Significant write-downs at PagoNxt, Santander’s merchant payment business, masked a good underlying performance reported with the bank’s Q2 2024 financial results. Notably, economies of scale in payment processing helped double EBITDA to €69m.
PagoNxt was created when Santander consolidated its payment assets into a single unit containing Getnet, a multi-national merchant acquirer, Ebury, a London based trade finance specialist, Superdigital, a Latin American financial marketplace for the economic inclusion of the underbanked and PagoNxt Payments which offers wholesale A2A capability based around its Payments Hub.
The refocused Getnet is the second largest acquirer in Latin American and has good positions in Spain and Portugal where it sells through Santander’s large domestic banking networks. Santander also has a strong footprint in the UK where Elavon is the bank’s preferred payment partner today. It’s not clear if or when Getnet will replace Elavon in this relationship.
Returning to the Q2 2024 results, global merchant payment volume at Getnet rose by 9% to €54bn. This is the slowest increase in volume yet reported by PagoNxt and reflects the impact of the loss of its German merchants. ATV ticked up 6% to €20.85.
Payments Hub which offers a single API connection into a number of A2A platforms including SEPA, Faster Payments and SWIFT, is growing fast from a low base. Total transactions increased from 79m to 405m in the first half of 2024.
PagoNxt is successfully turning increased volume into sales revenue. Turnover was up 8% to €300m with the good performance attributed to Getnet in Europe, Chile and Mexico, where it deployed DCC for the first time, as well as higher sales at Ebury.
Management is keen to reduce its dependence on Santander and was pleased to report that 22% of total PagoNxt revenue is “open market”, that is sourced from its own distribution, compared with 14% last year.
Higher volumes have begun to deliver economies of scale. Unit transaction costs at Getnet fell 9% to 3.7 cents, allowing operating expenses to hold steady at €297m despite the growing size of the business.
PagoNxt is now consistently profitable on an underlying basis. EBITDA doubled to €69m in Q2 as the margin grew 8pp to 20.1%. Management believes that it is on course to reach the medium term target of 30% EBITDA margins.
Net operating profit before the write downs was €4m compared to a loss of €18m in the same quarter of 2023. After the write downs, PagoNxt lost €258m.
2023 was a difficult year for Cardnet as the Lloyds Bank/Fiserv joint venture was hit by the impact of the cost of living crisis on its core UK high street merchant customers.
Despite UK retail price inflation running almost 10% in 2023, Cardnet’s total payment volume fell 8% to £54.6bn. Credit slightly outperformed, dropping just 3% to £14.7bn. Debit volume was down 9% at £39.9bn.
Gross revenue from merchant service fees fell 3% at £314.3m. The decline was cushioned by price increases. Revenue per transaction rose 8% to 31.1p
After deducting interchange, scheme fees and Fiserv’s costs, Cardnet’s net revenue was down 12% at £52.8m “primarily driven by the impact of the cost of living crisis on activity levels along with client attrition.” Fiserv’s fees rose from £8m to £14.5m.
Cardnet’s owners want to return the business to growth. Melinda Roylett, ex PayPal and Square, has been appointed as MD and is rumoured to have been given some very aggressive targets. Her plans have been backed with £13m spend on a “Strategic Investment Programme,” up from £6m in 2022. These costs helped drive up overall operating expense 37% to £35.5m.
Cardnet, 51% owned by Lloyds, aims to recruit new merchants by leveraging the bank’s corporate relationships. A good example is Lloyds’ partnership with PayPoint, one of the UK’s largest ISO’s. This deal will see Cardnet become the exclusive supplier of merchant services to Paypoint’s 60.000 small business customers.
PayPoint currently writes business for both Cardnet and EVO (now owned by Global Payments) but chose to standardise on Cardnet because of the wider banking product set that Lloyds brings. PayPoint currently has about 10,000 merchants with Cardnet and 20,000 with EVO. The remaining 30,000 take merchant services from other suppliers and will be a key target for the new partnership. In return, Cardnet has promised to make significant product investments through its Fiserv relationship and to launch a merchant rewards scheme based on PayPoint’s Love2Shop loyalty products.
Cardnet has no staff of its own. All employees are managed by Lloyds or Fiserv and recharged to Cardnet. Salary costs rose 24% from £14m to £17m.
With revenues down and costs up, the bottom line suffered. Profit before tax was down 40% at £23.2m, although the overall margin remains an impressive 16%.
The shareholders have dipped into reserves to pay a dividend of £34.5m. This is rather lower than the £54.1m they shared in 2022.
Despite the growth plans, Cardnet’s fortunes remain closely tied to the UK high street more generally. Management’s outlook is rather downbeat, saying “The business is aware that the combined effects of higher consumer cost of living and interest rates reducing at a slower rate than originally expected have negatively impacted consumer discretionary spend in retail, leisure, travel and hospitality sectors.”
Discover’s Q2 results showed a sharp slowdown in the volume processed by its 25 network partners. These are third-party schemes, such as RuPay (India) or SIBS (Portugal), which cobadge with Discover to gain access to its global acceptance network.
In contrast to the strong cross-border growth reported by both Visa and Mastercard, Discover’s network partner volume was down 22% in Q3 to $8.1bn. Management said that Ariba Pay, a longstanding Discover partner which helps businesses settle invoices, was the main contributor to the poor performance in partner volume.
Diners Club International, which is still largely a series of national franchises, also had a challenging quarter, with volume down 5% to $9.4bn. The decline was attributed to unspecified issues in India where the cards are issued by HDFC Bank.
It’s obvious why Klarna is selling. KCO competed with key distribution partners such as Stripe and Adyen and the very generous sale proceeds will bolster Klarna’s balance sheet and help grow its lending business.
But it’s less clear how KCO’s new owners will make a return on their investment. Stand-alone gateways have been under considerable pricing pressure in recent years, and many have ended up vertically integrated into the larger merchant acquirers.
In banking news, BNP Paribas and BPCE, which together handle c.30% of card payments in France, will invest €100m each and pool their payment capabilities to create a joint-venture with the scale to compete with Worldline and Nexi. Technology will be “home grown” and most likely a continuation of Partecis, an in-house platform based on ACI products. While there’s plenty of scope for synergy in France, the JV will find its hoped for international expansion rather more challenging as PagoNxt, Santander’s payment unit, demonstrated when it recently closed its German operations.
IDC, a London-based research firm, has published vendor evaluations for online and omni-channel retail payments. The full reports cost $20,000 each but the top ranked firms have helpfully made their sections available free of charge. Stripe comes top for online payments although is marked down for being expensive. Adyen is first for omni-channel but customers are warned that its all-in-one solution may lack flexibility.
Viva Wallet’s lawsuit with JP Morgan ended in a London courtroom with both sides claiming victory. JPM paid an eye-popping $800m for 48.5% of Viva in 2022, primarily to gain access to SME customer onboarding tools for European markets. Haris Karonis, Viva’s founder, claimed that JPM then deliberately blocked his company’s launch in the US so that the giant American bank could buy the rest of Viva on the cheap. JPM counter-claimed that Karonis failed to understand how far Fintech valuations had fallen.
It’s taken four years and 14 of the original 31 banks have exited the consortium but the European Payment Initiative (EPI) has finally launched wero, the long-long-awaited domestic European payment champion. Wero, a combination of “we” and “euro”, is live for person-to-person money transfer, initially for customers of co-operative and savings banks in Germany and KBC in Belgium. French banks come on stream in the autumn.
Shoppers will be able to make eCommerce payments with wero from early 2025 and Computop, the German PSP, has already begun asking merchants to register to be part of a pilot. In-store payments will follow in 2026.
The consensus from payment experts is that for wero to succeed the EPI needs to focus ruthlessly on user experience and keep the member banks firmly in the background. And “I need a wero” is the only song that will do as you can hear in this short commercial.
Even though wero is at least six months away from being ready for eCommerce, its launch sparked the unexpectedly early closure of Paydirekt/Giropay, a domestic competitor to PayPal launched by the German banks in 2016.
Insiders tell me that the service termination was badly handled. Giropay switched off its old integration interface at the end of June even though many acquirers had not yet migrated to the new version.
Meanwhile, Klarna has announced the closure of Sofort, the German online bank transfer service which it bought for $150m in 2013. Merchants will be migrated to Pay Now, Klarna’s open banking product. This includes buyer protection which is great for shoppers but less exciting for Sofort’s many merchants in the gambling and adult sectors. These customers will be looking for alternatives.
Klarna’s new wrapper doesn’t come cheap. In Germany, Adyen is charging 1.35% + €0.20 for Klarna Pay Now transactions. For UK merchants, Mollie is asking a punchy 4.99% + £0.30.
Blik, the wildly successful Polish mobile payment standard, continues its stunning growth with payment volume up 53% in 2023 to €29bn. Blik is jointly owned by Mastercard and a number of local banks who have suddenly woken up to the importance of their investment. From now on, the banks will send their CEO’s to Blik’s board meetings.
Bancomat, the Italian domestic debit scheme, is finally getting its act together. Milan-based investment fund FIS has made a €100m investment, the board has been slimmed down to speed decision making and a new CEO appointed from Mastercard. Nexi runs the technology for Bancomat and has put the card scheme live on Apple Pay and as a payment option on Amazon.
We’re taking a keen interest in the convergence of software and payments. Flagship Consulting’s latest report shows quite how dependent many American ISV’s have become on payment and other financial services revenue.
In response, payment processors know they need to partner with ISVs and some have gone further, buying or building an in-house range of vertical software.
Intriguingly, the stock market value of payment processors that offer software is rather lower than software vendors that offer payments processing. Jevgenijs Kazanins looks at why Toast (an ISV that offers payments) is valued more highly than Shift4 (a processor that offers software) even though Toast makes much less money. His conclusion is that ISV’s are better at securing recurring revenues under contract.
European ISV’s have now realised they too can make money from processing. The opportunity is smaller than in North America because payment margins in Europe are much lower. Nevertheless, a savvy commerce software vendor can still double profit margins by embedding payments in its core merchant offer.
With so many acquirers and PSP’s pivoting towards ISV’s as their primary distribution channel, a number of start-ups have begun offering key parts of the technology stack as-a-service. Here are a few that have caught my eye.
Shape Technologies is offering payments-platform-as-a-service to payment facilitators with capabilities including onboarding, KYC and billing. Shape is founded by alumni from Cardstream and is helping put Taunton, Somerset on the Fintech map.
Fung, in Amsterdam, offers a similar product set to Shape but is also a payment institution and can handle the money flow too.
Dublin/Vilnius based Paynt, goes one step further with a full acquiring-as-a-service proposition.Subscribe
New shopping
We’re keeping a close eye on the progress of autonomous stores as one possible driver of a seismic shift in grocery transactions from POS to the shopper’s phone.
Although sceptics point out that frictionless checkout often involves more manual intervention than the vendors let on, the use cases are multiplying. For example, in a village store in Switzerland a shipping container is transformed into an unmanned convenience store (or walk-in vending machine) using technology from FastaXs.
In Europe, Mastercard is backing PayEye, a Polish start-up which is piloting its iris/facial recognition product at five locations of Empik, a large retailer of books, toys and games.
A number of start-ups are trying to make it easier for merchants and consumers to move to digital receipts. Habits are hard to shift. Despite a new legal requirement in France that paper receipts should be opt-in only, Auchan, the grocery chain, reports 60% of shoppers still ask for paper.
In the UK, Slipp, which boasts JD Sports as an early client has raised £750K. Slipp integrates with the ePOS software to send the shopper a text or email. JD Sports says using Slipp’s SMS receipts to promote its loyalty programme is increasing the number of customer sign-ups.
Anybill, from Regensberg in Germany, asks customers to scan a QR code presented by the ePOS. Pricing ranges from €4.49 to €35.99 per month per outlet.
Yocuda, a French start-up acquired by Global Blue, claims to have delivered over 2m electronic receipts to over 200,000 identified shoppers. Clients include Halfords and Decathlon.
Receipt Hero, based in Helsinki, has raised additional funds to supplement the $5.7m already invested. Receipt Hero offers cardlinking as well as QR scans. Partners include PayOne.
Pi-xcels from Singapore has an elegantly simple product that delivers an e-receipt automatically when the shopper taps their phone on the payment terminal. The product integrates with the terminal not the ePOS software and is available on Ingenico and PAX.
There’s an open question whether digital receipts can establish themselves as product category in their own right or whether merchants would prefer to buy the capability as a feature of existing POS or CRM software.
This technology, which allows any off the shelf consumer device to accept contactless card payments, was originally touted as a micro-merchant proposition but is proving most popular with large enterprises.
LVMH is leading the innovation. Liberated from the need to locate the nearest payment terminal, sales associates at Christian Dior, an LVHM brand, each have their own iPhone to serve customers wherever they are in the store. Dior has worked with Adyen, Global Blue and Vo2 Group, a Paris HQ’d tech consultancy, to add instant VAT tax refunds to the proposition.
In vendor news, Rubean, based in Munich, has raised an additional €2m capital to finance its strong growth. Sales are forecast to rise to €2.2-€2.5m this year from €1m in 2023 on the back of new distribution deals.
Rubean’s partnership with Global Payments may be threatened by the Atlanta processor’s unpublicised purchase of Yazara. The Global/Yazara tie up is likely also to be bad news for MyPinPad which local sources suggest may be replaced as supplier to eService, Poland’s largest acquirer, which Global bought last year.
In better news for MyPinPad, Ur&Penn, a leading chain of jewellers in Norway, is using its SoftPOS application to take store payments on the associate’s Android phones. 2izii is the integrator and Elavon the acquirer.
Phos, acquired by Ingenico in 2023, is making good progress building out its distribution network, announcing a key partnership with Shift4, a US processor with big ambitions in Europe. Phos is also the technology partner for BORICA, which provides SoftPOS to the three largest banks in Bulgaria. BORICA claims 1,500 “terminals” live today.
In Italy, Ultroneo has implemented MarketPay’s PayWish SoftPOS application for its Get Your Cash merchant proposition. Volumes are growing swiftly (see below) but it’s not been plain sailing. Writing on LinkedIn, one Ultroneo director explained “For nearly 12 months now we have been struggling with the teething problems of this new technology. Bug after bug, incident after incident, we have managed to stabilize the SoftPos to the delight of our customers.”
Openbanking
The UK’s incoming Labour government is making very positive noises about fintech. Quoting from its manifesto: “Financial services are one of Britain’s greatest success stories. Labour will create the conditions to support innovation and growth in the sector, through supporting new technology, including Open Banking and Open Finance and ensuring a pro-innovation regulatory framework.”
There is much that a new regulatory approach could deliver, including an open banking acceptance mark, “scheme” rules to ensure common standards for authorisation codes, refunds etc, the introduction of consumer protection and a recognition that all this cannot be provided free of charge.
Positively, the number of open banking payments made in the UK rose c.50% year-on-year to 17m in May 2024. Variable Recurring Payments (VRPs), the open banking equivalent of direct debits, now account for 11% of the total.
The increase is encouraging but compared with the 2bn debit card transactions made in the UK in a typical month, volumes remain very small.
The slow take up of open banking has implications for the large number of vendors operating in this sector. There are twenty listed on the UK government’s procurement framework alone. If revenues don’t arrive soon, only the best capitalised will be able to keep trading until the product goes mainstream.
Truelayer, hopes to be one of the survivors, having raised a remarkable total of $271m from its investors. Truelayer’s CEO has given an interview to explain that he is playing a long game, saying “We are an infrastructure business. That means we are likely going to spend a lot of time and a lot of years building and spending money before actually earning,”Subscribe
Cash
Germany is often cited as the last hold-out of the cash economy but the latest Bundesbank payment survey shows a further decline in the use of paper money. The cash share of transactions fell 7% points in 2023 to 51% and its share of volume by 4% points to 26%.
It’s no surprise that policy-makers in many countries are grappling with the implications of the world going cashless. For example, Ireland has passed an “Access to Cash” law which gives the government powers to set minimum numbers of ATMs for each area. The local banks, and their customers, will bear the cost. Revolut, wildly popular in Ireland, will likely get a free ride.
Crypto currencies are assets not money, yet vendors persist in bringing forward payment acceptance solutions at POS.
“Few have heard of SpacePay, but give it a year, and it will likely be a household name” is the bold claim from this London based start-up which graduated from Barclays’ fintech accelerator. SpacePay, which has raised $750K, says it will allow people to spend crypto at “most existing point of sale card machines.” It’s not clear how this would work in practice.
If there is a user base for crypto at POS anywhere, it’s going to be in a cross-border market such as Luxembourg where some shoppers may not want their home country authorities to know what they are buying.
Done4You, an ISO based just across the border in Namur, Belgium, has implemented crypto at POS for a petrol station in the Grand Duchy using GoCrypto’s technology. Crypto transaction are 1.25% compared to interchange + 0.5% for credit cards.
Primer API, a well-funded start-up that provides software allowing merchants to manage their own payment stack grew revenue to £2.9m in 2023 according to its latest financial accounts. 40% of turnover comes from the UK but Primer recorded sales growth in Europe, USA and around the world. Although management has trimmed costs, the UK-based business made an operating loss of £15.6m.
Founded by Gabriel Le Roux, a former Braintree executive, Primer believes it has spotted a gap in the market with large merchants with complex payment needs that have outgrown sole supplier offers from PSPs but are not willing or able to build their own payment infrastructure.
Primer claims to be the world’s first open automation platform with a drag and drop framework that merchants can use to easily build a payment stack to sell online. This offer includes Primer’s own headless checkout which merchants can configure to set up their preferred payment flow.
Management is at pains to differentiate Primer from the small army of lookalike payment orchestrators competing for business today. Primer does offer routing to multiple acquirers including Worldpay, Stripe and Global Payments, but the software also manages 3DS, fraud, sales tax and reporting,
Primer’s target market is enterprise customers that have identified payments as a significant strategic challenge and likely have already hired an experienced in-house payment product team. A great example is Conforama, the French furnishing retailer which selected Primer and has been impressed with both its products and customer support.
The company has cut back on its heavy platform development spending although investment remains considerable. Administrative expenses fell from £24.5m to £18.4m in 2023 as employee numbers were reduced from 136 to 101. Staff are spread over 26 countries. The business is fully virtual, and everyone works remotely. Management believes this enables it to hire product and client management teams located close to its customers.
The operating loss narrowed to £15.6m from £24m in 2022 although the deficit improves to £12m after banking a £3.4m tax credit. Accumulated losses stand at £43m.
Primer is well funded. It raised $50m at a $425m valuation in 2021, supplemented in 2023 with a further £16.6m convertible loan and finished the year with £28m cash in the bank.
Although expecting “significant growth” in 2024, management says it is “mindful of market conditions” and is monitoring its cost base accordingly. Nevertheless, Primer has publicised expectations of increasing revenue 200% in 2024 which would take sales to almost £6m. This would be an impressive performance but remains a long way from profitability.
FSI, a Milan-based private equity fund, has completed its c.€100m investment into Bancomat, Italy’s domestic card payment scheme. With the new capital, Bancomat will engage Nexi to refresh its core technology infrastructure and accelerate plans to expand operations outside its home market.
Bancomat is currently owned by an unwieldy consortium of 105 Italian banks led by Intesa San Paolo and Unicredit. After its investment, FSI will hold 44% of the shares and has installed a new, streamlined board of directors which, it is hoped, can take decisions more quickly and be better placed to compete with Visa and Mastercard.
Fabrizio Burlando, a former BCG consultant and long-time Mastercard executive has been appointed as Bancomat CEO. He will need to oversee a sharp change in its business model. The scheme has operated for years as a co-operative organisation working largely to recover its costs. Now having accepted private equity backing, Bancomat will need to focus on growing its top line.
Bancomat’s 2023 results demonstrate that, despite its scale, the scheme generates relatively little revenue. Total sales were up 8% to €52.5m with the bulk of this turnover coming from the operation of Pago Bancomat, its core debit card issuer and acceptance business.
30m Pago Bancomat cards in circulation today, issued by 190 member banks, and can be used at 2.5m points of sale. Total payment volume processed was €119bn in 2023, up 4%. In common with the rest of Europe, Italy has seen a marked shift to contactless transactions, stimulating card use for lower value purchases. Bancomat’s ATV was down 4% to €47.20.
Pago Bancomat revenue was up 11% to €35.8m amounting to just 1.4 cents for each of its 1.85bn transactions. This equates to 3bps of turnover compared to the c.20bps or c.$0.12 made by Visa on its worldwide card business. .
Bancomat works on a conventional four party model with Interchange set at 0.2% although there is a discount to 0.1% for transactions under €5. Merchants typically pay c.1% per transaction, leaving the balance for the costs and margins of the acquirers such as Nexi, Worldline and many small banks.
Bancomat’s recent innovations include adding acceptance to Nexi’s SoftPOS application with 22.000 devices activated in 2023 and its inclusion in the Google Pay wallet. Apple Pay is reportedly coming shortly. Bancomat has also started issuing commercial cards.
Bancomat Pay, a new mobile-app based payment product offered through member banks allows both P2P and P2B transfers. Bancomat Pay is growing swiftly from a low base. Volume was up 83% to €0.44m although revenue rose just 19% to €0.5m, equivalent to 5 cents per transaction.
FSI will likely be looking to grow Bancomat Pay internationally. Bancomat has already signed an agreement with Bizum (Spain) and SIBS (Portugal) for interoperability of their products. It is taking a similar approach to working with Bluecode (Austria) and Twint (Switzerland) and has a pilot working for the European football championship in Germany.
Reflecting the long-term decline in cash transactions, ATM volume was down 4% to €106bn and ATM revenue fell 5% to €4.4m.
Bancomat has an existing partnership with Discover, has added Discover to its ATM service and is working with Italian acquirers to put Discover live at POS. In 2023, Discover paid Bancomat €2.2m incentive fees.
Despite the higher revenues, Bancomat’s EBITDA fell from €16.6m to €5.9m due to higher operating costs.
Staff numbers rose slightly to 81 at an average cost of €104K, up 12% on 2022.
EBIT swung from a profit of €12m in 2022 to a loss of €4m in 2023 due to €16.6m write-downs and break-fees associated with the termination of its plans to create a new business unit, a “payments hub” joint venture with SIA, a technology supplier subsequently merged into Nexi.
Bancomat’s new strategy is to commission Nexi to build a new payments infrastructure but as a vendor rather than business partner.
Vectron offers Shift4 the opportunity to cross-sell payments to its 65,000 merchant locations and through a network of 300 dealers, mainly in DACH and Benelux. Vectron, quoted on the Frankfurt stock exchange, reported €3m EBITDA on sales of €37m in 2023. The move is bad news for Euronet, Vectron’s current payments partner.
Although the EBITDA multiple is high, cost per merchant location is the metric most commonly used by American payment folk when valuing ISVs. By this measure, Vectron is a bargain at just €1,300 per merchant location. In contrast, Shift4 paid $250m for Revel, a US restaurant ePOS vendor with only 18,000 locations last month.
I met with Shift4’s team at Money 20/20. They explained the company’s model is to buy old-school ISV’s that have not yet monetised payments and to aggressively cross-sell into the installed base. Merchants are then offered an upgrade path to Skytab, Shift4’s in-house ePOS product.
While many believe ISV’s will take a major share of payments distribution in Europe, there is plenty of life in the bank partnership market. Worldline is paying €120m for the merchant services business of Credem Banca at “a double digit multiple.” This would be Worldine’s fifth portfolio acquisition in Italy and builds on its current run rate of €35bn processed annually from 320,000 merchants. Nexi is Credem’s current partner and reportedly would expect to be able to retain just 25% of the merchants.
Figure 1 Wordline Italy – source Q1 results deck
The market reacted positively to Wordline’s Q1 results. Although revenue grew just 2.5%, management confirmed it was on track to deliver €200m annual costs savings including cutting 330 posts in France. Worldine’s retrenchment is already having an impact on its supply chain. Ingenico, the French terminal vendor spun out of Worldine is threatening to layoff most of its 100 staff in Belgium blaming weak demand from its largest customer.
Meanwhile, BBVA’s proposed €12bn hostile takeover of Banco Sabadell threatens to torpedo Nexi’s expansion into Spain. The Italian processor had agreed to buy Sabadell’s merchant services business for €350m. The deal includes a 10-year exclusive lead referral deal which might now be worthless. BBVA has a strong in-house merchant services proposition which it will probably prefer to sell through Sabadell’s branches instead of Nexi’s products.
In other bank partnership news, Global Payment’s JV with Commerzbank has gone live just six months after announcing the deal. The offer is very basic but to get anything to market in that time is impressive. Elsewhere, Global Payments has cemented its position in Greece by acquiring EDPS, one of the largest multi-acquirer POS terminal providers. Global inherited a joint venture with National Bank of Greece from its acquisition of EVO Payments last year.
Neo banks are also looking to add merchant acquiring to their business product portfolios. Revolut claims 15,000 merchants accept in-person payments using its simple in-house proposition of free micro card-reader, gateway and payment links. Pricing starts at 1% + 20c. Tide, the UK SME bank, offers a card reader for £89 with all transactions at 1.5%. Tide is as a payment facilitator using Adyen products and will extend to Germany shortly.
Santander beefed up PagoNxt, its payment division, with the purchase of Wirecard’s Munich operations in 2021 for a reported €100m. This was the part of Wirecard that did exist and had real customers but PagoNxt was unable to compete with Adyen, Stripe and others for new business in Germany. PagoNxt is now exiting Germany with the loss of 350 jobs in Munich and will now concentrate on Iberia and Latin America.
Nayax, an Israeli unattended payment specialist quoted on NASDAQ, has raised $63m additional capital after reporting a storming Q1 which saw a 44% increase in connected devices to reach 1.1m. Nayax specialises in unattended payments in vending, kiosks and EV charging. Its latest European win is ASO Vending which will use Nayax terminals in its 8,000 machines in Slovakia.
In other funding news, Ekko, a green payments venture based in the UK, has raised $2.5m to support its efforts to educate consumers by showing the Co2 generated by their online shopping baskets. This is an increasingly crowded market. Connect Earthdo something similar and already have partnerships with KBC in Belgium and Tide in the UK which will see Co2 figures added to bank statements. Competition is fierce. Mastercard is offering an identical service to its European issuing clients powered by Docomony, a Swedish start-up.
SumUp, the mPOS provider which claims 4m merchants in 36 countries, has raised a giant €1.5bn loan. The CFO said the cash would allow SumUp “to refinance existing debt as well as have firepower to take advantage of any opportunities that arise over the next six months.”
In a landmark report, the UK’s Payment Systems Regulator has found that scheme fees charged by Visa and Mastercard have risen 30% in real terms since 2019 with “little or no link to changes in service quality.” These largely unjustified charges are costing acquirers (and their customers) an extra £250m annually in the UK alone.
Scheme fees contain a mix of per transaction and ad valorem elements charged over different time periods and are near impossible to reconcile. The PSR reports “some of the largest acquirers in the UK told us that they need to purchase additional services or consultancy services from the schemes in order to properly understand their fees and services, and several acquirers reported their ‘accidental’ purchase of some services.”
Disappointingly, the regulator has backed away from capping scheme fees. Instead, it is proposing to oblige Visa and Mastercard to publish more detailed financial information including justification for any increases.
Vendors see a clear problem to solve and we’ve seen a growing number of start-ups offering acquirers tools to manage scheme fees and portfolio pricing. Torus from Estonia won the innovation competition at this year’s MPE conference in Berlin but you could also take a look at Finflag, based in Brussels and founded by two former PwC consultants.
The position may be even worse in France where, according to the national competition authority, average card transaction charges have risen from 0.27% to 0.44% since 2018. The French economy minister has called on the EU to act against Visa and Mastercard as soon as the new Commission is installed later this year. Switzerland is not waiting that long. Its competition watchdog has capped Mastercard debit interchange at 0.12%, well below the EU’s level of 0.2%. A decision about Visa debit is expected shortly.
French press reports that the European Payment Initiative (EPI), a consortium of French, Benelux and German banks, will launch first in Germany and Belgium (July) followed by France (September) with the Netherlands following rather later. The service, called wero, is a mobile payment wallet running on SEPA Instant Payments and positioned as a European competitor to Visa and Mastercard.
Blik, the Polish mobile payment standard backed by local banks and Mastercard, goes from strength to strength. Transactions were up 40% in Q1 with payment volume totalling €17bn. Blik now works P2P, at POS and online including a much upgraded service to support subscriptions payments.
With the pandemic’s travel bans a distant memory, payment service providers have restarted projects to include Chinese schemes in their acceptance proposition. In Germany, the Sparkasse have added Alipay+ to the S-POS app as part of the Chinese payment brand’s effort to widen acceptance on the back of its €200m sponsorship of the European football championships. Alipay+ will also be available on 50,000 terminals managed by DNA Payments, a UK acquirer.
We’re seeing a steady launch of new autonomous stores in Europe, each of them contributing to the long-term shift of transactions from POS to consumer app.
Rewe has opened its third site in Germany using technology from Trigo. Shoppers decide at the exit whether they want to “just walk out” or follow a more traditional checkout route. Rewe has also worked with Pixevia, a Lithuanian AI platform for autonomous retail that just raised an additional €1.5m to fund international expansion.
Also in Germany, toy retailer Vedes, has opened an autonomous shop at Munich Airport. This isn’t the only new technology at the airport. There’s also an annoying robot vending machine called Jeeves which takes payments via QR code.
A cheaper alternative to decorating the shelves and ceilings of stores with AI powered scanners is to put the technology in the shopping cart instead. Instacart, a US online supermarket turned technology vendor, expects to have thousands of its “caper carts” deployed in grocery stores by the end of this year. One retail blogger is not impressed.There is still too much manual keying, the carts are not big enough and you still have to pay at a standard checkout machine. Decide for yourself.
Product
Visa provided this month’s big news with a set of announcements that reposition the analogue credit card further into the digital world. This includes a new flexible credential that will allow shoppers to toggle between different card products issued by the same bank. Think Curve but restricted to a single bank’s products. Commentators have been very positive and there’s good analysis in Simon Taylor’s newsletteralthough others suggest the flexible credentials won’t be simple for merchants to manage.
Checkout.com has launched a new AI powered product called Flow which helps merchants choose the right payment methods to present to each customer. Flow then customises the checkout so that shoppers are asked for the appropriate information in the right order using the merchant’s colour palette. Retailers love being able to customise third party services with their branding.
Stripe announced last month that it was unbundling its product to allow merchants the option of using alternative processors including Adyen, Braintree (PayPal), Checkout and Worldpay. The Batch Processing newsletter gives the technical detailsbut concludes this new “orchestration” capability isn’t up to Stripe’s usual high engineering standards.
In mass transit, passengers on the Paris Metro can now use Apple Pay to travel on the network by adding the Navigo pass to their Apple wallet. Flowbird, (ticketing system), Conduent (integrator) and Worldline (processor) delivered the solution.
Electric vehicle charging is a fast-growing and highly complex niche segment of the payments industry. This case study from Computop, the German PSP part owned by Nexi, highlights the challenges. One of the toughest is to allow drivers to pay for their electricity using their preferred app rather than having to download a different one for each provider.
Open banking
Matt Jones wrote a good piece on why open banking is not happening. In short, the touted benefits – faster settlement, lower fees and no chargebacks – carry no weight with consumers. This was echoed in a panel discussion I chaired at the ePay Summit featuring two leading merchants – one from the travel sector and one from fashion – neither of had immediate plans to offer bank transfers as a payment option.
Figure 2 Panel discussion on open banking payments featuring execs from SuperDry, National Expresss, Truelayer and Ivy
For open banking payments to grow, we need an acceptance mark, scheme rules, an agreed pricing strategy, single-minded focus on customer experience and, most importantly, effective leadership from the banks. Without their active support, neither the regulator nor the payments industry can make the market happen.
There’s no lack of committees making recommendations, but the UK’s alphabet soup of open banking working groups, regulators and industry lobby organisations is hard to navigate. This month, JROC (a committee grouping the various regulatory bodies overseeing the financial system) published proposals for a “future entity” to be tasked with setting the standards needed to bring open banking into the mainstream.
The new body will have a mandate to promote open banking although it’s still not clear how it will be funded. The payments industry thinks the banks should pay. The banks are not so keen.
There are good use cases for open banking payments today such as paying of credit card bills or buying cars but none offer significant transaction volumes. Investors are getting worried and we’re beginning to see consolidation of the unnecessarily large number of open banking vendors.
Fabrick, the aggressive Italian open banking specialist backed by Banco Sella, has bought Germany’s FinAPI. The purchase price is reportedly rather lower than the “high double-digit millions” reportedly offered by Yapily in 2022. The combined Fabrick/ FinaAPI business processed more than €65bn from 800 customers in 2023.
I had a good discussion with Todd Clyde, CEO of Token, at Money 20/20. He told me that Token is taking an indirect route to market via banks and PSPs rather than direct to merchant. Token has a blue chip customer list including Mastercard, Computop and Nuvei which together process 41% of all card payments in Europe. Nobody knows when the market will move from card debit to open banking but Token believes it should be well positioned if/when it does.
GoCardless, the London based A2A vendor which has been reporting significant losses says it is now pushing for profitability. The CEO told journalists “We’re pretty close to profitability now, and we’re in a position where we’re very well capitalised – we have a lot of cash on the balance sheet.”
Trustly is one vendor making money from A2A, publicising 2023 revenues of $265m via an exclusive with CNBC. “Adjusted” EBITDA rose to $51m from $33m in 2022. Growth has been very strong in the US but an IPO is still more than a year away.
One market where open banking should take hold quickly is Poland because bank transfers (known in English as “pay by links”) were commonly used for online payments before Blik came along and swept the market. You’d expect PBLs to be replaced by open banking but PBL volume is still growing. I’m told that the open banking APIs are generally not yet at the quality of the older, direct integrations supporting PBLs.
Crypto Corner
While the introduction of ETFs has reinforced crypto’s role as a speculative asset class, these synthetic currencies could have a role in countries whose central bank money is compromised by inflation or political isolation.
But stablecoins are also not what they seem. Visa reports that 90% of stablecoin transactions come from bots rather than real people. While there’s nothing wrong with robots trading with other robots, these figures suggest that stablecoins, like other crypto instruments, cannot be considered a generally accepted means of payment.
Central banks are continuing to develop their own digital currencies (CBDCs) in response to the perceived threat from private initiatives such as Tether. The Bank of England has completed a proof of concept which demonstrates digital pounds (Britcoins) could be accepted on today’s standard POS terminals. There’s plenty of technical detail here for those interested.
Meanwhile, the Merchant Payment Coalition which groups Ikea, Auchan and other large retailers, has issued its response to proposals for a digital euro. The merchants primarily see the digital euro as a way of making B2C payments cheaper. They ask for a fixed fee per transaction “as close to zero as possible” and free of charge for low value payments. The retailers call for all other fees to be paid by consumers not merchants.
We’ve not heard much from the metaverse recently but Walmart have opened a store on Roblox and, for the first time, are selling real-world items. The user experience needs work. After trying out products on their avatars, users can load a browser window on a virtual laptop within Roblox to access Walmart.com and pay by typing in their credit card details. If this the future of retail, retail has no future.
In other news
Banking as a service (BaaS) allows Fintechs to expand quickly but comes with a regular reminder to check your BaaS providers financials. The collapse of Synapse in the US has hit over one hundred fintechs, some of whom will never recover.
In a move described by one newspaper as “Curve pivots to porn and gambling” the card-based digital wallet announced customers could now use their Curve card to pay high risk merchants, even ones blocked by their own card issuer. Eight days later, Curve announced a U-turn saying “We wish to clarify that if your underlying payment source provider does not permit certain transactions, Curve can’t allow them either!”
Klarna reports using GenAI has cut marketing costs by $10m annually, notably a $6m saving from replacing stock photographs with images generated by Dall-E. This is how Bing Image Creator imagines Klarna’s marketing department.
Here are two useful research reports to download and keep for the next time your boss asks for a strategy deck. Worldpay’s Global Payments Report is a helpful reference for statistics on the state of play in payment acceptance while Cap Gemini’s Payment Trends 2024 focuses on back office transformations needed to support decentralised finance, ISO 20022, PSD3 and other buzzwords.
Blusesnap, a US based PSP, has paid $10m to the US Federal Trade Commission in settlement for knowingly processing payments for “deceptive and fraudulent” companies. The FTC was particularly annoyed that management ignored warnings from Visa, American Express and Bluesnap’s own internal fraud monitoring team.
In other legal news, Rapyd, the London HQ’d acquirer/processor is being sued for $1.1m unpaid sales commissions by a former employee in Singapore. Rapyd’s CEO says the transactions in question were “round-tripping” and only done to boost volume on the platform. The salesperson says the client was moving their own funds through Rapyd’s multi-currency treasury products and so was eligible for commission payments.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Konsentus, a leading open banking technology provider, has been sold to its management in a pre-pack administration for just £350K according to documents deposited at UK Companies House. Konsentus continues to trade and the 19 staff on London have been transferred to a new company.
The sale shines a light on the difficulties common to many vendors as the market for open banking grows much more slowly than expected
Konsentus was founded in 2018 by Mike Woods and Brendan Jones to provide open banking directory services to central banks, financial services regulators, and financial institutions. It claims to consolidate data from more than 115 registries or databases in Europe.
High profile advisor, David Parker, also invested and joined the board. Mastercard invested in 2019 followed by a VC, Middle Game Ventures in 2020. The business raised £7m of capital in total, supplemented by £2m loans from Israeli bank, Mizrahi Tefahot.
The administrators say that the company had “anticipated that open banking would be adopted at a much faster pace than was the case.” It blames both the war in Ukraine and the uptick in global price inflation.
As a result of the slow pace of market development, Konsentus “experienced cash flow difficulties and attracting new customers became challenging.” Despite taking actions to reduce operating costs, the company “was still under pressure from its creditors and was unable to pay its liabilities as they fell due.” HMRC was threatening winding up for non-payment of taxes which presented an imminent risk of insolvency leading to the appointment of administrators in February 2024.
The administrator’s report shows that despite claiming to be active in 37 markets around the world, Konsentus made sales of just £1.7m in 2022/23. The operating loss was £1.9m, taking accumulated losses to £9m.
Management has spent £7m developing the company’s products and also acquired a French business, Open Banking Europe (OBE) for £1.46m which is now being wound down.
Konsentus has been offered for sale as a going concern since early February. The administrators say that it attracted plenty of interest with 16 parties signing the NDA to receive full particulars. However, all 16 declined to bid for the company, citing “high customer churn, low recurring revenues and customer renewal risk.”
The only offer received was from the founders themselves at a knock-down price of just £350K. The money is payable in stages over the next 12 months plus 5% of any turnover between £2 -£3m and 7.5% above £3m.
There is general consensus that open banking offers the chance to reengineer the relationship between banks and their customers in new and exciting ways. In taking control of a leading technology provider for just £350K, the new owners of Konsentus may have got themselves a bargain if they can finance trading until reaching breakeven.
GoCardless, the London HQ’d account to account (A2A) specialist, reported losses widening to £77m in the year to June 2023 despite higher revenues and good progress on upselling value added services. The business wants to be the “world’s bank payment network” and provides recurring and one-off payments using direct debits and open banking through offices in London, Paris and Melbourne with a growing support centre in Riga.
GoCardless, has raised an astonishing total of $529m from investors but says it is now conscious of the market’s “reduced appetite to invest in later stage growth companies.” Management says it will now drive “the business to profitability as quickly as possible and achieve EBITDA break even within 12-18 months. No additional financing will be necessary.
The new strategy was backed in March 2024 by the €34m acquisition of Nuapay. Based in Ireland, Nuapay is a mature business that processes €44bn of direct debit, SEPA Instant and open banking transactions. Although Nuapay’s previous owners were forecasting €1.2m EBITDA losses, it could be quickly profitable if successfully integrated into GoCardless.
Returning to the 2022/23 financial year, GoCardless total payment volume rose 37% to £31bn with revenue rising 31% to £92m. The take rate dropped by 1bp to 0.3%.
GoCardless supports a wide range of large and small merchants including Tripadvisor, AON and The Guardian newspaper. Total merchant numbers grew 12% to 85,000. The operational metrics of existing customers look good. Volume per merchant was up 22% to £364K and revenue per merchant grew 17% to £1,080.
Revenue per customer has increased as GoCardless successfully upsold a range of value added services charged above the basic fees of 20p per transaction + 1% for domestic transactions and 2% for international ones. VAS include adding the merchant’s name on the shopper’s bank statement (£50/month), Success+ which uses AI to improve acceptance rates for 0.25% per tx and Protect+ which reduces fraud risk for 0.15% per tx.
Less positively, GoCardless saw a higher rate of cancellations and a larger number of renewals at lower committed revenues. Cancellations were primarily due to merchant failure which is understandable given the macro conditions but the downsells were attributed to “under utilisation of expected volumes.”
Management is looking to derisk revenue by shifting customers from pay as you go to contract plans that promise lower prices and extra sales/service support in return for minimum spend. Committed revenue was up 54% to £40.5m and now accounts for 44% of total sales.
The global strategy has a long way to run. GoCardless is still very dependent on its home markets of UK & Ireland which saw sales up 26% to £70.9m and represent 77% of total revenue. International sales grew 50% from a low base to £21m. Merchants are spread very thinly with France, where GoCardless has an office, the only international market (£8m) making a significant contribution.
Cost of sales was up 43% at £21.5m while administrative expenses rose 27% to £145m including a 23% increase in employee costs to £90.9m. Staff numbers rose from 692 to 764 with average cost up 11% to a very generous £119k.
Following its decision to prioritise profitability, GoCardless launched a restructuring programme that included taking a £7.7m charge. 219 job were lost as operational support teams moved to Riga where GoCardless already had an office through its acquisition of Nordigen, an open banking vendor. The business has since opened a new office in Latvia which is expected to welcome more than 300 employees by the end of 2024.
Operating losses widened to £77.5m from £60.9m in 2022, equivalent to £911 per customer. Accumulated losses stand at at a not inconsiderable £249m. In contrast, Trustly, a comparable European A2A provider of roughly the same size as GoCardless, reported break-even at its last financial results.
A2A transactions are not risk free and GoCardless is cautious with its accounting. Fraud loss provision was up 11% at £4.3m, bad debt up 60% at £2.5m, inactive account provision increased 65% to £3.2m and overdue receivables rose 53% to £3.0m. Total provisions stood at £13m or 14% of turnover.
To guard against future losses, GoCardless now holds £6.5m in merchant deposits, more than twice the amount retained a year earlier.
Looking ahead, management sees the company’s prospects as very healthy with the market opportunity for A2A payments remaining strong. The CEO told Sifted that “despite the touch macroeconomic environment, these results demonstrate that we’re moving from strength to strength.”
