PAX, registered in Bermuda, listed on the Hong Kong stock exchange and with its main operations in China, blamed “global economic uncertainty” for its steadily declining topline. Although profitable and generating plenty of cash, PAX’s share price is bombed out. The market capitalisation is just $625m and the stock yields 10% at a PE of 5.
On the positive side, over 50% of sales are now Android “smart terminals.” This is a segment in which PAX, with a range of elegant keenly priced devices such as the A920, had early market leadership. Android offers terminal vendors the opportunity to upsell value added services – such as app stores – to bank and PSP customers. Critically, service revenue is recurring and can be secured under long-term contract.
PAX’s turnover from services, including maintenance and installation, is growing quickly from a low base, up 33% to $21m. Of this, $8m was software as a service revenue linked to the Maxstore product which brings together terminal management, reporting and a white-label app store. The apps themselves are supplied by 3rd parties and include booking, loyalty, labour scheduling and many more. Here’s a full list.
Maxstore generates big numbers. The service connects 12m terminals, 2m merchants, thousands of app developers and manages 215m push tasks annually.
Yet total service revenue of $21m in the last six months equates to less than $4 per installed terminal each year. There is a long way to go for Maxstore to make up for the long-term decline in device sales which fell 17% in H1 to $365m.
Competitors – notably Castles, Newland and Ingenico – are releasing new Android devices themselves and PAX will need to innovate to retain its leadership. PAX has launched a number of new models including the A8900 and A99 portables and the IM25 for unattended. The company is, very sensibly, extending into ECR hardware with new Elys series.
The devices are put together at the new PAX Smart Terminals Industrial Park at Huizhou, China, built at cost of $91m and featuring production lines, R&D and “well equipped dormitories” with a total floor area of 261.000 square metres.
Although PAX sells its product worldwide, most revenue comes from Europe and Latin America. In H1, the business was hit by a notably poor performance in LATAM where sales fell 21% to $137m. Brazil was particularly weak which management blames on the economy as well as slowing demand as the terminal market has matured. EMEA was more resilient, revenue was down just 4% to $137m with the region now accounting for 37% of global sales.
The best European markets were Italy, UK and Hungary with “fluctuating demand” reported in Germany and Spain. The A920PRO is reportedly selling well. PAX believes it has a major opportunity with the growing deployment of EV charging points following the EU’s AFIR directive.
In the US, PAX has seen a sharp slowdown in demand from ISOs and banks. Like many other payment businesses, it is reorientating sales to ISVs.
In APAC, PAX is buying its Australian distributor for up to $20m, depending on performance.
Cost of sales fell 19% to $205m resulting in a 10% decline in gross profit to $180m. Gross margin rose 2ppt to 47%, mainly due to the depreciation in the Renminbi reflecting PAX’s cost base in mainland China.
Management has taken a firm line with controllable costs. Employee expense was cut 18% to $50m. Staff numbers have been cut by 10% to 1596 staff, earning on average 9% less at an average of $31.4K.
R&D spend was steady at $39m.
Operating profit fell 21% to $69m. The operating margin fell just 1ppt to 18%, an impressive performance by most standards. But investors won’t be questioning how PAX makes money today. The worry is how it will continue to generate cash if terminal sales keep falling.
The summer’s results season showed a mixed picture from Europe’s three leading payment businesses.
Adyen stood out once again. Revenue grew 24% in the first half of the year as its omni-channel strategy helped drive volumes on both sides of the Atlantic. Adyen now boasts 357 “unified commerce” merchants processing over $10m in eCommerce and POS transactions. The in-store retail business is growing swiftly and Adyen now has almost 500K terminals in the field.
Worldline disappointed once again. Revenue was up just 3% and EBITDA fell 1% with management blaming Europe’s slowing economy and bad spring weather. It’s never a good sign when a payment business complains about rain.
The major Greek banks sold most or all of their merchant services units to international players during 2022/3 for a total of almost €1bn. Haris Karonis, founder of Viva Wallet, has predicted the banks will regret divesting these businesses but, so far, it’s hard to say they were wrong. Only Cardlink (Worldline) is making a profit and not a big one at that.
Greece should be a good market for payments. The domestic cash to card switch has a long way to run and there are plenty of high-margin cross-border transactions from tourists. Less positively, the new government in Athens has made it clear that it will legislate to reduce merchant services fees for SMEs if the acquirers don’t voluntarily take action.
Large or small, all merchant acquirers eagerly await the annual Nilson rankings which list the European players by transactions and payment volume. The 2023 numbers give a top ten of Worldpay, Nexi, Barclays, Fiserv, Adyen, Worldline, Global Payments, JP Morgan, Credit Agricole and Elavon but some observers have questioned the methodology. Several of the fast-growing digital acquirers such as Stripe, Nuvei, Paysafe and Checkout don’t even figure in the top 45 according to Nilson.
Wherever a business sits in Nilson’s league tables, competition is getting hotter as domestic champions in Asia move westwards. For example, two market leaders from India have announced European expansion plans in response to tougher market conditions at home.
Juspay, a payment orchestrator backed by Softbank, has hired James Lloyd, ex Citibank, to boost its European presence from a new base in Dublin. Juspay claims 300 processor connections and $500bn volume from 500 enterprise customers.
In corporate activity, Shift4 is buying Givex for C$200m (€132m) at a very generous c.30x EBITDA. Givex is most famous for its gift cards but has grown its retail POS portfolio to 1.900 merchant locations following the acquisition of Counter Solutions in the UK. Software accounts for 10% of worldwide revenue. Givex Pay (provided by Adyen) provides an extra 20%. Moving this volume to its own products will be an early win for Shift4.
Dejavoo, a US POS technology vendor offering white label solutions to PSPs (primarily with Castles hardware) has acquired Z-Credit, an Israeli equivalent. But we already knew this.
DNA Payments, a London based acquirer/PSP owned by two Kazakh former bankers, is reported to be considering purchasing the acquiring business of Card Complete, the largest player in Austria. Card Complete is losing money and needs significant technology investment. Unicredit, the Italian bank, is Card Complete’s largest shareholder and has been trying to sell its stake for some time.
Turning to fundraising, two start-ups targeting the complicated but fast-growing world of marketplace payments have secured new money.
Revenew, founded by two former Checkout execs, has raised $4.5m to help marketplaces and other merchants with complex payment needs to manage their costs, including reconciling IC++ pricing from multiple acquirers.
Trustap, based in Cork, Ireland, which offers escrow payments built on Stripe’s APIs for marketplaces, has raised a total of $9m.
Visa and Mastercard continue to prosper in Europe. The two schemes’ combined payment volume rose 11% in Q2. You can read more at Business of Payments.
Visa is very pleased with its sponsorship of the Paris Olympic Games which, it claims, saw a significant increase in foreign card spend in France, notably with visitors from US, Brazil and Japan. Theatres and museums saw the largest boost. Adyen also published statistics from its merchants in France which highlighted that 25% of US spending used dynamic currency conversion to pay in dollars, not euros. Good news for merchants and for Adyen that together share a 3% mark-up on each sale.
The UK’s Payment Systems Regulator is proposing to cap Interchange on eCommerce transactions from EU cardholders at UK merchants at the pre-Brexit levels of 0.2% or 0.3%. This is likely to save British businesses £150-£200m each year, a sum which ultimately finds its way to European banks today. Unsurprisingly, these banks are objecting.
Visa and Mastercard pass interchange to the issuing banks. The two schemes make their own cross-border profits from additional fees and foreign exchange commissions. For example, Visa’s USD/EUR mark-up is 0.21%. The ex-CEO of Wise (who knows something about FX) explains how it works.
There is a threat looming. Visa and Mastercard’s dominance of cross-border consumer payments will be challenged by increased inter-operability of the new wave of mobile-centric domestic payment schemes and standards. This will allow people to spend money abroad without needing a credit card.
Alipay, the very popular payment method in China, is a good example. Alipay is now interoperable with 30 other Asian QR based wallets and 14 of these are already connected to its European platform. This means Alipay’s 400,000 European merchants can accept payments from the most popular wallets used by visitors from Philippines, Indonesia and elsewhere.
The emergence of software vendors as a key distribution channel is the biggest shake-up the payment industry has seen for many years. Who is winning? Nick Dunse from Shuttle, a business that connects shopping carts and payment processors, counts 1986 software platforms of which a remarkable 59% use Stripe.
Shuttle’s figures refer to number of connections rather than payment volume. Adyen has relatively few ISVs but is signing the large ones. Latest examples include One Iota, a UK in-store ePOS vendor which counts Hugo Boss among its clients.
ISVs can more than double their revenue from their core business of selling software by adding payments and other financial services to the merchant bundle. Toast, a US restaurant software provider is a textbook example (see chart below). Alexandre Dewez explains the economics.
Acquirers need to buy, build or partner with ISVs to secure this new distribution channel. A good example is Swedbank, which participated in a €20m funding roundfor Yabie, a Swedish ePOS start-up focused on small retailers and cafes. The investment is paying off. Yabie generated €12m sales in 2023 from 11,000 merchant customers processing with Swedbank although it will partner with Adyen to support clients outside the Nordics.
Other partnership news is coming thick and fast as the ecosystem reassembles itself around ISVs.
Cardstream, a UK based gateway, has ambitions to support ISVs with its new payment-facilitator-as-a-service proposition. Surfboard, a Swedish ePOS and SoftPOS vendor, is the first customer and will take a joint proposition to market.
FreedomPay, the US POS gateway, is also looking to grow its European business, supplying ISVs with acquirer-agnostic terminals and transaction routing. It has announced new partnerships with Zonal, a UK ISV focused on hospitality (using Castles devices) and LS Retail, a mid-market retail ePOS vendor based on Microsoft Dynamics. LS offers acquiring from Adyen and Elavon.
New Shopping
2023 was a record year for self-checkout with over 217,000 machines delivered worldwide, up 12% on the previous year. Europe is the fastest growing region with growth powered by large scale implementations at grocery and pharmacy chains in the UK and Germany.
Nexi has partnered with shopreme, based in Graz, Austria to bring integrated payment/mobile checkout to merchants, initially in DACH markets with Italy and Nordics to follow.
Smart carts offer a half-way house between self-checkout and fully autonomous shops. The sensors and cameras sit in the shopping trolley not the store’s shelving units.
Aldi is trialling Caper Carts, a digital shopping trolley supplied by Instacart, at an outlet in Austria, having already introduced the carts in the US. This is Aldi’s second such pilot, the first using technology from Shopic which attaches to existing carts, didn’t last long.
Photo: Stephan Ruschen
Home shopping was meant to be transformed by voice commerce enabled by Amazon’s 500m Alexa devices. The reality is that these gadgets are not generating revenue despite the massive investment. “We’re worried we’ve hired 10,000 people and we’ve built a smart timer,” a disappointed employee told the press. It’s time for a rethink.
Will AI give natural language commerce the boost it needs? Dan Wagner, a colourful British entrepreneur, is back with Rezolve, an AI powered conversational commerce plug-in which, he confidently expects, will be adopted by most leading eCommerce websites. Rezolve has reversed into a SPAC listed on NASDAQ and now commands an improbable valuation of $1.7bn. If you’ve experience working with Rezolve, let me know.
Biometrics
Most Europeans and most Americans can pay for things simply by using the biometric authentication already set up with their mobile phone. Yet vendors continue to experiment with alternative payment flows in which the biometrics are stored by the merchant or PSP.
Payeye, a Polish start-up which is pioneering payments based on iris and facial recognition, has signed a partnership with Worldline to commercialise its eyepos 3terminal outside Poland. Recognising that the technology may take some time to mature, the terminal also takes cards. ITcard remains Payeye’s domestic partner.
A fascinating battle is emerging for control of eCommerce guest checkouts. A number of global players are vying to improve conversion rates by securely storing shoppers’ payment credentials to enable one-click shopping.
Apple Pay is the market leader and makes its money through charging the credit card issuers c.15bp of the transaction value. Others, such as Stripe and Shopify, hope their pay buttons will encourage more merchants to choose their payment processing or commerce software.
Although most one-click checkouts back the transaction onto a credit card, Visa and Mastercard are worried about disintermediation and have put renewed focus on Click to Pay, their own guest checkout product.
As predicted, eService, the largest acquirer in Poland, has terminated LitePOS, its softPOS product based on MyPinPad’s technology. eService will now sell Global Payments’ TOM (terminal on mobile) instead. This micro-merchant proposition retails at 5 PLN (€1.10) per month + transaction fees.
UK vendors have begun to realise that “the biggest banks are not prioritising building up their capability or technology,” sparking calls for thegovernment to rescue open banking from its current disappointing state. For example, Yapily’s CEO has called for early legislation to create a permanent entity to manage the open banking ecosystem, oblige the banks to take the technology seriously and mandate a funding model that no longer relies on voluntary contributions.
Valuations are beginning to reflect a growing realisation that open banking will take longer to mature than many had hoped. Paypoint, a UK ISO and bill payment specialist, has bought a majority share of OB Connect at a valuation of just c.£30m. This is a great exit for the management and a fine return on the £3m capital invested but indicates that the sector is unlikely to produce many unicorns. OB Connect, which has 25 staff, lost c.£0.8m in 2023.
Even so, open banking adoption will be slow if it relies on hosted payment pages and redirects. Customer experience needs to be slicker. Boodil, a UK start-up, believes it is first to market with an embedded solution that sits within the merchant’s own payment page. Yapily is managing the APIs behind the scenes.
Could POS payments provide open banking a boost? DNA Payments, which is having a busy time of late, has added open banking to its payment terminals. Shoppers scan a QR code produced by the POS. Ecospend, Trustly’s UK subsidiary, is providing the technology. The value to consumers, used to tapping smartphones on payment terminals, is not clear.
There is a small but growing argument for Request to Pay (RTP) as an alternative to open banking for consumer-to-business payments. Toriipay, a Polish start-up founded by former Kevin execs, believes RTP offers the standardisation missing from open banking today. RTP is a messaging system sitting on top of SEPA Instant as you can see from the video.
Crypto corner
The continual drip of bad news stories about crypto criminals hasn’t dented market enthusiasm. Bitcoin trades near an all-time high.
The UK regulator has issued over 1,000 warnings to crypto firms since October leading to the removal of 48 apps from the local app stores. It may also have led many crypto companies avoiding the UK and setting up elsewhere which is no bad thing.
It’s depressing that established brands are still mixed up with this boondoggle. Mastercard continues issuing crypto cards. These convert your favourited digital currency to actual dollars to pay the merchant although Ferrari will now let you buy one of its sports cars using crypto following requests from “wealthy customers.” The dealers receive real money. Somebody makes a spread. It’s not clear who.
In other news
Some helpful research from McKinsey on 15 technology trends you need to know. Next-gen software development comes top, closely followed by applied AI.
It’s remarkable to find Americans still writing cheques. Target, the retail giant, will finally stop accepting them but there are some things for which only a cheque will do. The cast of Saturday Night Live explain. Enjoy.
Worldline disappointed investors as it blamed macro-factors for slow growth in H1 2024 and shared a downbeat assessment of the outlook for the rest of the year. Giles Grabinet, CEO, called out a “volatile consumer spending environment that exhibited a visible softening across many European countries in the second quarter.”
Revenue grew just 2% to €2.289bn with all three divisions – merchant services, financial services and mobile/ticketing struggling to grow sales faster than inflation.
Merchant solutions is the largest division and also the one that interests us most at Business of Payments.
Merchant volume was up 5% at €230bn in H1 2024 but all the growth came in the first quarter. Q2 volume was flat at €120bn with management blaming the wet spring and a “particularly weak June.”
Merchant revenue was up just 3% to €1.6581bn with the take rate dropping 1bp to 0.72%. Growth was constrained by “softer macroeconomic conditions” despite a resilient performance in Italy and the travel/gaming verticals.
Sales were also hit by the loss of €130m annual revenue from the termination of a set of high-risk merchants. €40m of this reduction was from Germany and followed BAFIN’s intervention at PayOne, Worldline’s troubled JV with the local savings banks. Worldline’s share of PayOne’s losses was €88.4m in 2023 although it did receive a dividend of €18.4m.
Worldline’s growth problem is reflecting in its merchant metrics which show it failing to profit from the shift in commerce to online sales. The total number of merchants rose 3% to 1.22m of which the vast majority (85%) are still trading F2F. Annualised payment volume per merchant rose just 2% to €377K, revenue per merchant was flat at €2,718 and adjusted EBITDA per merchant fell 6% to €633.
Management promises that new products and distribution partnerships will restore the business to growth. The most important initiative is the Credit Agricole JV which Wordline confirmed will go live in the first half of 2025. The new business, called Cawl (for Credit Agricole Worldline) will allow Worldline access to the acquiring market in France for the first time.
Cawl will be competing with a newly announced JV between two other French banks, BPCE and BNP, which also has grand ambitions. Giles Grapinet is unphased, saying that although these two banks bring “extremely powerful distribution” this newly created partnership will use in-house systems and will struggle without an external technology partner.
Worldline’s expansion into Italy, in partnership with local banks is going well and growing in the“very strong double digits.” The latest deal, Worldline’s fifth, is with CCB bank, and brings an additional 60.000 (very small) merchants processing €6bn in total. Migration begins in the second half.
Management made no update on progress at Worldline’s very expensive JV with ANZ Bank. In 2022, Worldline paid €307m for its 51% of the business which processes 20% of transaction volume in Australia. Worldline’s share of the JV’s losses was €39m in 2023 and it had to invest a further €20.4m in H1 2024.
Away from bank partnerships, Wordline had good news to share with other new products and commercial deals including:
Worldline’s combined payment solution for marketplaces and platforms with OPP, a Dutch eCommerce gateway acquired in 2022, is now live with 165 partners.
Worldline says there are likely to be 2.5m public EV charging points in Europe by 2030. With more than 20 EV charging operators representing more than 25% of the market, Wordline says it is well placed to capture the promised growth. Two new EV partners were signed in H1 – Ampeco and EnerCharge.
Other new merchants included Luxair, (acquiring and APMs), IWG (payment orchestration and collecting), North Consulting (vending linked to local acquirers in the Nordics) and Cdiscount (online smart routing).
Worldline’s brief outage in the UK during July had limited impact. Marc-Henri Desportes, deputy CEO, said “We handled it very professionally, keeping a very good engagement with our customers. Impact is limited and outages, unfortunately, in our industry, it happens from time to time even to the biggest ones in the tech industry.”
Management called out cost pressures from the steady migration of domestic cards to international schemes, notably in Italy, but said it was standardising on IC++ to mitigate the risk. Worldline has been a strong supporter of the EPI and Giles Grapinet reiterated the need for strong European payment schemes. “It’s part of our playbook ..to make sure that there is diversity at point of sale and that there is never one monopoly route that is going to impose its condition on the entire ecosystem.”
Merchant solutions adjusted EBITDA fell 3% to €386m in H1 as margins dropped 2bps to 23%.
Turning to Worldline’s two smaller divisions, financial services revenue was down 2% to €457m and adjusted EBITDA down 1% to €126m. Issuer and acquirer processing performed well, especially in Germany. New wins included Sonet and MarketPay for Italy, but the topline was hit by the earlier loss of some large contracts.
Mobility revenue was up 2% at €174m and adjusted EBITDA up 36% at €30m. Worldline renewed to large contracts that include ticketing and payments – one in the event sector, the other with an energy company.
Group adjusted EBITDA (formerly known by a French acronym as OMDA) fell 1% to €514m.
After integration and rationalisation costs (€58m) and Power24 (€174m), unadjusted EBITDA fell 34% to €282m.
The Power24 programme will see hundreds of staff exit the business in the second half of this year. The new operating model is live from August and the exercise is expected to save €220m annual costs, 10% higher than originally expected. 29% of staff are now located in “low cost” countries, mainly India, Poland and Romania and this proportion should rise to 33% in 2025.
After deducting depreciation and amortisation, Worldline recorded an operating loss of €16m following a profit of €120m in the same period last year.
Looking ahead, management says growth is constrained by “European domestic consumption uncertainties” and is targeting a very modest 2-3% organic revenue increase. Investors were unimpressed and the stock trades at around €8 compared to a peak of €80 in 2021. Despite the negative market reaction, Grabinet believes that “Worldline will quickly start to benefit from a strengthened competitiveness and operational leverage that will drive solid medium- term performance.”
Global Payments European merchant revenue growth dropped to 7% in Q2 as the effect of the EVO acquisition dropped out of the year-on-year comparisons. The Atlanta based acquirer/processor reported “notable strength across our faster-growth geographies, including Poland and Greece” and said it was “pleased to see trends start to stabilize in the United Kingdom.”
The integration of EVO’s European businesses has enhanced Global Payment’s existing strong footprint in the UK (where Global inherited a decent merchant portfolio from its 2009 acquisition of HSBC merchant services), Spain (80/20 JV with Caixa Bank) and Czech Republic (partnering with Erste Bank). EVO also brought two extra joint-ventures with local banks – PKO BP in Poland and National Bank of Greece.
Starting with the UK, management says that, after several years of weaknesss, business is showing “some signs of stability” and Global Payments now has a “strong pipeline of new business.” Hospitality and unattended are the bright spots and Cameron Bready, CEO, highlighted winning Virgin’s hotel business.
Although Global Payments has spent heavily in the US on buying a number of vertically focused ISVs, most of these businesses do not actively market their products in Europe. However, Global did buy a UK software business called Bleep which provides an ePOS solution for high-capacity retail such as stadiums. Rebranded as Global Payments, it is winning deals at a number of UK football clubs such as Birmingham City.
Commerz Global Pay, the joint venture with Commerz Bank in Germany, went live and is “off to a fantastic start.” Bready said he was “already seeing strong lead generation” and confident of building “a scale business in this attractive market.” Management says it will launch its POS software in Germany later this month and will bring it to Ireland, Poland, Austria and Romania over the next 12 months.
Global also reported the acquisition of “an early-stage technology development company” which it did not name. This is Yazara, a SoftPOS vendor originally from Turkey, which was already supplying Global in a number of markets. Bready said it was “strategically important for us to bring this technology in-house to unify our offerings globally and to control the entire value stack enabling our solutions.” This is a good move although Yazara’s other customers may not be so happy with a key competitor controlling the business.
Looking ahead, management recognises that a business built primarily from acquisitions needs rationalising. Bready said “we remain committed to sharpening our strategic focus and simplifying our business.” Global has begun a “thoughtful and methodical assessment of our assets” and promises to give more details at an investor day in September. Analysts expect the sale of a number of under-performing US software businesses.
Visa and Mastercard continue to prosper in Europe with total total scheme volume rising 11% in Q2 to €1.206 trillion, outpacing retail sales growth by some distance. The average transaction value (ATV) fell 2% to €32.89 as low-value purchases continue to migrate from cash to card.
Visa still processes more than Mastercard in Europe but the margin is narrowing. Mastercard has been successful in winning issuer portfolios from its arch rival and is growing more quickly. In Q2, Mastercard’s volume rose 12.3% compared with 10.5% at Visa.
Speaking about the Q2 results, Michael Miebach, Mastercard’s CEO said he believed the pandemic forced Europe to digitise more quickly but that the continent still offers great growth potential. “If you look at the economies in Germany, in Italy, there’s significant cash … that we can go after,” he explained. Where markets are already digitally mature, he still sees opportunities saying “The Nordics is a good example of that. There’s a whole new set of business models coming up… So I’m excited about the Europe outlook, and we continue to invest there. Bottom line.”
One of Mastercard’s main growth drivers is the conversion of Maestro cards – mainly in Germany and Netherlands – to debit Mastercard. The switch seems to be going well and Miebach reported seeing spend per card doubling because they can now be used online and outside their home country. 14m cards were converted in H1.
Visa is fighting back. It has resigned Lloyds Bank in the UK for debit and won its credit portfolio back from Mastercard, gaining an additional 10m credentials for consumer and commercial cards. Visa also renewed its commercial card contract with Raiffeisen and expanded consumer debit and credit in Czech and Romania, bringing 2m more cards. Visa has pushed hard on its Olympic sponsorship and claims to have added 100.000 merchant locations in France and issued nearly 6m Olympic branded cards.
Of course, cash isn’t going away. Together, Visa and Mastercard processed €271bn cash transactions in Q2. The total volume is flat but the transactions are gently declining (down 3%) as the ATV rose 5% to €159.
Both schemes have updated investors on lawsuits. In the UK one large legal action has been rumbling on since 2013 in which over 1150 merchants made a claim relating to excessive interchange fees. Visa says it has settled 475 merchants but £500m of claims still remain to be agreed. Meanwhile, the UK Competition Appeal Tribunal is hearing a class action related to interchange fees on commercial cards for which Mastercard is on the hook for damages of up to £1bn. Finally, a new lawsuit has begun in Portugal in which merchants are claiming damages of €400m from Mastercard for excessive interchange fees.
In product news, contactless is now the standard way to pay at POS. 80% of Visa’s face to face transactions outside the US are contactless with 55 countries at >90% contactless at POS.
Mastercard reiterated its commitment to phasing out PAN card entry for eCommerce in Europe in favour of one-click checkout. This is primarily delivered by the mass adoption of network tokens to support stored-credentials used by merchants for account-based checkout. Tokens have been a huge success. Worldwide, Mastercard says tokenised transactions were up 49% year on year. Visa has over 10bn tokens generating, it says, an incremental $40bn eCommerce revenue for merchants and saving more than $600m fraud.
Both schemes are still pushing Click to Pay for guest checkout but it’s tough going in the face of entrenched competition from PayPal, ApplePay, Stripe, Shopify and others. Mastercard says Click to Pay transactions “more than doubled” and it is “working with our merchants and bank partners to drive adoption.” Visa is integrating Click to Pay and Visa Passkey which enables cardholders to authenticate themselves using biometrics. Visa says it has “hundreds” of issuers representing more than 50% of eCommerce volume in pilot.
Visa Direct, a product which allows money to be sent to Visa cards, is finally delivering results. Total transactions were up 41% to 2.6bn in the quarter and European volumes using Visa Direct for person-to-person transactions “nearly doubled.” In the UK, Weavr, a fintech, is using Visa Direct to offer employee expense reimbursement, reward, recognition and earned wage access.
Neither scheme disclosed numbers relating to open banking although Visa said Tink, its open banking business, “continues to sign new partners.” With the continued growth in push-payment fraud, Visa sees an opportunity to sell its fraud expertise to banks. Visa Protect -a risk scoring solution – has piloted with Pay.UK and showed “average of 40% uplift in fraud detection” when applied to A2A transfers.
Banco Sabadell remains committed to selling its merchant services business to Nexi although the deal is on hold as the Catalan bank focuses on defeating a hostile takeover from BBVA, a larger Spanish competitor.
Speaking during the Q2 2024 results call, Sabadell CEO Cesar Gonzalez-Bueno confirmed that, “all necessary regulatory approvals have been secured, and the deal will be finalised following the conclusion of the hostile tender offer.” He went on to say that there are no break clauses, and the sale to Nexi is expected to proceed around mid-2025, approximately almost two years later than initially planned.
BBVA has not made any statement about whether the sale to Nexi would proceed should it be successful in buying Sabadell. BBVA has a good in-house merchant services offer. It could deliver considerable synergies by merging the two businesses and has less need of Nexi’s technical expertise and product roadmap. Nexi has indicated that the deal is “not automatic.”
Nexi had agreed to pay €350m for Sabadell’s merchant services unit which processes about 20% of card payments in Spain through 380,000 merchants. The sale price was reported to be based on a run rate of €30m EBITDA. However, Sabadell also disclosed that the delayed sale is not expected to impact the bank’s profit and loss statement, implying that its merchant services business is currently operating at breakeven point.
Profitable or not, Sabadell continues to display healthy topline growth. Merchant payment volume increased by 9% to €14bn in Q2 and consistently maintains a yearly run rate of over €50bn. Meanwhile, the average transaction value has decreased by 3% to €31.50 as the adoption of contactless payments continues to drive the conversion of low-value cash transactions to card payments.
Significant write-downs at PagoNxt, Santander’s merchant payment business, masked a good underlying performance reported with the bank’s Q2 2024 financial results. Notably, economies of scale in payment processing helped double EBITDA to €69m.
PagoNxt was created when Santander consolidated its payment assets into a single unit containing Getnet, a multi-national merchant acquirer, Ebury, a London based trade finance specialist, Superdigital, a Latin American financial marketplace for the economic inclusion of the underbanked and PagoNxt Payments which offers wholesale A2A capability based around its Payments Hub.
The refocused Getnet is the second largest acquirer in Latin American and has good positions in Spain and Portugal where it sells through Santander’s large domestic banking networks. Santander also has a strong footprint in the UK where Elavon is the bank’s preferred payment partner today. It’s not clear if or when Getnet will replace Elavon in this relationship.
Returning to the Q2 2024 results, global merchant payment volume at Getnet rose by 9% to €54bn. This is the slowest increase in volume yet reported by PagoNxt and reflects the impact of the loss of its German merchants. ATV ticked up 6% to €20.85.
Payments Hub which offers a single API connection into a number of A2A platforms including SEPA, Faster Payments and SWIFT, is growing fast from a low base. Total transactions increased from 79m to 405m in the first half of 2024.
PagoNxt is successfully turning increased volume into sales revenue. Turnover was up 8% to €300m with the good performance attributed to Getnet in Europe, Chile and Mexico, where it deployed DCC for the first time, as well as higher sales at Ebury.
Management is keen to reduce its dependence on Santander and was pleased to report that 22% of total PagoNxt revenue is “open market”, that is sourced from its own distribution, compared with 14% last year.
Higher volumes have begun to deliver economies of scale. Unit transaction costs at Getnet fell 9% to 3.7 cents, allowing operating expenses to hold steady at €297m despite the growing size of the business.
PagoNxt is now consistently profitable on an underlying basis. EBITDA doubled to €69m in Q2 as the margin grew 8pp to 20.1%. Management believes that it is on course to reach the medium term target of 30% EBITDA margins.
Net operating profit before the write downs was €4m compared to a loss of €18m in the same quarter of 2023. After the write downs, PagoNxt lost €258m.
2023 was a difficult year for Cardnet as the Lloyds Bank/Fiserv joint venture was hit by the impact of the cost of living crisis on its core UK high street merchant customers.
Despite UK retail price inflation running almost 10% in 2023, Cardnet’s total payment volume fell 8% to £54.6bn. Credit slightly outperformed, dropping just 3% to £14.7bn. Debit volume was down 9% at £39.9bn.
Gross revenue from merchant service fees fell 3% at £314.3m. The decline was cushioned by price increases. Revenue per transaction rose 8% to 31.1p
After deducting interchange, scheme fees and Fiserv’s costs, Cardnet’s net revenue was down 12% at £52.8m “primarily driven by the impact of the cost of living crisis on activity levels along with client attrition.” Fiserv’s fees rose from £8m to £14.5m.
Cardnet’s owners want to return the business to growth. Melinda Roylett, ex PayPal and Square, has been appointed as MD and is rumoured to have been given some very aggressive targets. Her plans have been backed with £13m spend on a “Strategic Investment Programme,” up from £6m in 2022. These costs helped drive up overall operating expense 37% to £35.5m.
Cardnet, 51% owned by Lloyds, aims to recruit new merchants by leveraging the bank’s corporate relationships. A good example is Lloyds’ partnership with PayPoint, one of the UK’s largest ISO’s. This deal will see Cardnet become the exclusive supplier of merchant services to Paypoint’s 60.000 small business customers.
PayPoint currently writes business for both Cardnet and EVO (now owned by Global Payments) but chose to standardise on Cardnet because of the wider banking product set that Lloyds brings. PayPoint currently has about 10,000 merchants with Cardnet and 20,000 with EVO. The remaining 30,000 take merchant services from other suppliers and will be a key target for the new partnership. In return, Cardnet has promised to make significant product investments through its Fiserv relationship and to launch a merchant rewards scheme based on PayPoint’s Love2Shop loyalty products.
Cardnet has no staff of its own. All employees are managed by Lloyds or Fiserv and recharged to Cardnet. Salary costs rose 24% from £14m to £17m.
With revenues down and costs up, the bottom line suffered. Profit before tax was down 40% at £23.2m, although the overall margin remains an impressive 16%.
The shareholders have dipped into reserves to pay a dividend of £34.5m. This is rather lower than the £54.1m they shared in 2022.
Despite the growth plans, Cardnet’s fortunes remain closely tied to the UK high street more generally. Management’s outlook is rather downbeat, saying “The business is aware that the combined effects of higher consumer cost of living and interest rates reducing at a slower rate than originally expected have negatively impacted consumer discretionary spend in retail, leisure, travel and hospitality sectors.”
Discover’s Q2 results showed a sharp slowdown in the volume processed by its 25 network partners. These are third-party schemes, such as RuPay (India) or SIBS (Portugal), which cobadge with Discover to gain access to its global acceptance network.
In contrast to the strong cross-border growth reported by both Visa and Mastercard, Discover’s network partner volume was down 22% in Q3 to $8.1bn. Management said that Ariba Pay, a longstanding Discover partner which helps businesses settle invoices, was the main contributor to the poor performance in partner volume.
Diners Club International, which is still largely a series of national franchises, also had a challenging quarter, with volume down 5% to $9.4bn. The decline was attributed to unspecified issues in India where the cards are issued by HDFC Bank.
It’s obvious why Klarna is selling. KCO competed with key distribution partners such as Stripe and Adyen and the very generous sale proceeds will bolster Klarna’s balance sheet and help grow its lending business.
But it’s less clear how KCO’s new owners will make a return on their investment. Stand-alone gateways have been under considerable pricing pressure in recent years, and many have ended up vertically integrated into the larger merchant acquirers.
In banking news, BNP Paribas and BPCE, which together handle c.30% of card payments in France, will invest €100m each and pool their payment capabilities to create a joint-venture with the scale to compete with Worldline and Nexi. Technology will be “home grown” and most likely a continuation of Partecis, an in-house platform based on ACI products. While there’s plenty of scope for synergy in France, the JV will find its hoped for international expansion rather more challenging as PagoNxt, Santander’s payment unit, demonstrated when it recently closed its German operations.
IDC, a London-based research firm, has published vendor evaluations for online and omni-channel retail payments. The full reports cost $20,000 each but the top ranked firms have helpfully made their sections available free of charge. Stripe comes top for online payments although is marked down for being expensive. Adyen is first for omni-channel but customers are warned that its all-in-one solution may lack flexibility.
Viva Wallet’s lawsuit with JP Morgan ended in a London courtroom with both sides claiming victory. JPM paid an eye-popping $800m for 48.5% of Viva in 2022, primarily to gain access to SME customer onboarding tools for European markets. Haris Karonis, Viva’s founder, claimed that JPM then deliberately blocked his company’s launch in the US so that the giant American bank could buy the rest of Viva on the cheap. JPM counter-claimed that Karonis failed to understand how far Fintech valuations had fallen.
It’s taken four years and 14 of the original 31 banks have exited the consortium but the European Payment Initiative (EPI) has finally launched wero, the long-long-awaited domestic European payment champion. Wero, a combination of “we” and “euro”, is live for person-to-person money transfer, initially for customers of co-operative and savings banks in Germany and KBC in Belgium. French banks come on stream in the autumn.
Shoppers will be able to make eCommerce payments with wero from early 2025 and Computop, the German PSP, has already begun asking merchants to register to be part of a pilot. In-store payments will follow in 2026.
The consensus from payment experts is that for wero to succeed the EPI needs to focus ruthlessly on user experience and keep the member banks firmly in the background. And “I need a wero” is the only song that will do as you can hear in this short commercial.
Even though wero is at least six months away from being ready for eCommerce, its launch sparked the unexpectedly early closure of Paydirekt/Giropay, a domestic competitor to PayPal launched by the German banks in 2016.
Insiders tell me that the service termination was badly handled. Giropay switched off its old integration interface at the end of June even though many acquirers had not yet migrated to the new version.
Meanwhile, Klarna has announced the closure of Sofort, the German online bank transfer service which it bought for $150m in 2013. Merchants will be migrated to Pay Now, Klarna’s open banking product. This includes buyer protection which is great for shoppers but less exciting for Sofort’s many merchants in the gambling and adult sectors. These customers will be looking for alternatives.
Klarna’s new wrapper doesn’t come cheap. In Germany, Adyen is charging 1.35% + €0.20 for Klarna Pay Now transactions. For UK merchants, Mollie is asking a punchy 4.99% + £0.30.
Blik, the wildly successful Polish mobile payment standard, continues its stunning growth with payment volume up 53% in 2023 to €29bn. Blik is jointly owned by Mastercard and a number of local banks who have suddenly woken up to the importance of their investment. From now on, the banks will send their CEO’s to Blik’s board meetings.
Bancomat, the Italian domestic debit scheme, is finally getting its act together. Milan-based investment fund FIS has made a €100m investment, the board has been slimmed down to speed decision making and a new CEO appointed from Mastercard. Nexi runs the technology for Bancomat and has put the card scheme live on Apple Pay and as a payment option on Amazon.
We’re taking a keen interest in the convergence of software and payments. Flagship Consulting’s latest report shows quite how dependent many American ISV’s have become on payment and other financial services revenue.
In response, payment processors know they need to partner with ISVs and some have gone further, buying or building an in-house range of vertical software.
Intriguingly, the stock market value of payment processors that offer software is rather lower than software vendors that offer payments processing. Jevgenijs Kazanins looks at why Toast (an ISV that offers payments) is valued more highly than Shift4 (a processor that offers software) even though Toast makes much less money. His conclusion is that ISV’s are better at securing recurring revenues under contract.
European ISV’s have now realised they too can make money from processing. The opportunity is smaller than in North America because payment margins in Europe are much lower. Nevertheless, a savvy commerce software vendor can still double profit margins by embedding payments in its core merchant offer.
With so many acquirers and PSP’s pivoting towards ISV’s as their primary distribution channel, a number of start-ups have begun offering key parts of the technology stack as-a-service. Here are a few that have caught my eye.
Shape Technologies is offering payments-platform-as-a-service to payment facilitators with capabilities including onboarding, KYC and billing. Shape is founded by alumni from Cardstream and is helping put Taunton, Somerset on the Fintech map.
Fung, in Amsterdam, offers a similar product set to Shape but is also a payment institution and can handle the money flow too.
Dublin/Vilnius based Paynt, goes one step further with a full acquiring-as-a-service proposition.Subscribe
New shopping
We’re keeping a close eye on the progress of autonomous stores as one possible driver of a seismic shift in grocery transactions from POS to the shopper’s phone.
Although sceptics point out that frictionless checkout often involves more manual intervention than the vendors let on, the use cases are multiplying. For example, in a village store in Switzerland a shipping container is transformed into an unmanned convenience store (or walk-in vending machine) using technology from FastaXs.
In Europe, Mastercard is backing PayEye, a Polish start-up which is piloting its iris/facial recognition product at five locations of Empik, a large retailer of books, toys and games.
A number of start-ups are trying to make it easier for merchants and consumers to move to digital receipts. Habits are hard to shift. Despite a new legal requirement in France that paper receipts should be opt-in only, Auchan, the grocery chain, reports 60% of shoppers still ask for paper.
In the UK, Slipp, which boasts JD Sports as an early client has raised £750K. Slipp integrates with the ePOS software to send the shopper a text or email. JD Sports says using Slipp’s SMS receipts to promote its loyalty programme is increasing the number of customer sign-ups.
Anybill, from Regensberg in Germany, asks customers to scan a QR code presented by the ePOS. Pricing ranges from €4.49 to €35.99 per month per outlet.
Yocuda, a French start-up acquired by Global Blue, claims to have delivered over 2m electronic receipts to over 200,000 identified shoppers. Clients include Halfords and Decathlon.
Receipt Hero, based in Helsinki, has raised additional funds to supplement the $5.7m already invested. Receipt Hero offers cardlinking as well as QR scans. Partners include PayOne.
Pi-xcels from Singapore has an elegantly simple product that delivers an e-receipt automatically when the shopper taps their phone on the payment terminal. The product integrates with the terminal not the ePOS software and is available on Ingenico and PAX.
There’s an open question whether digital receipts can establish themselves as product category in their own right or whether merchants would prefer to buy the capability as a feature of existing POS or CRM software.
This technology, which allows any off the shelf consumer device to accept contactless card payments, was originally touted as a micro-merchant proposition but is proving most popular with large enterprises.
LVMH is leading the innovation. Liberated from the need to locate the nearest payment terminal, sales associates at Christian Dior, an LVHM brand, each have their own iPhone to serve customers wherever they are in the store. Dior has worked with Adyen, Global Blue and Vo2 Group, a Paris HQ’d tech consultancy, to add instant VAT tax refunds to the proposition.
In vendor news, Rubean, based in Munich, has raised an additional €2m capital to finance its strong growth. Sales are forecast to rise to €2.2-€2.5m this year from €1m in 2023 on the back of new distribution deals.
Rubean’s partnership with Global Payments may be threatened by the Atlanta processor’s unpublicised purchase of Yazara. The Global/Yazara tie up is likely also to be bad news for MyPinPad which local sources suggest may be replaced as supplier to eService, Poland’s largest acquirer, which Global bought last year.
In better news for MyPinPad, Ur&Penn, a leading chain of jewellers in Norway, is using its SoftPOS application to take store payments on the associate’s Android phones. 2izii is the integrator and Elavon the acquirer.
Phos, acquired by Ingenico in 2023, is making good progress building out its distribution network, announcing a key partnership with Shift4, a US processor with big ambitions in Europe. Phos is also the technology partner for BORICA, which provides SoftPOS to the three largest banks in Bulgaria. BORICA claims 1,500 “terminals” live today.
In Italy, Ultroneo has implemented MarketPay’s PayWish SoftPOS application for its Get Your Cash merchant proposition. Volumes are growing swiftly (see below) but it’s not been plain sailing. Writing on LinkedIn, one Ultroneo director explained “For nearly 12 months now we have been struggling with the teething problems of this new technology. Bug after bug, incident after incident, we have managed to stabilize the SoftPos to the delight of our customers.”
Openbanking
The UK’s incoming Labour government is making very positive noises about fintech. Quoting from its manifesto: “Financial services are one of Britain’s greatest success stories. Labour will create the conditions to support innovation and growth in the sector, through supporting new technology, including Open Banking and Open Finance and ensuring a pro-innovation regulatory framework.”
There is much that a new regulatory approach could deliver, including an open banking acceptance mark, “scheme” rules to ensure common standards for authorisation codes, refunds etc, the introduction of consumer protection and a recognition that all this cannot be provided free of charge.
Positively, the number of open banking payments made in the UK rose c.50% year-on-year to 17m in May 2024. Variable Recurring Payments (VRPs), the open banking equivalent of direct debits, now account for 11% of the total.
The increase is encouraging but compared with the 2bn debit card transactions made in the UK in a typical month, volumes remain very small.
The slow take up of open banking has implications for the large number of vendors operating in this sector. There are twenty listed on the UK government’s procurement framework alone. If revenues don’t arrive soon, only the best capitalised will be able to keep trading until the product goes mainstream.
Truelayer, hopes to be one of the survivors, having raised a remarkable total of $271m from its investors. Truelayer’s CEO has given an interview to explain that he is playing a long game, saying “We are an infrastructure business. That means we are likely going to spend a lot of time and a lot of years building and spending money before actually earning,”Subscribe
Cash
Germany is often cited as the last hold-out of the cash economy but the latest Bundesbank payment survey shows a further decline in the use of paper money. The cash share of transactions fell 7% points in 2023 to 51% and its share of volume by 4% points to 26%.
It’s no surprise that policy-makers in many countries are grappling with the implications of the world going cashless. For example, Ireland has passed an “Access to Cash” law which gives the government powers to set minimum numbers of ATMs for each area. The local banks, and their customers, will bear the cost. Revolut, wildly popular in Ireland, will likely get a free ride.
Crypto currencies are assets not money, yet vendors persist in bringing forward payment acceptance solutions at POS.
“Few have heard of SpacePay, but give it a year, and it will likely be a household name” is the bold claim from this London based start-up which graduated from Barclays’ fintech accelerator. SpacePay, which has raised $750K, says it will allow people to spend crypto at “most existing point of sale card machines.” It’s not clear how this would work in practice.
If there is a user base for crypto at POS anywhere, it’s going to be in a cross-border market such as Luxembourg where some shoppers may not want their home country authorities to know what they are buying.
Done4You, an ISO based just across the border in Namur, Belgium, has implemented crypto at POS for a petrol station in the Grand Duchy using GoCrypto’s technology. Crypto transaction are 1.25% compared to interchange + 0.5% for credit cards.
