Santander’s payment subsidiary, PagoNxt, posted another quarter of good results, with strong growth in payment volumes across all its major markets. This performance highlights the success of Santander’s strategy to in-source and consolidate its payment activities. PagoNxt comprises all of Santander’s payment assets, including Getnet, a leading multi-national merchant acquirer, Ebury (trade finance), Payments Hub, and Superdigital, a financial marketplace for the economic inclusion of the underbanked.
Getnet, PagoNxt’s merchant services unit grew total volume processed 22% in Q2 2023 to €49bn with ATV falling 9% to €21.78.
Volume grew in most major markets in the first half, with increases of 32% in Europe, 31% in Mexico and 15% in Brazil. The positive performance in Europe was driven by continued rebound in Spain as travel and tourism recover from the pandemic. The business opened Getnet Portugal with a range of Newland terminals nicely branded with Santander’s shade of red. It’s suprising how often banks miss the opportunity to use payment devices to raise brand awareness,
A core plank of the Getnet strategy is to expand the geographic footprint based on a standard set of global products. Management highlighted launches in H1 of a working capital solution, dynamic currency conversion, Android POS and vertical propositions for airlines and restaurants. The Android POS is called Get Smart and is available in Spain but only for customers with “a high volume of sales.”
In Latin America, where Getnet claims to be the third largest acquirer, the business has launched its services in Argentina and begun leveraging the global platforms in Mexico. Management expects to launch in Chile during the second half of this year.
Away from Getnet, PagoNxt says Payments Hub has made significant progress to become Santander’s wholesale payments processing provider. It claims that a “significant volume” of payments in Spain has already been migrated making the business “one of the largest A2A payment processors in the Eurozone.” Management also reports “making progress” in consolidating wholesale payments from operations in Brazil, Mexico and the UK to the Payments Hub global platform.
Total PagoNxt revenue from all divisions was up 17% at €277m in Q2 and with operating expenses rising just 14%, there was a slight improvement in the operating loss to €18m. The higher expenses reflect the “ongoing investment plans to develop and implement global technology.”
Discover’s second quarter results showed continued good growth at Diners Club but payment volume from third party cards running over Discover’s Global Network (DGN) fell sharply.
Diners Club, which is still largely a series of national franchises, saw an 18% increase in volume, totalling $9.9 billion, driven by the ongoing rebound in global travel and entertainment (T&E) and corporate spending.
In contrast, DGN, which counts cards from 25 third-party schemes such as SIBS and RuPay cards running over Discover rails when used outside their home country, experienced a 10% decrease in payment volume to $10.4 billion. Logically, these should also benefit from the current boom in travel and tourism but the company merely attributed the disappointing result to “lower transaction volumes.” It declined to give further explanation.
Discover continues to invest in DGN and Roger Hochschild, CEO, highlighted five new partnerships signed in the quarter including Guavapay, a low-profile UK issuer/processor. DGN also expanded its acceptance network with the addition of Phos, the SoftPOS start-up recently acquired by Ingenico and Tyl from Natwest.
Management also revealed that Discover had been over-charging its merchant and acquirer customers since 2007 and would be taking a $365m provision to refund the cash. The issue stems from misclassification of certain cards into hits highest interchange bracket. Individual amounts repaid will likely be quite small but involve a very large volume of customers, many of whom may be difficult to track down. This is going to be quite a project for the unlucky team that gets landed with it.
Banked, one of a number of well-funded open banking start-ups, is yet to generate meaningful revenues, according to financial statements deposited at UK Companies House.
For the 13 months to December 2022, Banked booked just £45K revenues as sales from a series of high profile partnerships had yet to materialise. The company recorded an operating loss of £14.8m taking its accumulated deficit to £22.5m at year end and says it will need to raise new money this year.
Banked was founded by Brad Goodall and Neil Ambler who worked together at 10x, a London based core banking provider. The duo have proved astute fundraisers. Banked is well financed, having received £36.4m in capital from a set of high-profile investors including three leading banks – Bank of America, Citi and NAB – as well as Rapyd, the acquirer/PSP.
This is a crowded market. Banked competes with a large field including Truelayer, Tink, Token, Trustly, Volt and Yapily. These firms simplify the process for merchants to incorporate open banking as a payment option on their checkout pages by aggregating connections to thousands of banks.
Merchants want open banking acceptance to be bundled with the payment service they buy today from their bank, acquirer or PSP. They don’t want to buy a separate product which they have to integrate themselves. Consequently, open banking specialists, like Banked, tend to focus on a white label distribution model. Banked’s strategy of taking investment from potential partners could be a smart move.
Bank of America has already incorporated Banked’s product into the eCommerce checkout offered by its merchant services division. NAB is expected to use Banked technology to offer its merchants PayTo, an Australian equivalent of open banking. Banked also has partnerships with payment orchestrators including Primer, Gr4vy and Apexx which will further extend its reach.
Simply getting Banked’s “pay by bank” button on checkout pages won’t guarantee commercial success. Banked needs shoppers to choose its button in preference to paying with cards, Paypal or any other method they use today. Changing consumer payment behaviour is a formidable challenge and Banked will be reliant on its partners, notably the banks, to educate and incentivise shoppers to start using open banking payments.
To support its expansion plans, Banked has established subsidiaries in Lithuania, Australia and the USA. Goodall has relocated to California to lead Banked’s foray into the US market.
The Lithuanian subsidiary, Pay by B, is a payment institution giving passported access to merchants across the EEA. Pay by B lost £0.287m in 2022 leading management to recognise an impairment loss of £0.47m.
Management reports investment continuing into 2023 although “additional equity funding is being sought… to further support growth.” Management says it hopes to close this new fundraising in Q3.
Higher interest rates coupled with fears of long-term price inflation continue to erode company valuations. Strawhacker calculates that sale multiples for mature payment businesses have fallen from 11 times EBITDA to between eight and nine times. This take us back only to pre-pandemic levels and shouldn’t be a cause for panic. But the impact on high-growth cash-consuming companies is more profound. For example, Checkout.com has reduced its valuation from $40bn just 18 months ago to just $9.2bn today.
Latest documents from the Wirecard trial show Markus Braun retrospectively created supervisory board minutes and described compliance as “crap.” Wirecard was a fraud, no question. But beneath the criminality were some real businesses that live on today. Santander created PagoNxt out of Wirecard’s core technology, Deutsche Bank hired the product team and Nomupay, an Irish start-up, picked up Wirecard’s licences in Turkey and Asia.
Nomupay itself just raised $54m to invest in expanding operations and improving the product offer. It claims to be live in 20 countries and works for regional operations of Spotify, Ikea and Facebook. Much of the business is likely based on the 20,000 Asia merchant customer relationships that Wirecard bought from Citibank in 2018 but Nomupay also has an EU licence through the recent acquisition of Click2Sell in Lithuania. One to watch.
Small businesses buy insurance and mobile phone packages online. Yet the payment industry has, so far, managed to resist all attempts at comparative shopping. The UK regulator’s latest attempt to inject more competition into the market has borne fruit with the launch of Statement. This start-up, which has raised £1.5m pre-seed funding, allows merchants to upload their merchant service invoices and get an automatic, tailored quotation from a range of suppliers. If it works, this should be a real winner and long overdue.
Payment companies like embedded payments because the integrations make merchants less likely to churn. But there’s a fine line between a sticky customer and a hostage. Toast, the US restaurant ISV which includes payment processing as standard, has added $0.99 to all online orders over $10. Toast’s new fee is paid by diners. The money goes direct to Toast and is on top of the 3% commission the ISV already charges merchants. Why? Because it can. Restaurants are hopping mad but can’t avoid the tax without switching to a new software provider which takes a great deal of time, effort, staff training and money.
Large merchants can avoid getting locked into abusive vendor relationships by running payments in-house. Zalando Payments, owned by the German eCommerce retailer, reports excellent progress with €27bn processed in 2021. After charging its parent a chunky 2.7% processing fee, Zalando Payments generated revenues of €276m with a profit of €40m. Two thirds of its turnover comes from processing; the remainder from an in-house BNPL product.
Toast and Shopify, both leaders in small business software are making moves on corporate clients. Toast is partnering with FreedomPay, an enterprise-grade POS payment gateway with a strong position with Oracle’s POS clients, to gain distribution into larger customers. The FreedomPay tie-up will make it easier for Oracle clients to defect to Toast without having to switch out their capital-intensive POS infrastructure.
Shopify announced that Shop Pay, the one-click checkout powered by Stripe, will be available as a standalone product. Enterprise customers using 3rd party commerce platforms can now access Shopify’s vast database of stored card credentials without needing to take any other software modules. The greater the number of retailers using Shop Pay, the larger the database of stored credentials becomes and the more powerful the Shop Pay proposition becomes. Shopify published a compelling case study showing a client considering leaving for Checkout to save money but deciding to stay because of Shop Pay.
Separately, Adyen announced a partnership with Shopify that, it says, will help Shopify better serve enterprise clients. Commenting on the same deal, Shopify merely said its Adyen integration had been enhanced to include iDEAL and Cartes Bancaire.
FIS is having second thoughts about demerging Worldpay as a stock-market listed company. Reports suggest it may sell a majority stake to private equity for $15-20bn, rather less than the $43bn FIS paid for the business in 2019. Advent, who helped buy Worldpay from Royal Bank of Scotland back in 2010 is rumoured to be in the running. So is GTCR, another US investor.
Worldpay is also rumoured to be one of three potential bidders for those parts of the sprawling PayU empire lying outside the PSP’s growth markets of India and Turkey. The other bidders are said to be Nuvei and Raypd. Poland, where PayU inherited the in-house payment service of Allegro, the online retail giant, is the largest PayU unit on sale.
Staying in Poland, we’re big fans of Blik, the wildly popular mobile payment standard which claims 60% of all eCommerce transactions in that country. A local analyst suggests this figure is slightly exaggerated. If you include recurring and foreign transactions, the share falls to 35%-45%. Still impressive but not quite so dominant.
In Italy, Banco BPM says it now has no plans to sell its merchant services unit. Instead, it is demanding an upfront payment from a potential partner in return for a long-term commercial agreement. Nexi, the incumbent, Worldline and BCC Pay (a joint venture including the Italian Co-operative banks) are said to be in the running.
Market Pay, the French acquirer spun out of Carrefour, continues its expansion plans with the acquisition of Novelpay, a Franco/Polish POS payment software developer. Novelpay also brings a distribution relationship with PAX which gives Market Pay European cost leadership in the supply of product from the world’s second largest terminal vendor. Market Pay has already bought dejamobile, bringing Softpos capability and Acoustic, an enterprise POS platform managing 60,000 terminals.
New Shopping
We’re keeping a close eye on autonomous stores. This new form of shopping moves transactions from the retailer’s ECR to the shopper’s phone and presents a clear threat to incumbent POS acquirers in many markets. Auchan has launched its first checkout-free store in Poland. Auchan uses technology from Trigo which is already powering checkout-free stores for Tesco, Rewe and Aldi. In contrast, Amazon Go closures continue. It’s not Amazon’s technology at fault but a lack of retail basics, according to industry commentators.
Whatever the technology, some shoppers will try and game the system. Several UK supermarkets have begun insisting customers show a receipt before leaving self-checkout stores. This gives yet another reason to switch to digital receipts although customers are often resistant to giving the email or phone number needed to deliver them. Singapore start-up Pi-xcels (pronounced pixels) can send a digital receipt to the shopper’s phone in the same tap as an Apple Pay payment. Having shown this at MPE back in March, Pi-xcels already has a proof of concept live with Ingenico.
Smart carts offer a middle way between a standard self-checkout and a fully autonomous store. Carrefour seems keen. It is said to have ordered 5000 from Tel Aviv based vendor Cust2mate and will be deploying in two French hypermarkets later this year. Morton Williams in the US has reportedly purchased 100s of the same model cart. Shoppers using smart carts pay using the integral PINpad which will please incumbent processors.
People love paying with contactless by tapping cards or their phone on the POS terminal but other form factors remain very niche. Statistics from Poland show smartwatch payments get a boost every summer as people head outdoors but are still very small by number. Maybe wearable gift cards will give the market a boost. Zara has ordered 18,000 contactless keychains which can be loaded and reloaded with a closed-loop gift card. UK based Multi-Pay is providing the technology.
We’ve all got a biometric device in our pocket but that’s not stopping vendors searching for even more convenient ways of identifying ourselves so we can automatically pay for stuff. Facial recognition will soon be live at 20K Seven Bank ATMs in Japan but there are some obvious drawbacks. A man in Brazil has been arrested for taping photos to a dummy in order to trick mobile banking facial recognition. Police confiscated a large pile of photos and 17 card machines.
Palm recognition payments is lower risk although, if we’re all still carrying phones, still largely pointless. Undeterred, following Amazon’s announcements last month, WeChatPay is piloting at palm payments at metro stations in mainland China. A bold move in a country still haunted by its mismanagement of the Covid pandemic.
Product
The EU published proposals for a third payment services directive (PSD3). These ideas lack the radicalism of PSD1 and PSD2 which together created the European payments industry as we know it today. The latest suggestions will enhance consumer protection but won’t boost cross-border payments to the same extent as the earlier directives. Neither does PSD3 address the chaotic customer experience preventing widespread adoption of open banking transfers in place of cards.
Although much of the industry appears to have moved on from PSD2, the impact of badly implemented strong customer authentication (SCA) continues. Fraud specialist Forter reports that 20% of 3DS2 attempts fail and the problem is worse on mobile, especially in Germany. The fraudsters themselves may have moved on. Forter reports increased alternative payment fraud, especially gift cards.
We’ve not heard much from Verifone in a while but the US giant is back with a new logoand a renewed brand positioning as “the payments architect.” Verifone has suffered greatly through multiple ownership changes and strategic U-turns but still processes over $500bn annually. There is a huge opportunity to cross sell eCommerce and acquiring to its POS customers so a brand promise about simplifying complexity makes perfect sense.
Lisbon is the latest city to go contactless on its trains and buses. Littlepay, a POS payment gateway specialising in mass transit, will process the transactions. Unicre and Cybersource are the acquirers with Indra supplying the validators. Littlepay which is owned by Vix, a transport ticketing giant, is making good progress and has clients live in Finland, Spain, UK, France and USA.
Mass transit drove contactless uptake in London and other metro centres around the world but the Netherlands are first with an entire national transit system working tap-in and tap-out with contactless. And the validators take credit cards which will be a relief to visitors often mystified by Dutch refusals to accept Visa and Mastercard.
Dutch payment exceptionalism will be declining swiftly following Mastercard’s decision to retire Maestro and switch its customers to Mastercard debit. The same is true in Belgium and in Germany where girocard will in future be co-badged with Mastercard debit or Vpay. 15m girocards will be upgraded by the end of this year. The switch means cardholders can use girocard to make online purchases for the first time which will give the domestic scheme a significant boost.
Giro seems on good form to face the future. What of Carte Bancaire, its French counterpart? 2022 results show payment volume grew 5.5% to €685bn, accounting for two thirds of household current spending and 20% of entire Eurozone card volume. Ignore Carte Bancaire at your peril.
Nexi has quietly launched its first pan-European terminal with devices from Castles and software built in-house by the new Nexi Digital Finland hub. The terminal is called nPay and will be available first via NETS in Nordic markets and subsequently in Italy.
As China opens up to international visitors again, the lack of international card acceptance outside major centres is unhelpful for travellers and merchants alike. The two leading local payment wallets are lining up the international schemes to allow visitors to pay anywhere in China by linking their international credit card to an Alipay or Wechat wallet. Mastercard is working with Alipay and Visa with Wechat. We may see the partnerships reciprocated. If Ali/Wechat generated a virtual Visa/Mastercard to pay at POS outside China, it would immediately bring the wallets an international acceptance network.
Infrastructure
IDC research revealed that just 5% of financial institutions believe they have “future-ready” paytech installed today. Global spend on “outdated” payment systems reached $22bn last year as banks run fast to innovate on legacy platforms. It’s easy to see why investors are pouring capital into cloud payment processing software and services.
Berlin-located Payrails, which offers payment platform as a service, just raised $13.5m from a high-grade investor base including Andreeson Horowitz. UK start-up Shape Technologies just launched a similar offer specifically for ISO’s and ISV’s. And LoopingOne, a marketplace payment infrastructure platform based in Amsterdam, raised €2m seed funding. Ebury, a unit of PagoNxt, was an early investor.
While banks are badly in need of new payment tech, one commentator suggests merchants don’t recognise the same problem. A payment recruiter posted that he’d not worked a “head of payments” role for a year. His conclusion is many merchants believe they have payments set up properly now. As a result, they are recruiting for operational not strategic positions while often merging payments with their core product teams.
SoftPOS
We’ve seen another month of partnership and product announcements as the SoftPOS ecosystem slowly assembles. But we’re still waiting for major news of customer success.
Investors have backed MyPinPad, one of the earliest SoftPOS vendors, with an extra $13m of cash and a new branding reflecting its “strong and secure fusion of connection, confidence and trust.” MyPinPad has accumulated losses of £34m but recently revealed it was providing the technology to Tietoevery’s SoftPOS launched last month with Axxtrans, a Swedish ISV.
Worldline has launched SoftPOS in Poland with a special offer including no standing charges for two years and no processing fees on the first €22,000 transaction. The standard price list was already a very generous €1.5 per month + 0.25% per transaction. “Free” is always a great marketing proposition but risks opening thousands of loss-making merchant accounts that don’t trade.
Rubean is winning most SoftPOS tenders in Germany at the moment and scored another success with RS2. The Malta-based processor has recently launched a direct-to-merchant business in Germany and hopes Rubean’s SoftPOS will help attract new customers.
Although we’re seeing relatively few merchant announcements, it was good to learn that LVMH, the luxury retailer, will be using Tap to Pay on iPhone (Apple’s proprietary softpos) for queue busting and clienteling.
Openbanking
UK vendors tell us they have the best open banking regulatory framework in the world but are confused about why the market has been so very slow to take off. Reports of a vendor roundtable from Money 20/20 suggest the industry is mainly talking to itself. Without a scheme or industry consortium to set the rules and communicate the advantages to shoppers, open banking payments risk remaining a well-funded solution looking for a problem.
What next? Andrei Cazacu from Truelayer (one of the open banking API aggregators) gives a set of reasons not to panic and Simon Lyons from OB Connect has put forward a ten point plan including absorbing variable recurring payments into the current BACS direct debit system.
London-based Volt, which aggregates open banking aggregators, has raised $60m, at a $350m valuation, to build out its global acceptance network. The CEO said he was “staying focused and humble.” Meanwhile, both Shopify and Worldpay announced that Volt would be their preferred partner for open banking payments. This potentially gives Volt presence on hundreds of thousands of checkout pages although gives no guarantee of volume. Shoppers may still choose to pay with cards.
We are beginning to see innovative start-ups build customer experience around core open banking APIs. UK-based Atoa, raising $6.5m says its USP is to reduce merchant fees by up to 70% compared with cards by accessing Yapily’s open banking aggregation service. The user experience is based on QR codes which works for table service restaurants but not retail. The transaction fee of 0.6% does not look like a bargain.
Crypto corner
Increasingly assertive regulators are putting the brakes on the remaining madcap crypto ideas that still have funding in place. In Frankfurt, Bafin has called time on BCB Group, a London based crypto processor that was trying to buy a German bank. Protecting depositors is now the name of the game.
The British Government still likes the idea of the country becoming a global crypto centre leading Ministers to demand that crypto assets should be regulated as financial services, not gambling. There’s nothing wrong with casinos provided punters know the odds are against them. But there is a clear risk of legitimising scams and ponzi schemes by describing digital currencies as securities when they are just bets on red or green.
The UK has also moved a step closer to a central bank digital currency (CBDC). The initiative, known officially as the digital pound but unofficially as Britcoin, has strong political support and was backed by a new joint study between the Bank of England the Bank of International Settlements in Basle. Officials say the digital pound might not be built on blockchain technology and would be limited to £3-5000 per person to avoid competing with banks.
Other news
Sifted lists start-ups from Adyen alumni including Tebi, June, Solvimon, Silverflow, and Atoa. It’s a very impressive roster and shows the massive boost Adyen has brought to Amsterdam’s payment ecosystem.
Adrian Mol, founder of Mollie, the Dutch PSP he named after himself, gave a fascinating interview with Sifted. We learned that Mollie will be profitable by 2024, that he would like to layoff 5% of staff every year; and that his parents did not name him after Adrian Mole.
Useful research on payment orchestration from Spreedly showing over half of organisations manage more than five payment integrations.
And finally
Payment professionals looking for a Summer holiday destination can now safely travel to St Helena – the small rock in the South Atlantic where Napoleon died in exile. The island’s merchants are finally accepting card payments. Ryft, a small UK fintech, has built a bespoke onboarding solution to comply with local regulations.
Press reports and analyst comments indicate that PayU’s businesses outside of India and Turkey are for sale in a process being run by Bank of America. Worldpay, Rapyd, and Nuvei are said to vying to take control of the emerging market PSP. The target price is said to be $250m.
PayU is owned by Prosus, the Amsterdam-listed investment unit of South African Naspers, which hit the jackpot as an early investor in Tencent. Prosus has published its results for the year ending March 2023, shedding some light on PayU’s recent performance.
PayU’s payment volume grew 23% in FY 2023 to $97 billion. Most of the growth came from its 8m SME customers in India. Volume processed on the subcontinent rose 32% to $58 billion. What management describes as its Global Payments Organization (GPO), which includes all PayU business outside India, saw volumes rise just 11% to $39 billion.
Revenue from PayU’s core PSP business grew 23% to $792 million, driven by a strong performance in India and Turkey. Sales in India overtook the rest of the world for the first time, recording a turnover of $399 million, a rise of 31%. Outside India, revenue was up a more modest 15% at $393 million. Of this figure, roughly one third comes from Turkey (not included in the sale process) and another third from Poland (which is).
ATV was up 5% in India to $40.39 and remained flat outside India at $31.45.
The take rate in India was flat at 0.69% but rose 4 basis points in the rest of the world (RoW) to 1.01%. PayU provides eCommerce gateway services and payment orchestration but is not an acquirer, so a 1% take rate is reasonable. It represents an average revenue of 30 cents per transaction.
PayU recorded a trading profit of $11 million in India with a margin of 3%. Outside India, PayU lost $14 million, although it would have made a small profit except for a £23 million provision “related to merchants in Brazil and in the travel industry.”
PayU also booked $143 million in revenue and a trading loss of $27m on its 21% minority stake in Remitly.
Divesting the non-Indian and Turkish PayU businesses makes sense. These other markets are growing slowly and, collectively, are barely profitable. A trade buyer should be able to find plenty of synergies although the numerous technical platforms might be challenging to integrate. PayU also brings scale in Poland where it includes the former Allegro Payments, spun out of Europe’s leading online marketplace which was formerly owned by Naspers. PayU Poland recorded revenues of $248m in 2021. You can read more at Cashless.pl.
Of the three potential suitors, Rapyd has the strongest emerging market focus today and probably best understands this corner of the payment world. On the other hand, Worldpay badly needs a growth story to tell when it demerges from FIS in early 2024 and PayU might fit the bill. As for Nuvei, it has Ryan Reynolds on its share register so anything is possible.
Pay U has built its business largely through acquisition. Key purchases include:
Wibmo – Indian based white-label payment gateway bought by Pay U for $70m in 2019. Wibmo claims to have 160 bank and fintechs as customers in over 30 countries processing over 3bn transactions annually. Pay U laid off 150 staff in India at the end of 2022
Citrus Pay – a mobile wallet and gateway business operating in India, bought for for $130m in 2016. Citrus Pay claims $3bn processed annually.
Zooz – one of the first payment orchestrators, Israeli based Zooz was bought by Pay U in 2018, reportedly for between $80 and $100m. Zooz technology is at the heart of Pay U’s “payments hub” which connects its various technical capabilities.
Red Dot Payment – based in Singapore, Red Dot offers an webshop in a box, including payments, for micro merchants. Pay U acquired the business at a $65m valuation in 2019.
Iyzico – Pay U purchased this Turkish POS and eCommerce PSP with mobile focus for $165m in 2019. H&M, and Decathalon are customers. Iyzico processes 65bn lira annually which is around $2.5bn today at today’s exchange rates.
Polski Standard Płatności, which operates Blik, the wildly successful Polish payment method, has reported excellent 2022 financial results.
According to Cashless.pl, total revenue grew 88%to €46.4m driven by markedly higher transactions across all channels. Net profit almost trebledto €23.93m.
Blik, which boasts 13m active users, is a payment standard jointly owned by Mastercard and seven local banks. Blik is not a PSP and does not move money around. The 2022 results may give an indication of size of the open banking payment infrastructure opportunity in other countries. There is profitable revenue to be made. No question. But maybe not at the scale many are hoping for.
During 2022, Blik initiated 1.2bn transactions to a value of €35bn split between retail (eCommerce and POS), ATM and P2P. Across all channels, the take rate was 13bps and revenue per transaction 4 cents.
Blik’s eCommerce user experience has been notably successful in Poland. Mobile banking apps generate a six-digit code which shoppers enter into the eCommerce checkout page. Shoppers can then ask the website to remember them for one-click checkout next time. Here’s a quick explanation from Millennium Bank, one of Blik’s shareholders.
Blik was used for 714m eCommerce transactions in 2022, up 37% on the previous year. It now accounts for an astonishing 60% of all eCommerce transactions in Poland. Blik has gained share primarily from direct bank transfers rather than credit cards. Online transaction value nudged up 3% to €26.66.
For years, shoppers could only use Blik at POS by keying a six-digit code into the payment terminal. It’s no surprise that customers preferred to continue using cards. But following Mastercard’s investment, POS transactions are now enabled for NFC using Mastercard network tokens (MDES) which has greatly improved usability. Transactions are growing swiftly from a low base. There were 228m POS transactions in 2022 of which 70m were contactless. Importantly, the partnership with Mastercard allows Poles to pay with Blik at POS terminals outside Poland.
Dariusz Mazurkiewiczs, Blik’s President, said the good results “allow us to take bold steps in international development on our own.” Blik will shortly launch in Romania and has just acquired Viamo, a Slovak mobile payment specialist.
Card-linked loyalty seems an easy pitch. What could be simpler than linking your payment card to a store’s loyalty programme? Making money from the product is much harder. Loyalty Angels, the card-linked loyalty provider trading as Bink, was launched with much fanfare in 2015 but has struggled to make a commercial return over its eight year life.
Despite close partnerships with both Barclays and Lloyds, Bink lost £11.8m in the year to August 2022 according to accounts filed at UK Companies House. Following a similar deficit the previous year, accumulated losses now stand at £67.5m. Turnover was not disclosed.
Bink, said to be valued at £100m in 2017, needs a continued injection of new funds to keep trading and directors must have been very relieved to raise £8.4m in March 2023. This is said to be sufficient for a further 12 months. Nevertheless, Bink, based in Berkshire and employing 85 staff, needs to generate profitable revenues at some stage to justify the faith of its deep-pocketed backers, reported to be its two main customers – Barclays and Lloyds.
It’s easy to see why the two banks have an interest in supporting Bink. The product is included in both banks’ mobile apps and Bink’s ability to connect brands with millions of Barclays and Lloyds cardholders is its unique selling point. Here’s an explanation of how the Barclays loyalty product works. While the customer benefits are clear, the feature is buried deep in the mobile app menu and it’s hard to see millions of cardholders signing up for the service without a major marketing push.
Also included in Bink’s annual results was news that management has written off the entirety of its investment in MyGravity, a Crowdcube-backed loyalty app, which was acquired in 2017 for £3.5m in shares.
Bink’s financial challenges contrast with Reward, its main UK competitor, which made an operating profit of £2.6m on turnover of £43m in its 2021/22 financial year. Reward’s service is bundled with Virgin Money, American Express and Barclaycard.
The payment industry’s fortunes are closely linked to consumer spending which is performing much less badly than feared. Both Visa and Mastercard reported trading in Europe ahead of expectations in Q1. Vasant Prahu, Visa’s CFO, said “Europe is strong, defying what we may have expected going into the year. If there is a positive surprise, it’s clearly Europe.” More detail on the Business of Payments blog.
France has long been a missing piece in Worldine’s jigsaw and its management were very pleased to announce a joint-venture with Credit Agricole. Worldine will bring the products. The bank will bring the customers and, equally importantly, large scale Carte Bancaire volume. Worldine expects €300-€400m annual revenues once the venture is mature.
In Italy, two banks are considering options for their merchant services businesses. Local press reports that Banco BPM will soon announce a strategic partner. Worldine or Nexi are considered the most likely options. The much larger Unicredit is expected to announce the consolidation of its payment operations into a standalone business unit to be managed in-house by Alberto Palombi, an investment banker recently hired from UBS.
Local press reports that Nexi will buy a stake in Computop, the last man standing in the German payment industry. Computop is the country’s leading eCommerce PSP with 12,000 customers and €36bn payment volume. It also provides white label services to a number of banks. This is a good move for Nexi although I’m slightly surprised that Global Payments (now implanted in Cologne through the EVO acquisition) didn’t make a move.
Bank of Greece reports that total national volume rose to €30bn in 2022, still small by European standards, but fast growing and with a good share of high margin international transactions. The Greek payment market has consolidated remarkably quickly and is showing the future for other countries. All the major local banks have divested their merchant services units or partnered with one of the international players. Worldline, Nexi, EVO/Global Payments and Euronet together now hold 92% of the market.
We’re still waiting to see if US processor Shift4finally concludes the $525m acquisition of Finaro. The deal has been held up for over a year due to the presence of sanctioned Russian oligarch on the Israeli acquirer’s share register. Meanwhile, Finaro is making good progress extending its reach into POS with a contract to process contactless ticketing transactions for the Bavarian City of Regensburg. Czech specialist, Switchio is providing the payment gateway.
Nuvei reported 20% revenue growth in Q1 but more eye-catching was the revelation that Ryan Reynolds has invested an undisclosed sum. The actor, who recently banked $300m from his stake in a wireless provider, said ““I know as much about fintech as I did about gin or mobile a few years ago but Nuvei is impressive and… it’s about time a Canadian company got the type of attention American tech companies do.”
FISgave a little more detail on its plans to spin off Worldpay into a separate publicly traded business “by early next year”. FIS will retain up to 19.9% of the company it bought for $43bn in 2019. The Q1 results show that the POS-focused US and UK businesses are struggling. UK enterprise revenue was down 7% which is a dismal performance when consumer price inflation is running at 10%.
RS2, the Maltese based payment software vendor, reported 3% lower revenues in 2022as its bank customers delayed projects. FIS and ACI have been making similar complaints. To mitigate its reliance on two very large customers, RS2 has entered the increasingly crowded German market with a new brand – Beyond by RS2 – selling POS payment acceptance direct to merchants. Without a bank partnership, distribution is likely to be a challenge.
Fiserv bought the UK operations of NetPay, a POS gateway, in 2021. Netpay’s management is rebooting its Irish business and targeting 20% merchant market sharewithin 3 years. That’s a very bold target given the strong competition from BOIPA (EVO), AIBMS and Elavon.
The financial press is speculating that Tiger Global could be looking to offload its $1.5bn stake in Stripe. More interesting to readers of Business of Payments is Stripe’s conveyor belt of new products and customer wins. This month we saw the launch of S700, a developer friendly portable Android terminal. Exciting features include the ability for ISVs to control the payment screen.
As Stripe demonstrates, it’s become increasingly important for eCommerce specialists to offer an integrated POS solution. Mollie, the Dutch payment unicorn with 130,000 online merchants has launched a small range of PAX terminals at €350 up front or €10/month. The products are available today in Germany and Benelux with other European markets coming soon. Another example is WIX, the eCommerce platform, which has integrated with Square to offer POS payment acceptance for its omni-channel merchant customers. UK rates are 25p + 1.4% for domestic cards.
Stripe is still winning eCommerce business too, cementing its relationship as “strategic payments partner” for Uber across most major markets. This indicates a major shift from Uber which, up until now, built most of its payment infrastructure in-house. According to Stripe, its sales team took a while to convince Uber’s management that the processor was able to handle the scale of its payment operations.
High risk acquirer emerchantpay has been embarrassed by the resignation of Grant Thornton, its auditor. The accountants cited governance concerns. Undeterred, emerchantpay has invested €18.5m capital into Ibanera, a banking-as-a-service provider. The rationale is to ensure Ibanera can “keep supporting” Bitline, a Florida based gateway that helps people gamble crypto assets in casinos.
Hands In, a brilliantly simple way for friends to jointly pay for holidays by splitting the basket, has raised $550K. The UK based start-up won the Innovation competition at this year’s MPE Conference in Berlin. Samuel Flynn, the founder, is in his early 20s and has already attracted a stellar community of investors.
Starbucks has begun testing Amazon One – a biometric payment system based on palm reading. It says initial reactions to the palm payment system have been met with uncertainty from older consumers. “They’re kind of freaked out by it,” said one staff member.
With shoppers still confused by “just walk out” stores, Smart Carts may be a better idea. Hastok, operator of 40 homeware stores in Israel, will be deploying 1000 shopping carts equipped with scanners that automatically recognise purchases. The technology is said to ignore personal possessions placed in the carts, including stray children. When finished, shoppers simply checkout on the integral touchscreen, making payment via the attached PINpad. The vendor, A2Z Smart Technologies, is getting upfront and monthly fees for each cart plus a cut of any advertising revenue.
There’s no need for high-tech convenience stores if robots can make local deliveries cheaply and quickly. There’s a pilot going on in Wakefield in the north of England led by Starship Technologies. and covered by this good BBC local news report. The robots keep getting stuck but cheerful locals are always on hand to put them back on the pavements.
European Payments Initiative
Not dead, merely resting. The European Payment Initiative (EPI) has sprung to life. Rather than build a Visa or Mastercard competitor from scratch, the consortium – which includes Worldine and Nexi – has bought iDEAL, the Dutch account-to-account payment scheme, along with Payconiq, its technology provider. This gives EPI a solid basis for success in terms of both volume – iDEAL brings 20% of all Eurozone online transactions – but also establishment support. EPI members represent most major banks in Benelux and Germany. Here’s some good analysis from Ron van Wezel at AITE.
Commentators in Warsaw have unkindly suggested the EPI is merely reinventing Blik, the wildly successful Polish mobile payment standard. Blik – a consortium of six local banks plus Mastercard – has now moved into Slovakia with the acquisition of VIAMOand is also now present in Romania. Could a merger of Blik and EPI be on the cards?
Orchestration
Orchestrationis a hot topic at the moment although sometimes it’s hard to understand where gateways stop, and orchestrators start. After all, both concepts connect merchants with multiple PSPs or acquirers. Most would say that Freedom Pay is a gateway but its President said in an interview with Retail Tech Innovation Hub: “The last payments processing request for proposal (RFP) I did, had a title with orchestration in it – gateways or other such old fashioned language wasn’t in it at all.”
To confirm the trend, Paydock, a gateway orchestrator based in London but founded in Australia just raised £25m. Paydock is focused on both merchants and, as a white label, for banks.
This excellent new whitepaper from Edgard Dunn and Nuvei gives the merchant perspective on orchestration. Reducing processing costs and simplifying internal operations, rather than optimising acceptance, or reducing fraud are the key drivers for adoption.
McLEAR has launched a payment ring, called RingPay, in the UK. Working with Gemalto, Infineon and Railsr, the product can be provisioned with any EMV payment credentials. This broadens its target market but these solutions still look rather niche while everyone routinely carries a Smartphone. The ring is priced at £90 and allows a maximum daily spend of £500.
UK-based Miura had an early lead in mPOS terminals but has been rather overshadowed by the emergence of the big Asian brands – PAX, Newland and Castles. It has finally launched an Android device. One of Miura’s distributors told me the proposition was underwhelming, lacking the support services needed by the leading acquirers.
Artificial Intelligence
The people who have been boring you with talk of Blockchain for the last few years moved briefly on to the Metaverse and are now self-appointed experts on Artificial Intelligence (AI). The technology may be different, but the hype remains the same.
Payment companies have been using AI for years, notably in screening transactions for potential fraud. It’s the technology leap into generative AI which is getting everyone exited. Here’s a good roundup from FXC about what the industry leaders have been saying in their Q1 results.
The schemes have contrasting messages. Visa’s CEO said: “We’ve got people all over the company that are tinkering and dreaming and thinking and doing testing and figuring out ways that we could use generative AI.” Mastercard’s boss was more cautious. “We’ve encouraged our employees to experiment with the technology, but we set very clear guardrails. Don’t do it in production…. We will lean in, but make sure that we are a trusted party when it comes to scaling it up.’
Open banking
Mastercard has made a long awaited investment in European open banking. It has taken a stake in Fabrick, an “open finance” spin-off from Italy’s Banco Sella. This may have implications for Mastercard’s existing open banking partnership with Token. Fabrick itself sees opportunities in the UK and has acquired Judopay, a well-regarded mobile-centric PSP based in London which processes over €2bn annually.
Meanwhile, British commentators have noted the glacial pace of adoption of open banking payments. Nick Dunse, former CMO of Pay with Bolt (an open banking aggregator) wrote a good post on why things are not happening. I can’t argue with “Nobody is leading it and there’s no money in it.”
The UK authorities are aware and are recommending next steps for the Open Banking Implementation Entity. However, unless volume arrives quickly, a number of start-ups are going to be struggling to attract the funding they need to continue. Now could be a good time for merchant acquirers to buy an open banking API aggregator.
We’re also beginning to see pricing models emerge. Wonderful Payments has bult a slick merchant UX on top of open banking payments and charges £99/month for 1000 transactions. Its target market is charitable giving.
Counting cash
Access to cash has been a key public policy concern for some time, especially in rural areas. A consortium of UK ATM operators and cash management suppliers has formed the Payment Choice Alliance to push for legal obligations on merchants to accept cash. Whether inclusivity is best served by subsidies and protection for the cash industry or by accelerating universal adoption of digital money is a good question.
One good innovation to help people move away from cash is this reverse ATM, designed by Wavetec, which turns paper money into pre-pay plastic. Venue operators cover the pre-pay card fees so that they can welcome all visitors while keeping their cash free tills turning quickly.
But it’s certainly true that cash is being squeezed. Among merchants, the last cash-only standouts are conceding the game is up. Even the Schweizerhof beer garden in Vienna is now accepting card payments. Hat tip to Global Payments for getting these folk to join the 21st century.
The less cash used, the higher the costs. In the UK, the LINK interbank network is now paying just 27p to ATM operators for each withdrawal, squeezing margins all round.
One way for ATM operators to make some extra profit is to rip-off unsuspecting tourists with outrageous DCC charges. Auro Domus in Dubrovnik asked me for an astonishing 16.46% commission. Along with a fixed fee of €5.30, this would make a €100 cash withdrawal cost £106.49. I declined DCC and was billed just £91.68 by Halifax, my credit card company.
SoftPOS
There’s a little SoftPOS product news this month but still no indication of usage and payment volumes. Caixa Bank has launched what it claims is the first SoftPOS from a Spanish financial institution.The technology comes from its JV with Global Payments. Natwest is launching a SoftPOS too although it’s not clear whether the UK bank is using a product from Fiserv, its strategic partner, or another vendor.
Crypto corner
Andreessen Horowitz published its initial “State of Crypto” report and concludes that the industry is “healthier than market prices indicate.” AH notes that, even after recent turbulence, 30,000 developers are working on crypto projects worldwide.
The UK is the capital of economic crime and crypto currencies are no exception. British punters lost £300m in the last twelve months, up 40% on the previous year. A third of the fraud was in November 2022, the month FTX failed.
I’ve long been calling for crypto to be regulated as gambling not securities. The UK Treasury Select Committee now agrees with me. It also cautioned the Government against publicly backing crypto assets such as NFTs saying the authorities should “avoid spending public resources on projects without a clear, beneficial use.” The Governor of the Central Bank of Ireland took a stronger line, comparing the purchase of unbacked crypto with a Ponzi scheme.
There are also clear concerns around crypto-currency related money launderingincluding the continued prevalence of unlicensed crypto ATMs. The UK regulator has closed down yet more of these in three provincial cities. The ATMs are said to be “a key component in the facilitation of money laundering and the movement of funds gained through criminal activity.”
Mastercard thinks it can help fix the plumbing if not the risk. Its new Crypto Credential service is hoped to “bring more trust” in using digital assets for money remittances.
Visa is also maintaining investment. Its CEO said “We see the potential for stable coins. … We’re enabling on and off ramps on crypto. We’re working with exchanges around the world to issue their users Visa credentials. And we’re developing the capability for our issuer and acquirer partners to have a choice to settle in stable coins.”
But Pressure is mounting in the US to regulated “backed” crypto too. The US American Bankers Association wants stable coin operators to be regulated as banks.
Americans have begun worrying about contactless payment terminals charging the wrong card. According to ABC, one clever device in a supermarket “ignored the debit card in [the customer’s] hand. Instead, it reached into Matthews’s back pocket, through his wallet and charged his Bank of America credit card tucked inside.” That’s one very remarkable terminal.
Global Processing Services (which does roughly what it says on the tin) has rebranded as Thredd. Why? Because its “tailored” solutions are the “thread that runs through our clients’ plans.” And because it wants to be part of the fabric of your business. There’s more. Thredd believes payments should be seamless. Geddit?
Hallelujah. The New York Subway is finally taking contactless payments. If folks can’t understand how it works, they are advised “to ask a young person to help you figure it out.” Cubic is providing the technology.
AITE has a timely report on payment infrastructure. The analysts report that banks have already lost 10% of their payment volume to Fintechs and need to urgently modernise legacy systems. Cloud-based payments-as-a-service vendors should benefit.
A new service called Fee Checkers has launched in the UK. Merchants give it access to their acquirer portals. Fee Checkers analyses their transaction history and proposes alternative (cheaper) suppliers. If this works, it will be winner.
A good case study from Mastercard looking at how it helped MediaMarket, the German electronics retailer, evaluate the effectiveness of its price-matching strategy.
RS2, the Malta-based payment software provider, has reported annual revenues falling 3% in 2022 to €38m. In common with many businesses selling to banks, the company says the Ukraine invasion and the general macro conditions have delayed contracted development projects.
RS2 competes with ACI, BCP, and others to supply banks and other financial institutions with software that processes acquirer and issuer card payments. RS2 is quoted on the Malta Stock market with a market capitalisation of €240m. It is controlled by its CEO, Radi Abd El Haj. Barclays Bank holds 17.5%, which it purchased in 2013 as part of a deal that saw the bank commit £8.5m to buying software from RS2.
Although RS2 has over 250 customers, management is conscious of the company’s reliance on two top clients that together generated 47% of total revenue in 2022. As a result, the company has diversified by founding a new business in Germany, selling payment acceptance products directly to merchants. RS2 is now a principal member of the card schemes and has become a licensed EMI.
This new direct acquiring business in Germany was launched in Q3 2022 and initially focused on migrating the 4,000 merchants inherited with the acquisition of Kalicom Zahlungssysteme, a Frankfurt-based NSP in 2020. Kalicom specializes in bakeries, butchers, and food stores. It supplies rental terminals, Girocard processing, and Vectron ECR systems. Persuading German bakeries to accept international cards is harder than it sounds, and RS2 will need to find other distribution channels. As a first step, it has launched a new brand called Beyond by RS2 (below), which sells a range of terminals starting at €9.90/month and an eCommerce gateway from €19/month.
Meanwhile, Bankworks, RS2’s flagship product, is migrating slowly from licensed software to a managed service. The logic behind this move was underlined when one large software client took development in-house, resulting in a €3m revenue loss in 2022, with a further €5m shortfall forecasted in 2024.
The loss of this customer saw sales from licensed software solutions falling 21% to €14.1m in 2022. This decline was only partially offset by an 11% increase in processing solutions revenue to €20.8m, boosted by managed service wins in Singapore, Malaysia, Mexico, Chile, and Peru. Sales at the new merchant solutions business in Germany grew 24% to €2.6m.
The same story was reflected in the geographical breakdown of sales, with revenue falling in RS2’s largest licensed software markets – down 9% in the US and 10% in the UK & Ireland – but growing 23% in other countries, including Germany.
In total, RS2 processed 1.25 billion transactions in 2022, which works out to 3 cents per transaction, but management says technical capacity is now over 25 billion. This gives plenty of room for growth.
Cost of sales rose by 18%, resulting in gross profits falling 30% to €11.8m. Personnel costs (partly included in cost of sales) were up 14% to €22.7m. The average cost of RS2’s 480 employees is €47K. Administrative expenses increased by 22% to €10.3m.
Despite a favourable €1.5m FX gain, operating income was down 72% to €1.8m. Operating margins fell from a very healthy 17% to a disappointing 5%. Looking ahead, management is optimistic for 2023, saying that the demand is coming back with several large strategic projects in the pipeline, as well as likely strong growth in Germany.
“In the course of our work, we learned of certain transactions for which we sought supporting information, including management’s evaluation of whether the accounting for them is in accordance with relevant accounting standards and an assessment of risks and compliance with applicable laws and regulations. Following this process, which resulted in an absence of sufficient, appropriate audit evidence, we have been unable to conclude whether the accounting for the transactions is appropriate and whether there has been a breach of applicable laws and regulations.
The nature of the transactions and the absence of supporting evidence have resulted in us becoming concerned about the quality of the Companies’ governance.
Given the significance of these matter, we do not consider it appropriate that we continue to act as the Companies’ auditor.”
Grant Thornton’s resignation, revealed in a document deposited at UK Companies House, will likely delay publication of eMerchantPay’s accounts for the year ending August 2022 and will doubtless also interest regulators.
eMerchantPay employs 322 staff worldwide, the majority at its service centre in Bulgaria but also at sales offices in London, Germany, India and Brazil. The business is regulated as an EMI by the UK’s Financial Conduct Authority. Following the UK’s exit from the European Union, eMerchantPay transferred its continental European customers to an associated company, UAB Phoenix Payments, in Lithuania. In December 2021, eMerchantPay invested €12m into this business “for required capital restructuring to ensure the ongoing strength of the business” noting that the ongoing operation of UAB Phoenix was “critical” for the Group.
The most recent financial statements available show eMerchantPay to be highly profitable company, generating $151m revenue in the year ending August 2021 from processing $5.7bn payments. This was split between in-house acquiring and a PSP/gateway service that links merchants with 3rd party acquirers. Acquiring revenue more than doubled in 2021 to just over $100m with a take rate of 2.7%.
Management said its business had benefited in 2021 from “a market surge in crypto-currency activity”. In addition to crypto and FX, eMerchantPay also specialises in gambling, including casinos.
Like many high-risk acquirers, eMerchantPay has been making efforts to diversify its client base to include low-risk segments such as retail POS transactions. Nevertheless, in March 2023, the company invested $18.5m into Ibanera, “to enable them to keep supporting” Bitline, a Florida based gateway that helps people gamble cryptocurrencies in casinos. Despite current volatility, Jonas Reynisson, eMerchantPay’s founder, CEO and majority owner, believes crypto has a future, saying “Crypto currencies are no longer for speculation by risky traders, but instead represent the transition of Web2 to Web3 environments that requires easy adoption for everyday consumers.”
