s revenue actually comes from merchant solutions. European ISVs have been generally slower than their US counterparts to maximise payment revenues but UBS suggests that the shift to software-led payments will deliver 5-10 years of above market growth in payment processing on this side of the Atlantic. Banks currently account for 50% of merchant processing but the analysts believe 11% pts of this will move to ISVs by 2026.

Flagship Consulting says PSPs should be making at least 20% of revenue from VAS, notably vertical software for small businesses and foreign exchange, payouts and virtual bank accounts for enterprise clients. The potential gains are significant such asEuronet’s new partnership with SOFTONE (a Greek ISV) shows. The deal gives the acquirer access to 75,000 retail and restaurant customers.

How do you get ISVs to partner with your payment business? Good commercial terms are important but US research from TSG shows ISVs also need easy merchant onboarding, high quality customer support and developer-friendly APIs. 

These can all be delivered with a dedicated ISV platform such as Payrix, now owned by Worldpay, or Cardstream which is set for the big time having recently joined Mastercard StartPath. Nexi looks to be creating an in-house ISV platform from Orderbird, a German restaurant software vendor it inherited from the acquisition of Concardis. 

The shift to ISV distribution impacts acquirers risk models too as PSE Consulting explains. The good news is that ISVs are well placed to monitor ongoing merchant behaviour and flag potential problems. The bad news is selling software is normally unregulated and ISVs have little understanding of compliance.

Scheming

Q1 started brightly for the payment schemes. European volume was up 12% with Mastercard again growing a little faster than Visa. 

Both brands say they are increasing debit volume at the expense of domestic schemes such as Carte Bancaire. Visa says it has converted 20m domestic cards to Visa debit over the past five years. Mastercard migrated 7m Maestro to debit Mastercard in the last quarter alone. Overall, international debit cards doubled their share in Germany to 4.1% in 2023 according to EHI. These cards are more expensive than Giro and retailers are not happy about paying the higher fees.

In the US, retailers have protested against last month’s legal settlement in which Visa and Mastercard agreed to reduce interchange fees. The National Retail Federation (NRF) says its members would save just $6bn of their $100bn annual payments to the schemes. Another concern is that allowing differential surcharging by card type leads to a confusing customer experience like we see in Australia today.

Figure 1 Photo form @mjenkins88

Sadly, the NRF has lost the plot in also supporting an unhinged campaign accusing Visa and Mastercard of collaborating with China Union Pay to steal American data. This sort of paranoia undermines the federation’s credibility.

Europeans are sensibly taking a less combative approach to China. I do like this promotion for Alipay on the Dutch/German border showcasing terminals from Adyen Worldline and Nexi all featuring the Chinese QR based wallet.

Domestic QR schemes are expected to provide stiff competition for cards. Arkwright Consulting have summarised the details in an excellent report but much will depend on whether the current fragmented landscape can consolidate into a small number of regional schemes or, even better, a single solution based on the European Payment Initiative (EPI).

The EPI, owned by a consortium of banks, has a technical solution based on iDEAL, the Dutch online A2A standard. Adrian Mol isn’t happy. He accuses iDEAL’s new foreign owners of mainly looking for an excuse to charge higher merchant fees.

New shopping

Following revelations that Amazon’s autonomous stores relied on the manual intervention of 1,000 back office staff in India, the retail giant has been defending its technology. Amazon says “Just Walk Out” is live with over 140 third party operators around the world and works well for small format stores. Retail Optimiser, a blog which follows this sector closely, writes that all vendors, not just Amazon, are unwilling to reveal how many shopping baskets are manually processed after the customer leaves the store. This smells fishy.

For large format stores, Amazon believes its Dash Carts are the ideal automation solution and claims shoppers spend 10% more when they use one of these smart shopping trolleys. Richard Crone, a retail consultant, has made a helpful videoshowing how the Dash Carts work. A key insight for the payments industry is that they shift yet more transactions from POS to mobile.

Germany, with its rich history in vending machines, has been quick to adopt autonomous stores but the robots have a legal right to a day of rest. In many states, autonomous stores are banned from opening on Sundays.

Here’s two more AI powered shopping innovations from Germany.

Backwerk, the German bakery chain, has implemented image recognition to speed up self-checkout. This video shows how easy it is to buy a croissant. The self-checkout is from Pan Osten and the software from Smoothr.

EDEKA, a German supermarket, is using Diebold Nixdorf’s age verification solution to decide whether a self-checkout can sell you alcohol. If the robots think you look more than five years over the legal age, the self-checkout will let you buy a drink. If not, an assistant is summoned to check your ID. The retailer says 80% of transaction are automatically approved, greatly speeding up the checkout.

In biometric payment news, PopID, an early leader in facial recognition, has installed its technology at 300 branches of Steak ‘n’ Shake in the US and claims transactions (check-in + payment) take just 2-3 seconds, slightly quicker than Apple Pay. User adoption is going to be a challenge because consumers need to register their face. This offer of a $10 discount if you sign to “pay with a smile” makes sense.

Figure 2 Photo from Lois Beckett, the Guardian

Voice recognition is next. Elavon Europe has announced a deal to provide payment processing for audico, a voice-activated ordering system. Audico straddles the apparently unrelated use cases of ordering food in corporate hospitality boxes and helping the elderly live more independent lives. 

Meanwhile, scientists in Poland have created an algorithm to encode a bank account number in your speech pattern. They believe this will be useful when the country introduces a deposit scheme for plastic bottles. People can throw a bottle into a recycling bin, say their name and be reimbursed. 

Finally, Digiseq has taken wearables to new extremes in offering a contactless payment chip glued on to your fingernail.

Product

Stripe has given a fascinating insight into the scale of its development operationswhich include a remarkable 6bn test runs daily. Stripe’s test card number alone has been used 12bn times. Rollouts are progressive and inspected against 55,000 different metrics. You can find out more by watching the Stripe Sessions.

Stripe’s checkout page now offers over 100 local payment methods. Management believes a wide choice is needed to secure a greater share of transactions from enterprise merchants.  “What we’ve heard historically is, hey, we need more payment method coverage if you want us to go all in on Stripe,” said its CFO.  Like Adyen, Stripe is also making good progress with omni-channel retail and has won URBN brands for 700 stores worldwide.

One disadvantage of electronic payments is that it gives unscrupulous merchants the chance to add random charges to your bill. One London restaurant has added a 15% “brand” fee to diners bills. Another adds 0.5%-2%  if customers use the Sunday mobile app to pay their bill quickly by QR code.

DCC is another opportunity to rip off customers. The ex-CEO of Wise (who knows something about cross-border fees) took to Twitter to complain about a Banco Santander POS terminal lying about commission fees. He says the (already excessive) 5.5% mark-up was 7% in reality.

With marketplaces taking an increasing share of eCommerce transactions, more vendors are providing specialist payment processing. The latest is 1Point6, backed by BNP Paribas, which has signed its first customer, a pizza franchise in South West France.

Market Pay, a Paris based acquirer spun out of Carrefour, will be providing acceptance and processing for REMA 1000, the Norwegian grocery chain. The deal sees PAX A35 terminals deployed across over 1000 stores and brings €200m processing volume. The technical solution was built by Novelpay, the Franco-Polish developer acquired by Market Pay last year.

Payment data quality is not very good. New research show that only 63% of transaction are correctly assigned the right MCC. Acquirers have little incentive to accurately categorise their customers and this makes life challenging for any business trying to commercialise analytics products. Payment firms themselves struggle. A new report shows 84% still use spreadsheets for reconciliations.

Delupay is a new French QR payment wallet which takes a direct debit at the end of the month for your purchases. What could go wrong with this open invitation to friendly fraud?

SoftPOS

One of the big selling points of SoftPOS is that merchants no longer need payment terminals because any Android device can be payment enabled. Tabesto, a French smart kiosk vendor has an early lead. Already working with MarketPay, it has announced  a partnership with Worldline.

We’re keeping a close eye on Rubean, a German SoftPOS vendor listed on the Munich Stock Exchange. It reports €500K sales in Q1 and announced a new contract win with SEUR, Geopost’s Spainish subsidiary which will equip “thousands of devices” with Rubean’s software. Couriers taking payments on the doorstep is a good early use case for SoftPOS.

Congratulations to Nearpay, the Saudi SoftPOS vendor, which has joined Mastercard’s StartPath.

Elsewhere, Visa announced a pilot in Brazil in which shoppers can pay for eCommerce purchases by tapping a payment card on their own phone. From a card scheme perspective, this is treated as a POS transaction which means it is cheaper for merchants and more likely to be authorised by the card issuer. Symbiotic, a Brazilian startt-up, is providing the SoftPOS application.

The idea is not unique. Maxa, a London-based start-up, has been proposing something similar for some years without yet gaining much traction. There are some interesting use cases but the need for consumers to download an app or for merchants to include Maxa’s technology within their own app could be a barrier to adoption. 

Open banking

The UK Government seems determined to promote open banking payments as part of its efforts to modernise the nation’s payment infrastructure. Mike North has a good summary of the latest proposals in his newsletter. Hannah Regan from the British Retail Consortium argues that before open banking payments becomes mainstream it needs to be cheaper than cards for all transaction values (not just high ones), become quicker (30 secs average is too slow) and needs an acceptance mark.

To make this a reality across Europe, we need to see active co-operation from the banks. Klarna has helpfully ranked the quality of APIs from 6,000 banks in 16 European countries. Netherlands came out top and Portugal last.

UK open banking payments grew sharply in March 16% month on month although total volume remains modest compared with cards and direct debits.

The unexpectedly slow growth of open banking is causing some investors to run out of patience. This was illustrated by Konsentus, a high-profile London-based provider which has been sold to its founders in a pre-pack administration for just £350K. More on the Business of Payments blog.

If merchants genuinely want to persuade consumers to break the card habit, they need to offer incentives. Truelayer has a good testimonial from JamDoughnut which reports 90% of sales are with open banking payments after the site started offering double cashback for bank transfers. Uber, which uses Stripe’s Link product to offer bank payments is now offering customers discounts when they don’t use cards.

Figure 4 Credit: Jeff Weinstein

Brite, the Stockholm HQ’d open banking vendor which raised $60m last year, has expanded into Germany with distribution through a partnership with Shopware, a popular small business eCommerce platform. In an interview with Sifted, Brite’s founder says her idea for a pan-European A2A solution was sparked by Klarna’s unwillingness to invest in developing Sofort.

Yaspa, a UK business formerly known as Citizen, has received a government grant to help develop a proposition which combines open banking payments with AI to help identify problem gamblers. Yaspa, which already offers open banking payments to punters at the Casino Lugano in Switzerland, has useful experience in this area.

Overlay Payments, a UK start-up, is proposing open banking payments at POS using the NFC chip. This is for Android phones. Meanwhile, Kevin, a well funded but strangely named Lithuanian fintech, has demonstrated open banking payments at POSusing an iPhone. Before people get too excited, the POS terminal needs special software to make this work.

Finally, Trustly, the Stockholm based A2A provider, reported strong transaction growth in 2023 with payment volume from its 9,000 merchants up 79% to $58bn. Management said it had “solidified its market-leading position in the US” but gave little other information. Trustly is sponsoring West Ham Football Club and produced a nice commercial to persuade fans to use open banking when buying tickets.

Cash

Public policy statements are backing continued access to cash even though shoppers seem less and less inclined to use it. 15% of people say they never carry cash at all. However, the Bank of England says cash is still “hugely relevant” but forecasts its usage will halve by 2032. 

The press likes to cover stories of renegade small businesses refusing to accept electronic money like this baker in Belgium, or this café owner in Essex who offers a 10% discount for cash payments.  However, the future is more likely represented by an Australian community which has gone wholly cash free.

Crypto corner

With the founders of the two largest exchanges now in gaol, the chances of crypto currencies finding any meaningful role in merchant payments is as far away as ever. The user experience is still terrible although for crypto bros this remains a feature not a bug as you can tell from this utterly baffling Solana commercial.

My guess is that we’ll carry on buying things on credit cards with analogue dollars for a while yet.

Two years after the British Prime Minister announced plans to turn the country into a global hub for crypto, nothing much has happened with even the digital pound looking a long way off. Proposals for a digital Euro seem more advanced although the ECB admitted that it won’t work with iPhones.

Other news

The annual payments survey from EHI highlights some of the peculiarities of the German market. Cash still accounts for 35% by value of retail payments and PayPal is the leading online payment method. Angry at its high merchant charges, some retailers have begun to surcharge Paypal transactions.

It’s very easy for criminals to put fake QR codes where customers are expecting legitimate ones. Car parks are a prime target.

Getting consumers to change the way they pay is tough. Habits are difficult to break. But London’s transit authority reduced the sale of paper tickets by one third overnightwith a simple prompt that using contactless cards was cheaper.

The Chief Payment Officer is officially a thing, according to Checkout. This new role drives customer conversion and loyalty while continually shaving basis points off the bottom line. Checkout have also published five ways to get your CFO to take payments seriously.

PSD3 and the Payment Services Regulation are imminent. Here’s a good explainer from EY.

Analysts go to many vendor events so it’s fascinating to read why RSR think Netsuite run the best customer conferences. This is a must read for anyone running marketing events.

Is Frank Bisignano the best paid exec in payments? Fiserv’s CEO received $28m compensation in 2023, a rise of 57%.

Are merchants really losing €60bn from declines? Yes says PSE Consulting.

Lloyds Bank announced it was axing compliance staff so the bank can move at greater pace. Executives had complained that compliance functions were blocking strategic transformation. Many readers of this newsletter will sympathise. 

Rapyd, an Israeli company, remains under pressure in Iceland following its founder’s strong support for the war in Gaza. Local press reports the processor has removed its logo from packaging to keep a low profile.

The new Polish Government has cancelled plans for compulsory integration of cash registers and payment terminals but Cashfree Poland continues its successful market stimulation campaigns. Every country should have one of these.

And finally

Nuvei may be going private but Ryan Reynolds (who has a stake in the business) still makes the best commercials in the payment business. It’s a low bar but he consistently jumps over it.

Where to find me

I’ll be moderating the open banking panel discussions at ePay Europe in London on 21 May. And I’ll be at Money 20/20 in Amsterdam on 4/5 June.

Alternatively, you can hear me guesting on Worldline’s Navigating Digital Payments podcast.

The payment world reconvened in Berlin last week for Merchant Payment Ecosystem, in my view the best industry conference in Europe. MPE is friendlier than most conventions- people will take a meeting and chat to the person next to them. It helps that the organisers produce just this one conference. They really care about their customers and keeping content fresh to match the changing focus of a loyal audience

The payment industry seems in good form. Despite the Fintech Winter and rumours of layoffs at the big companies, the conference took the entirety of the Berlin Intercontinental for the first time. This was bad news for people who come every year to freeload by sitting at the bar networking with those who had a ticket.

The sponsor slots, the best barometer of the health of a conference, were full and the plenary and break-out sessions well attended. Exhibitors told me that they had good traffic to their stands and came away with a number of useful conversations. If Money 20/20 is where you go to find investment, MPE is the place to find new commercial partners.

But success depends on where you’re sitting. Compared to previous years, the traditional payment players were largely absent. For example, there were just two delegates from Worldline and only one from Nexi while Checkout and Adyen, the new kids on the block, sent seven delegates each. The open banking vendors and terminal manufacturers were less numerous than of late. In their place, I found a small army of payment orchestrators. I’m told that the organisers received an extraordinary 25 entries for “payment orchestrator of the year.”

Cardmaggedon

Turning to the content, there was much discussion of when we’ll see the long-promised shift from cards to other forms of digital payments. This is important because the payment ecosystem knows how to make a good living from card payments and isn’t quite so confident about how to add commercial value to bank transfers. There’s a real threat that all the profit could leak out of the industry.

Bain has predicted “peak card” in 2029 in the US but probably a little earlier in Europe where national account to account (A2A) schemes are growing swiftly and a digital Euro is on the horizon.

Open banking

Open banking was meant to be the future of A2A but is getting a bad press. Several speakers were openly dismissive.

David Rintel from Trust Pay, a Bratislava based eCommerce acquirer, told the audience that open banking is far from delivering the promised revolution. The user experience is horrendous, there’s no payment guarantee for the merchant, no consumer protection and, despite PSD2, there’s no European solution. The APIs provided by the banks are not standardised and this makes them difficult for Fintechs to work with. Simas Simanauskas from Connect Pay was even less complimentary. Open banking “is crap” he told the audience. It’s almost impossible to design a payment flow using the retail bank APIs, he explained.

Lea Siering from Token, one of the larger open banking vendors, gave a spirited defence of A2A payments. Open banking will maximise acceptance, reduce costs and save the planet, she said. Token claims A2A payments generate 0.4g less Co2 per transaction than cards.

Long term, big picture, it’s clear that open banking has huge potential. But none of the open banking advocates on the platform addressed the short-term obstacles of poor user experience highlighted by the developers.

If open banking is unlikely going to replace cards before Bain’s deadline, will the digital euro have an impact? 

Digital Euro

The Digital Euro session was well attended but left many of us with more questions than answers. 

Evelyn Witlax from the ECB was a strong advocate for the project and was ably backed up by Fredrik Rydbeck of the Swedish central bank. It’s clear that policymakers need to address the potential implications for financial inclusion and economic resilience if cash disappears. It’s also apparent that Europe desperately needs to reduce its dependency on foreign operators of its payment infrastructure. There’s a clear risk that Trump 2 could order Visa/Mastercard to close operations in any country he doesn’t like.

But that doesn’t mean that the digital Euro is the answer, certainly not the one that would run according to the draft rules outlined by the ECB.

Merchants will like the fact that this new currency should be cheaper to process than today’s euro but will be less excited to learn that acceptance will be mandatory and that they aren’t allowed to hold any digital euros themselves.

While the ability of the digital euro to operate offline will certainly help make the payment system more resilient, the requirement for ID checks for online payments undermines the argument that the digital euro is simply digital cash.

Most importantly, nobody can explain why consumers should be excited. They can travel around Europe today with their local debit card (co-badged as appropriate) and buy what they need with little trouble. Until the ECB and friends can explain the problem they are trying to solve, there’s a risk that (as Dave Birch put it) we just create a slightly annoying pre-pay debit card.

Mobile payments

A more credible threat to cards comes from the growing number of domestic mobile payment schemes that have successfully wrapped a great customer experience around A2A transfers. David Rintel called out Blik in Poland, Payconiq Bancomat in Belgium and iDEAL in Holland. Each of these is taking 65%-70% of domestic eCommerce payments. There’s also Bizum in Spain and MB Way in Portugal.

Fragmentation is a problem. To replace cards, these schemes will need acceptance outside their home country and work is already underway to extend their reach. Blik is opening in Slovakia and Romania and Payconiq/iDEAL is the foundation of the European Payments Initiative which launches its “wero” wallet later this year. Wero’s 14 founding banks cover 75% of accounts in central Europe.

Two new mobile payment schemes showcased at MPE. Raifaissen has launched RaiPay across its footprint in central Europe and the Balkans. And Gini Pay Connectis an interesting new idea from a start-up whose image-recognition software already sits inside many German banks’ consumer apps. You take a photo of a bill and pay with a direct debit from within the app.

The technology behind these products is often quite simple but distribution is much harder. It takes a lot of expensive marketing to get consumers to download an app which is why support from local banks is so important. So it’s no surprise that the most successful schemes all have local banks as shareholders. Blik also has Mastercard as an investor which would explain its very bullish international ambitions.

Consumer behaviour shifts driving the future of payment acceptance

I moderated an entertaining panel discussion nominally about consumer behaviour but actually covering a variety of topics from Saudi investment in Fintech to why Finland’s largest retailer chose Adyen for its payment processing. The panelists were Adil Riaz from NearPay, a SoftPOS vendor, Gábor Bujáki from OTP Bank, Hungary’s largest acquirer, Janine Kaiser from The Payments Association EU and Kai Lindström from S-Group, Finland’s largest retailer. Click on the photo to watch the conversation. 

Innovation

Three interesting start-ups pitched to the audience in the final of the innovation showcase. The winner was Torus but only by a small margin.

• 1 Click Procurement – a PayPal equivalent for the corporate travel market. This tool could help finance teams in large enterprises who are often frustrated by the low compliance rates with expense policies.
• Ballerine – an AI merchant risk platform. This software allows acquirers/PSPs to onboard SMEs at scale by automating (and orchestrating) KYC/AML checks. It sounds too good to be true but is worth investigating.
• Torus – pricing analytics for merchant acquirers. Most processors use spreadsheets rather than commercial software to calculate merchant pricing. This results in frequent errors, especially with merchants on IC++ plans, and missed opportunities to exit or reprice unprofitable customers. 

SoftPOS

This technology seems finally ready for prime time. Deja Mobile, based in France and now owned by MarketPay, presented some good case studies. Two months after launch with Rabobank in the Netherlands, 1,200 micro-merchants have activated the service of which 80% are generating transactions.

Deja Mobile also showcased two enterprise use cases. Tabesto, a vendor of intelligent ordering tools for restaurants, has launched Fox, an integrated all-in-one kiosk with no expternal POS or printer. Payment is via the Deja Mobile app. Fox has been a very successful launch and now accounts for 90% of Tabesto’s new kiosk sales. Here’s it is in action at Waffle Factory.

The Deja Mobile SoftPOS app is also live on Famoco hardware at a chain of bowling alleys. The screens are used for at-lane ordering of food and drink. The client says food and beverage revenue is up 30%-50%. 

Other SoftPOS vendors present at MPE included NearPay, which claims over 50,000 installations in its home market of Saudi Arabia, and Yazara, the Turkish leader.

In a quiet show for POS innovation, I was impressed with POP Codes, based in Calgary, which offers tools to allow merchant acquirers to use the terminal screen for merchant communications. Pricing starts at $2.50 per month per POS.

Merchants

The merchant perspective was provided by Atze Faas, a long-term BP exec, who now represents Eurocommerce on the newly formed Merchant Payment Coalition – Europe. This is a lobby group looking to address the rising costs of payment acceptance. The major areas of concern are the lack of competition in the payment industry, the lack of transparency of its charging structure, the many regulatory gaps and the industry’s continued insistence on ad valorem pricing. Why should a €1000 transaction be more expensive than a €100 transaction? Why should CNP be more expensive than CP? Atze challenged the industry to explain because he felt that SCA had dealt with the risk issue.

It’s certainly true that SCA has reduced fraud levels, but it’s also introduced friction that has led to reduction in legitimate transactions too. And SCA is no guarantee that the customer is who they say they are. Chris Read, EVP Identity Solutions at Mastercard, explained that the dark web is now awash with fake credentials such as passports and driving licences. You can “buy” a bank account for €200 or less.

If there’s one bright spot, it’s that experts seem more worried today about the explosion of first party fraud. Merchants are appalled by these pesky Gen Y consumers who spend their leisure time on Tik Tok exchanging tips on how to rip off merchants – cheating on eCommerce returns or scamming McDonalds for free burgers as compensation for fake negative reviews. Paradoxically, the payment industry is in the clear. If merchants are defrauded by their own customers, we’re not to blame.

Artificial Intelligence

Artificial Intelligence (AI) may be the latest buzzword but it holds more promise than Blockchain and the Metaverse. 

Fraud is an early use case. Galit Shani-michel from Forter showed the impact of moving fraud decisions from simple rules to AI powered decisions. She told the audience that fraudsters were using AI to reverse engineer rules and merchants need to stay one step ahead.

Forter recommends using AI to optimise payment authorisation, for example choosing whether to use a PAN or network token or to ask for an SCA exemption or route to a particular acquirer. She explained that some issuers are more likely to approve a transaction that uses a network token and others less likely. And some issuers don’t mind, in which case AI can recommend saving money by not asking for a network token in the first place.

Visa’s Natalie Kelly spoke of “Fraud GPT” which writes scam emails in multiple languages, making Japan accessible to phishers for the first time.

Franceso Burelli of Arkwright Consulting said we are “at the top of the hype curve” but predicted 10-15% layoffs across the board as businesses start using AI to automate manual processes. It is this “potentially radical improvement,” that is driving stock prices higher, he explained. Burelli also said he’s seen good use cases in financial services for ESG monitoring, KYC/AML and faster coding.

AI is moving at such a pace that nobody knows the likely impact. Dave Birch talked about the potential for personal AI helping us make our daily purchases. I would hope my robot is a tough negotiator but how do you market to a machine? You’d expect that AI would make rational purchase decisions and be less swayed by brand than the average European.

AI even offers to put me out of business by writing articles about the payment industry. Drafting an earlier post, I wrote “people being rude about open banking” which LinkedIn’s AI wanted to change to “it’s disappointing to hear people being rude about open banking. Let’s remember that open banking has the potential to revolutionize the way we manage our finances, making it easier and more accessible for everyone.” Hallucination, bias or common sense? You choose.

See you next year in Berlin for MPE 2025. There will be lots to talk about.

The Payment Business

Worldline’s share price took another battering as management blamed weak consumer spending for slowing revenue growth in the year ahead. The company also took a €1.15m impairment charge following its decision to terminate €130m annual revenues from online merchants after pressure from the German regulator.

Worldine now needs to cut costs, accelerate platform consolidation and secure investor support. 8% of employees will be fired, including  240 of its 1200 staff in Belgium, under a change programme devised by Boston Consulting Group. The unions are not happy, believing Worldline’s directors are the true villains of the piece.

A very public battle is brewing. Activist investors have arrived on Worldline’s share register, facing off against the European financial establishment represented by Credit Agricole and Six Group. I asked Bing Image Generator for an illustration.

In rare good news, Worldline is reported to be close to beating arch-rival Nexi to win the merchant business of Cassa Centrale Banca, a consortium of rural banks based in South Tyrol which manages an estate of 135,000 POS terminals. The sale price is estimated at €150-200m.

Also in Italy, keep an eye on Fabrik, an open banking vendor which has bought Judopay, a UK mobile-focused PSP, taken a stake in Banxware, a German embedded lending platform and swallowed Axerve, an Italian POS payment provider with over 100,000 merchants. Fabrik is controlled by Sella, a small bank based in Piedmont, grew revenue to €55m in 2023 and welcomed a minority investment from Mastercard.

ABM Amro has chosen Buckaroo to provide payment acceptance to its Dutch customers. This is a good win for Buckaroo, a PE backed consolidator formed from Sisnow, an online gateway and SEPAY, a POS-focused acquirer selling NEXGO terminals. ABN Amro was formerly in a JV with Fiserv called EMS but sold its stake to the US giant six months ago.

JPMorgan is no nearer to resolving its dispute with Viva. In an unusual agreement, the US bank can take full control of the mPOS specialist if its valuation falls below €5bn. JPM says Viva’s current value is less than €1bn but Haros Karonis, Viva’s Greek founder, is fighting back. He is taking legal action, arguing that JPM is trying to supress his company’s growth so that they can take control on the cheap. JPMorgan has pulled its former compliance chief out of retirement to join the board of Viva, to help sort out this mess.

PayPal’s Q4 results disappointed investors but its European merchant business was a rare bright spot, delivering 20% of worldwide revenue and growing at 11% year on year. Nevertheless, PayPal remains strategically challenged by its multiplicity of platforms. “We have not invested enough in creating a single platform. That again slows us down when it comes to innovation,” said the CEO.

Dojo, which took the UK market by storm with its rebranded PAX A920, has begun making layoffs in London. Explosive growth has been financed with sky-high debts. International expansion seems unchecked; Dojo is hiring for its new business in Spain.  

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From the Business of Payments blog:

Global Payments’ European revenues rose 42% as the EVO acquisition kicked in. Global is next rumoured to be buying Takepayments, a leading UK ISO for $250m.

Barclays says merchant acquiring is still “essential” but looks to offload Barclaycard Payments.

PagoNxt reported a second profitable quarter as economies of scale start to deliver.

Visa and Mastercard’s combined European volume was up 12% in Q4 2023. “Europe has been firing on all cylinders,” says Mastercard’s CEO.

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One to watch. FlatPay, a POS based payment facilitator (PF) from Copenhagen working with Shift4 and Rapyd, has won 6,000 merchants in its home market and forecasts €3bn volume this year. FlatPay offers a free terminal and a 0.99% for all card transactions. Management says that 25% of customers also take its ePOS system. Flatpay raised €15m last year and has just launched in Germany and Finland.

Secure Retail has bought STS, a long-established software business which supplies payment applications for complex use cases such as airlines. UK based Secure Retail is ambitious to grow beyond its heritage in hardware distribution and related services.

In a busy month for corporate activity even the advisors are getting in on the act. Oliver Wyman has acquired Innopay, which groups 60 consultants in Amsterdam and Frankfurt. In Paris, Oaklen, which advises almost all French luxury brands on their payment strategies, has undertaken its second management buy out. This time all 30 consultants will become shareholders. Oaklen anticipates growing its turnover from €9m to €11m this year.

Large consulting practices have a mixed track record with buying specialist payment expertise. EY seems to have made a success of Innovalue, bought in 2016, but Accenture made a mess of First Annapolis whose management quit and formed Flagship Consulting.

Flagship produces great content and has helpfully counted the PFs in Europe and North America so we don’t have to. American software vendors have embraced this model of embedded payments. 43% of PFs in the US are ISVs compared to just 8% in Europe. It’s probably only a matter of time before Europeans catch on to the margin available by combining software and payment processing. The consultants also reveal that many PFs fail. Flagship count an annual attrition rate of 6% in North America and 16% in Europe.

The most successful ISV/PF is Shopify which reported that $45bn of volume passed through Shopify Payments in Q4 2023, up 32% year on year. Shopify surcharges merchants 0.6%-2.0% per transaction if they don’t use its in-house processing which now accounts for 60% of total platform volume. Shopify Payments is powered by Stripe.

This seems a winning strategy so why doesn’t Big Commerce, a key Shopify competitor, have a Big Pay? The CFO says he doesn’t want to add “excessive transaction fees to pressure customers into certain payments solutions.” Analysts explain that Shopify is now 2x-5x more expensive than its competitors, especially for larger merchants, but customers don’t seem to mind. Shopify is the highest rated brand in JD Power’s US merchant services study. Global Payments and Intuit came bottom.

Schemes

Europe’s domestic schemes, old and new, seem to be prospering. Girocard, the German debit card once thought to be in terminal decline, reported a buoyant 2023with volume up 7% to €304bn. The card is now accepted at 1.132m terminals, up 8% on 2022. The payment ecosystem has noticed. Stripe has become an NSP, a gateway/processor for Giro. 

Visa was delighted to report 2023 German market figures showing volume growing 25%, rather faster than its domestic rival, and that its cards are accepted at more terminals than Giro for the first time. Visa and Mastercard have been boosted by the success of SumUp which has steadfastly refused to offer Giro.

Twint, the Swiss QR mobile payment method backed by UBS and Credit Suisse saw transactions up 50% in 2023. The Swiss Payment Monitor, based on survey data, shows Twint’s share of POS transactions at 7.2%.

Twint is now accepted at three quarters of local merchants and is built into the payment flow. You can see from the photo how shoppers are automatically presented with the Twint QR code at checkout. It’s not cheap. Merchants pay 1.3% + 0.3CHF which is more expensive than debit.

Credit: Christoper Uriarte

Four Czech banks have together launched Cvak, Czech for “click”, which works by the shopper tapping their phone on an NFC card by the till. Cvak charges a flat rate of 0.8%.  

And in Poland, Blik the mobile payment standard primarily used in eCommerce, stormed 2023 with payment volume up 48% to €56bn.

Cards remain the best option for payments when travelling abroad but inter-operability between domestic schemes could provide a more convenient option for consumers. Indian visitors to France can now pay with rupees using UPI which has linked up with Lyra, a local QR based payment wallet. The Eiffel Tower was the first merchant and merited a news item on Indian TV.

It would be wonderful if the European Payment Institution (EIP) could do the same with its “wero” product – linking domestic schemes in a unified customer experience. It’s worth reading this interview with one of the EPI’s directors which explains how “wero” will work.

New Shopping

Merchants are struggling to make money from online sales. Return rates are still very high and many are failing to adapt processes to turn product returns into sales opportunities. A functioning omni-channel payment platform that can match transactions and refunds across channels is essential. That’s why Hugo Boss has implemented Adyen’s omni-channel platform across its 450 stores and digital platforms. The German fashion brand seems very happy.

New research shows people still like shopping in stores, especially for groceries, but are increasingly demanding some of the benefits of eCommerce, such as instant, detailed product information and easy navigation. Retailers are struggling to deliver, saying store project pipelines are full and the technology changes too often.

Fully autonomous stores are very expensive. For large-format grocery, Smartcarts are a cheaper option and have the advantage of being able to display information tailored to whatever purchases the shopper has put in the trolley. Amazon calls them Dash Carts.

Instcart is pursuing the same strategy.  “Ultimately, where we want to take it is Pokemon GO,” said one exec, talking about the potential of gamified supermarket shopping powered by its Caper Carts. “Complete nonsense,” snorted one retail commentator. “Are we to believe that the best Instacart can come up with to revolutionise grocery shopping is to offer carts with a touchscreen that displays ads and also plays games?”

Apple’s Vision Pro virtual reality headset is certainly more revolutionary but is it any good for shopping? Here’s a good round-up of what’s on offer from leading brands.

Apple regard Vision Pro as a standard computer and its built-in Safari web browser supports the usual payment methods including Apple Pay. Credit card entry and one-time-passwords are likely to be more of a struggle. Or you can just bang your head on the merchant’s payment terminal.

@mattpelusi

The future in now  Can I pay with my new Apple Vision Pro? 🤔 #apple #visionpro #applevisionpro

♬ suono originale – Matt Pelusi

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Product

EV charging is also giving the payment industry a headache. 36% of drivers own four or more different cards or tokens to charge at competing networks according to new research from Payment Genes. When asked, drivers say they’d rather pay for charging with a card than download yet another app. 

People waiting for a charge are a captive market for shopping. Gridserve, an EV charging company, has used Amazon’s Just Walkout Technology in its “all electric” service station at Gatwick Airport. Also including a café and driver lounge, the main benefit of the technology is the shopping insights it provides which, Gridserve says, help it decide which products to stock.

Elsewhere, Santander has cleverly repackaged its standard payment link product into a new proposition  called “social selling.” Merchants can attach the links to posts on social media. Getnet (PagoNxt’s PSP) is providing the technology.

Tap. Pour. Go. Industrial-sized beer vending machines from Boxbar which pour two drinks in under 30 seconds. It’s very popular in Manchester. Adyen and Square are providing payment processing.

FreedomPay’s European expansion continues with a Redsys integration and a new office in Madrid. This will be an attractive option for international brands who want to consolidate their POS technology to a single platform but keep the low-cost card transaction routing offered by local banks via Redsys.

Revenir AI, a London based start-up, has raised £2.5m to support its automated VAT refund service, offered as a white-label to banks. Revenir says that £30bn of VAT reclaims are left unclaimed by cross-border shoppers in the EU. The service sits inside your banking app, automatically alerts when a qualifying purchase is made and links directly to the local tax office to process a refund.

SumUp, which announced new funding last month, has released a slew of new product features which widen its portfolio well beyond mPOS. These include a business “bank” account, a kiosk and eCommerce webshop. Provision of this full-service bundle will help SumUp compete with eCommerce players such as Shopify which are quickly extending their reach into the physical world.

New research in UK and France from Yocuda, a digital receipt vendor, shows the key to adoption is to highlight the environmental cost of paper and to better link digital receipts and loyalty programmes. Meanwhile, Singapore based Pi-xcels  won Ingenico’s start-up competition at Paytech 2024 with a really clever way of sending a digital receipt to the shopper’s phone at POS without needing their phone number or email address.

SoftPOS

SoftPOS is wasted on micro-merchants when the technology can be transformational for large enterprises, cutting costs or enabling innovative customer experiences. Here’s a good example. Viva’s SoftPOS application turns Kate Media’s Android tablet into a payment device that restaurants can afford to put on every table.

Rubean, a German SoftPOS vendor, has won the deal to supply Commerz Global Pay, the new joint venture between the German bank and Global Payments. Rubean is thought to be charging €1.40-1.50 per merchant per month plus 2-3c per transaction. Anyone familiar with German banks will think forecast sales of 100,000 merchants by the end of 2025 are wildly optimistic.

In Poland, SoftPOS grew from 11,000 to 33,000 installations during 2023. This is a big increase but still small compared with the 660,000 terminals placed with SMEs by the Cashfree Poland programme. The early market leader is Polcard (Fiserv) which accounts for 50% of SoftPOS installations.

Open banking

Open banking is expected to take a large share of payment transactions in the long term but merchants have been slow to adopt the new technology, causing financial strain in this emerging market segment. It’s clear that there are too many open banking vendors. The Konsentus tracker shows 572 third party processors across Europe, of which two thirds can initiate payments. It’s time for a shake-out.

The first casualty is Kevin, a well-financed vendor based in Vilnius.  Kevin has raised $65m and hired 300 staff across Europe but recently needed an additional $25m “bridging round” and is now reportedly making significant layoffs. One employee said “In December, we were actually given a Christmas package: a hoodie, some coffee cups and whatnot. But we didn’t get paid.” 

Many in the industry are pinning their hopes on commercial variable recurring payments (cVRPs) which are (roughly) the open banking equivalent of card on file. Yapily is first to announce a product although it only works for NatWest customers at launch, highlighting a key drawback of open banking payments. The merchant is a prisoner of the customer experience provided by the shopper’s bank.

Standard open banking payments will quickly become commoditised so it’s important for vendors to differentiate with related value-added services. Volume Payments, a London-based open banking start-up working with Modulr, has launched one click age verification. This could be very useful for gambling, gaming and other merchants that need to integrate KYC checks into their onboarding flow. Pricing is 0.4% + 15p per transaction. 

Elsewhere, Trustly is making good progress in the nascent UK market. Its Ecospend subsidiary has now processed a total of £3.3bn from 1m taxpayers on behalf of the British tax authorities. Total volume was up almost 40% in 2023.

The British Government wants to support the industry and seems determined to move its own volume from debit cards to open banking payments, citing a possible 70%-80% reduction in fees as the main benefit. Open banking payments have been added to its central supplier framework. NatWest is the first vendor appointed.

Volt, the self-styled network of open banking networks, has been granted a UK e-Money licence which will allow it to stand in the money flow and move beyond offering a purely technical service. Volt believes it can rival Visa and Mastercard but the comments on this LinkedIn post suggest industry commentators are sceptical. One points out unkindly that Kevin was making similar claims until recently.

Crypto corner

The European Central Bank disapproves of the US decision to authorise crypto mutual funds (ETFs) saying. “Bitcoin has failed on the promise to be a global decentralised digital currency and is still hardly used for legitimate transfers. Bitcoin is not suitable as means of payment or as an investment.”

Visa and Mastercard have both stopped issuing crypto/fiat cards. This is very sensible. The regulatory fog is just too thick. In a clever workaround, Transak, which describes itself as a Web3 payments infrastructure provider, has linked to Visa Direct. This will allow people to cash out their crypto winnings to any Visa card.

Central Banks took fright at the crypto boom and began work on central bank digital currencies (CBDCs). Strategic autonomy is a key driver. The ECB has announced that only European suppliers will be involved in the digital Euro.

The British aren’t worried about such matters. India’s TCS is reportedly the front runner to manage the UK’s Faster Payments Network which processes 90% of salaries and 70% of household bills. Mastercard, through its Vocalink business, is the incumbent.

Other news

The Scottish Government has invested in ScotPayments which it hopes will be used by 200 public bodies to process 25m transactions each year. Scott Logic is the implementation and development partner. 

Why has embedded finance taken so long? According to a new study from four Dutch banks, it’s partly about financial institutions not yet making the cultural changes needed in their organisation but mainly about compliance. Technology is not the issue.

Klarna has been an early adopter of AI, working with Microsoft. The company says its AI assistant is doing the work of 700 full time agents and getting similar satisfaction ratings to real people. Klarna says it will drive $40m profit improvement this year.

Why are so many Fintechs sponsoring Forumla One? TLDR it’s one of the few global sports and the hospitality opportunities are legendary.

McKinsey has published a helpful report on how the payments industry should manage risk to drive growth. Or put the other way around, businesses that don’t take compliance seriously won’t have a business. The consultants say that after a regulator is forced to intervene, staff turnover can reaches 30% and the business normally won’t survive five years.

This is the Lloyds Cardnet museum of payment tech. Does every payment company have one of these? 

Photo credit: Hasnain Sheikh

Checkout has taken a robust approach to remote working. Its CEO has demanded that staff return to the office. “If you don’t like it, leave,” he says.

Rapyd, an Israeli business with 180 staff in Iceland, is fighting off calls for a boycott by local businesses. Some Icelanders have taped over the Rapyd logo printed on replica shirts of the national handball team. Another has set up a website listing Raypd’s merchants and suggesting alternatives. Not everyone is convinced. One local blogger describes the anti-Raypd campaign as “dishonourable and inglorious.”

eService remains the top POS acquirer in Poland with 324,000 terminals out of a total market of 1.28m according to Cashless.pl. Polskie ePłatnośc (Nexi) is second and Polcard (Fiserv) third.

Some payment companies have struggled with the leap year. Feb 29^th brought chaos to a Swedish supermarket and a chain of gas stations in New Zealand.

Paysafe has a new brand identity underlining its commitment to the “experiential economy.” I rather like the new approach. It’s clear, consistent and concise.

Latest research from FT Partners, the Fintech advisor, outlines the themes it will be pitching to clients this year. Expect growing deal flow in real-time payments, restaurant technology, B2B payments, embedded fintech of various kinds and (boosted by the ETFs) crypto. 

And finally

A typical DCC user experience.

Where to find me

I’ll be moderating panel discussions at MPE in Berlin on 12-14 March and ePay Europe in London on 21 May. In between, you can catch me at Retail Expo in London on 24/25 April.

Alternatively, if you liked this newsletter, you can hear me guesting on Worldline’s Navigating Digital Payments podcast. 

How to get in touch

Geoffrey Barraclough

geoff@barracloughandco.com

www.businessofpayments.com

Global Payments reported strong merchant revenue growth in Europe during 2023 following the acquisition of EVO Payments at the beginning of the year. 

Global’s European merchant solutions revenue grew 42% to $1.023bn. The acquisition of EVO’s businesses in Poland, Spain, Germany, UK, Ireland, Greece and Czech Republic likely added roughly $200m sales. This means the organic revenue growth was around 14%, roughly in line with numbers from other long-established merchant acquirers. 

Cameron Bready, CEO, is positive about Europe saying “We continue to see good trends across our businesses in Spain and central Europe, each of which delivered high teens growth, and key new European markets entered with EVO, including Poland and Greece, and also achieved double-digit growth.“

Global Payments now employs almost 6,000 people in Europe with the continent accounting for 14% of the company’s global $9.7bn merchant revenue.

EVO adds to Global Payment’s existing strong footprint in the UK (where it inherited a decent merchant portfolio from its 2009 acquisition of HSBC merchant services), Spain (a JV with Caixa Bank called Commercia) and Czech Republic (partnering with Erste Bank). EVO brings joint-ventures with another two local banks – PKO BP in Poland and National Bank of Greece. 

The ongoing weakness in the UK economy is still causing concern but management remains positive and is investing in new products. Bready explained that “we are … seeing things stabilize in that market, which gives us a little bit more optimism about where we can go over the longer term in the U.K. We’ve talked about bringing our GP POS solution to the U.K. market, which we think will give us a very competitive point-of-sale to market.”

Management is rumoured to be considering buying Takepayments, a leading UK ISO aligned with Barclaycard, for over $250m. Takepayments is a healthy business. Most recent accounts show it making £5m operating profit on £52m revenues.

Spain is clearly a key focus area for Global Payments and will now report separately to the US from the remainder of its European businesses. This reflects the growing importance of its JV with Caixa.

In 2021, Global bought Bankia’s merchant business for €277m through this JV and has recently folded in Universal Payments, EVO’s Spanish business. Caixa Bank, 20% stakeholder in the JV, paid Global $26.2m for its share of Universal Payments, valuing the business at $131m.

Global Payments is positive about its ability to deliver  $135m of worldwide annual cost synergies from the EVO acquisition. Management says revenue synergies will take longer to arrive, with groundwork in 2024 delivering in 2025. The first example is the JV with Commerzbank announced earlier this year for which the“acquisition of EVO helped provide a foundation with its existing physical presence and merchant portfolio in Germany.” Commerzbank refers sales leads to Worldline’s PayOne team today.

Bready said the JV, called Commerz GlobalPay, “is expected to launch in the first half of 2024 and will deliver a comprehensive suite of innovative omnichannel payments and software offerings, including our GP point-of-sale software solutions and our GP touch on mobile technology .” Payment partnerships with German banks are difficult to execute. Fiserv’s JV with Deutsche Bank, launched in 2022, is reportedly struggling to make much impact in the market.

Although Global Payments has spent heavily in the US on buying vertically focused ISVs, most of these businesses do not actively market their products in Europe. However, Global Payments did buy a UK software business called Bleep for a bargain price of £12m in early 2020. Bleep provides an ePOS solution for high-capacity retail such as stadiums and recorded a small loss in 2022 on sales of £5m, Bleep has since been rebranded as Global Payments and seems to be winning regular new business such as the SSE Arena in Belfast. 

Global Payments worldwide revenue from sales through or in partnership with ISVs, known as “tech enabled distribution” were up 13% at $3.4bn in 2023, Surprisingly, old-school relationship distribution revenues (direct sales, bank referrals and ISOs) grew more quickly, increasing 17% to $3.7bn. With the acquisition of EVO, the new JV with Commerzbank and the proposed purchase of Takepayments, Global Payments management clearly believes there’s life in relationships yet.