emerchantpay, a global high-risk acquirer and PSP, reported lower revenue and profits in the year to June 2022 due to the ongoing challenges of Brexit and the deflation of the crypto bubble. Results had been delayed following the resignation of Grant Thornton as auditor citing governance concerns. Jonas Reynisson, founder and owner of emerchantpay, will be delighted that MHA, the new auditor, has given the accounts a clean bill of health.
Apart from crypto and foreign exchange transactions, emerchantpay specialises in gambling, including a strong market position with casinos. Like many high-risk acquirers, it has been diversifying its client base to include low-risk segments such as SME POS transactions.
In 2021/2, total payment volume rose 16% to $6.6bn. Directly acquired transactions rose 13% while those accepted as a PSP and routed to 3rd party acquirers grew more rapidly at 20%. Processing is through Fiserv using the Omnipay platform.
Reflecting a shift to lower risk merchants, the take rate continued to decline, dropping 60bps to 2.2%. Unsurprisingly, emerchantpay makes more money on transactions for which it takes the risk. The acquiring take rate stood at 2.3% while for PSP it was 1.5%, still quite healthy by industry standards.
emerchantpay is registered with the FCA in the UK. Following Brexit, it was obliged to move its European customers to E-comprocessing, a division of the company operating under the regulatory umbrella of Phoenix Payments, holder of an EMI licence in Lithuania. In December 2021, eMerchantPay loaned €12m to Phoenix Payments.
Revenue decreased 9% to $151m with PSP sales holding steady, down just 2% at $38m while acquiring revenue dropped 13% to $95m. $53m of acquiring revenue is now booked through 3rd parties, including Phoenix Payments in Lithuania. Management reports “a significant scaling back in the activity of crypto exchanges” but is pleased that the acquiring business is now bringing in a “wider and more balanced” set of merchants through its PSP and ISO partners.
Sales of payment terminals grew to $1.5m as sales teams began targeting retail and hospitality merchants. Customers have been offered PAX terminals from Handpoint but emerchantpay has recently launched a SoftPOS product based on Rubean’s software.
The new eZeeWallet, aimed at casino gamblers, grew swiftly from a small base, recording sales of $1.6m. The wallet’s VIP programme kicks in at €15,000/quarter spend so this is very much for high-rollers.
Geographically, revenue grew 9% in the UK to $60m but declined 19% in Europe to $77m. Germany, UK and India are seeing “significant growth in low and medium risk sectors” which management says is altering the overall risk profile of the group. However, emerchantpay will onboard merchants in all business sectors “so long as they are legal.”
Recent investments in the USA, Latin America and Asia came too late to make an impact in the 2021/2 accounts. America where emerchantpay acts as an ISO for Elavon and Westamerica Bank has been challenging. Following a number of delays “due to integration problems”, the proposition has been relaunched.
Operating profit was down sharply from $16.6m to $6.6m. Management attributes this disappointing performance to the strength of the US dollar and the strategy of continued investment in product development including extra IT headcount. Operating margin now stands at 5.5%, decent by most standards but well below the 16% recorded in 2019/20.
Headquartered near Newcastle, emerchantpay’s main operational activities are in Sofia, Bulgaria with local hubs supporting sales, underwriting and customer service in London, Amsterdam, Munich, Bagalore, Sao Paulo and Boca Raton. Total staff numbers were up 19% to 384 but cost per employee fell 10% to $58K.
emerchantpay has stakes in a few other payment businesses including a $18.5m investment in Ibanera, to support casino customers in Florida, 10% of Paystrax, a high risk gateway turned acquirer, founded by ex-Korta Pay execs and 20% of Noosa, an Israeli start-up providing embedded finance to online travel agencies.
2023 was another year of investment for Ecommpay. The UK-regulated acquirer/gateway, reported lower sales and profits for the year to June 2023 as the business continues its pivot away from high risk merchants.
The company is part of a group of payment businesses controlled by Latvian Aleksejs Sjarki, from his base in Cyprus. Ecommpay has sharpened its focus to a group of “low to medium-risk” targeted verticals including digital services, travel/hospitality and the gig economy where it feels it can carve out a niche for itself. It’s a service-led proposition that promises a dedicated account manager and “no frustrating chat-bots.”
Turnover fell 20% to €37.6m with sales from acquiring services (by far the majority) down 18% to €34.8m while revenue from payouts was 35% lower at €2.9m. Sales to UK merchants were down 22% at €11.8m and to the rest of Europe by 17% to €25.9m.
Management blamed lower sales on macro conditions including rising inflation, reduced consumer spending, general lack of business confidence and the impact of Brexit on UK merchants trading cross-border.
Gross profit was down just 11% at €12.2m as the business continued to terminate “loss-making legacy contracts with merchants.”
Good cost control meant that administrative expenses rose just 2% at €12.8m, resulting in operating profit down just 8% at €1.87m. Operating margins grew from 4.3% to 5.0%.
Total staff numbers grew from 198 to 217 but employee costs held steady at €39k each.
Ecommpay has moved to a new, larger London office and doubled its UK headcount including hiring Chief Operating, Revenue and Compliance Officers. The beefed up marketing team might want to look at whether the company’s name is Ecommpay, ECOMMPAY or ecommpay. All are used on its website.
Ecommpay sensibly wants to offer a one-stop shop and has expanded its portfolio beyond card acquiring. New capabilities include APMs (for which it sees strong demand), open banking solutions leveraging connections to aggregators including Nuapay, Token and Neopay as well as UK/SEPA direct debits with Go Cardless. To support omni-channel customers, a POS solution is being tested.
Management says it successfully taken a more aggressive approach to new business development eg attending industry events/exhibitions and that hiring vertical expertise has delivered improved brand awareness and profitability. Ecommpay has launched an innovative approach to offering local acquiring in the US with chargeback insurance.
Forrester’s latest analysis of merchant payment providers makes for fascinating reading. The scoring can be a little incoherent at times but the report includes unparalleled direct feedback from Forrester’s clients. Stripe and Adyen come out best but don’t escape criticism. Stripe is “expensive” and Adyen’s support “can be hit and miss.”
Global Payments and Worldline, neither of whom participated in the research, score badly. Forrester doesn’t think either has done enough platform integration.
To celebrate its top spot, Adyen has made the report available free of charge. It’s worth a read and a reminder to always engage with analysts. The more you communicate – product roadmaps, customer testimonials, invitations to events etc – the better coverage you get.
Forrester aside, Worldline had a good month by recent standards. The beleaguered processor has won the fight with arch-rival Nexi to become the exclusive partner of Cassa Centrale Group. The deal doubles the size of Worldline’s Italian business by adding more than 90,000 POS terminals processing €9bn annually.
The next Italian bank up for grabs is Banca Popolare di Sondio which is reportedly considering selling its merchant services business and ending its partnership with Nexi. Worldline is said to be in poll position to pay €70-€100m for 25K POS processing €2.2bn. Nexi, BCC Pay and Market Pay are also in the running.
Worldline has also finalised its JV with Credit Agricole in France. Meriem Echcherfi, currently head of merchant services at the French bank, will run the new business which will should be live in early 2025. This is smart move. The first rule of bank partnerships is to hire your general manager from the bank.
Nexi reported decent full year results with merchant services revenue up 6% in Q4 2023 and a particularly good performance in Germany. Management will be relieved that Unicredit, Italy’s largest bank, looks set to renew it partnership with Nexi and extend the relationship to additional countries.
Stripe celebrated becoming cashflow positive for the first time. This takes the pressure off a possible IPO. “We’re not in a rush,” said the CEO. Stripe’s 2023 letter to shareholders was very bullish but didn’t disclose the company’s revenue or profit numbers.
The letter did reveal that payment volume rose 25% in 2023 to exceed $1tn and that the business is increasingly servicing larger merchants. More than 100 of Stripe’s clients process over $1bn and it has been signing good omni-channel customers such as Hertz. The car rental giant is moving its worldwide payment acceptance to Stripeincluding installing BBPOS terminals in 3,000 locations. The big win for Hertz is to be able to accept Apple Pay. Although this seems a low bar, it’s a real pain point in the US.
PAX Technology had a difficult 2023 as key customers showed “increased prudence in payment terminal deployment.” Revenue was down 18% to $860m and profits down 12% to $150m. In Europe, PAX called out good performances in Italy, the United Kingdom, Turkey, Spain and France but Germany proved more challenging.
Although than 50% of sales are Android terminals, PAX is struggling to generate revenue from services. Sales of SaaS solutions associated with the 11m devices connected to MAX Store were just $13m.
Paypoint, one of the UK’s leading ISO’s, will consolidate all its processing with Lloyds Bank Cardnet. Paypoint’s 20,000 merchants deliver around £7bn volume and the acquiring relationship had been at risk, notably from Global Payments Inc., which inherited a chunk of Paypoint’s merchants when it bought EVO last year. It looks like Lloyds’ ability to extend its offer to include a bank account and commercial card won the deal.
We saw several interesting fund raises this month.
PPRO, the white label local payments platform, raised €85m, taking its total investment to an eye-popping $462m. PPRO has some great customers including Stripe and PayPal and insiders tell me it hopes to be EBITDA positive by the end of 2024.
Flowpay, the Czech merchant cash advance specialist, raised €2.1m to expand out of its home market. Already boasting key local ISV partnerships including Dotypos, Storyous and Shoptet, Flowpay is one to watch.
Bezahl, a Cologne based supplier of payment acceptance to car dealers, raised €22m. The business already has 130 clients serving 1,100 locations. Bezahl charges a monthly fee per location and sends most transactions to Adyen for processinghttps://www.youtube-nocookie.com/embed/zplTu4QN3zA?rel=0&autoplay=0&showinfo=0&enablejsapi=0
Staying in Germany, REWE, the supermarket giant, has spun out its payment acceptance team with the brand name of Payment Tools. REWE’s strategy mirrors that of its French rival, Carrefour, which demerged its payment division as MarketPay.
Finally, GoCardless has bought Nuapay, a specialist in SEPA Instant, UK direct debits and open banking, from EML Payments, the hapless Australian processor, for €34m. Nuapay, based in Ireland processes €44bn of A2A transactions annually and is forecast to lose €1.2m EBITDA this year. GoCardless also revealed its latest financial results in an exclusive interview with Sifted. Discussing a substantial loss of £80m on sales of £92m, the CEO said “The results demonstrate that we’re moving from strength to strength.”
MPE 2024
This year’s Merchant Payment Ecosystem conference in Berlin was as good as ever. Read this special edition of Business of Payments to discover more about the end of cards, digital Euro and the slow uptake of open banking.
I moderated an entertaining panel discussion nominally about consumer behaviour but actually covering a variety of topics from Saudi investment in Fintech to why Finland’s largest retailer chose Adyen for its payment processing. The panelists were Adil Riaz from NearPay, a SoftPOS vendor, Gábor Bujáki from OTP Bank, Hungary’s largest acquirer, Janine Kaiser from The Payments Association EU and Kai Lindström from S-Group, Finland’s largest retailer. Watch the conversation below..
Schemes
Visa and Mastercard’s landmark deal to end 20 years of US litigation on “swipe fees”attracted much press coverage. The schemes have conceded an average 7bp reduction in Interchange paid to card-issuing banks. Although retailers will have more freedom to introduce surcharging, it’s likely that large merchants on IC++ pricing will see most of the benefits. Consumers may be annoyed by some potentially rather complex POS flows as merchants attempt to calculate differential surcharges by card type.
JP Morgan has become the first US bank to join Carte Bancaires. A spokesman said the move was “mainly a request from our customers, the use of the [CB] network being less expensive than that of other card networks.”
Ireland no longer has a local scheme so it’s hard to understand recent thinking in Dublin. Ireland’s Central Bank announced that the country’s payments strategy “needs drastic change” only months after the competition authorities killed an attempt to do just this by outlawing the introduction of a domestic mobile payment scheme. Revolut, which is wildly popular in Ireland, will likely profit from this regulatory confusion.
Blik, the fast-growing Polish mobile payment standard, has restated its international ambitions. With launches already planned in Slovakia and Romania, management believes “Blik Euro” could become a pan-European payment system. Local vendors are innovating with Blik. Posnet is offering Blik acceptance at cash registers without the need for a payment terminal. eService (Global Payments) is providing the processing. Fees are 0.6% + 1.4c.
Wero, the new QR based mobile payment scheme promoted by the European Payment Initiative is supposed to launch in June. However, the EPI has not posted any news on its website since December. We await updates with interest.
Capital One has revealed more of its plans for Discover, the US card network it hopes to acquire later this year. The new owners want to “fix” the network’s international acceptance, “which is not quite where it needs to be, for the entirety of our card business today,” said its VP Finance.
While there still seems a strong business case for Just Walk Out in small format stores, Amazon’s decision will come as a blow to other retailers that have bought its technology, presumably to benefit from Amazon’s well-funded roadmap. One of these may be Delaware North, a hospitality vendor that has just installed Just Walk Out technology to sell beer at London’s Wembley Stadium.
Other vendors are available. Lekkerland has installed three AI-based smart fridges at an EV charging station in Saxony. You tap your payment card, open the door, remove the items and are automatically billed. Portuguese start-up, Reckon.ai is providing the technology.
We’ve been talking about RFID to automate grocery checkouts for over twenty years but it’s still not ready. Walmart has withdrawn a pilot in which it used RFID to verify whether customer’s self-scanned purchases were accurate.
Sometimes simpler is better. Take a look at Sticky, a Manchester-based start-up which allows consumers to pay by simply tapping a cheap NFC label. “You can get a drink in five seconds with our physical digital labels. It’s faster than a card,” says the CEO. Sticky charges £60/month for eight “flows.”
Product
Retailers say that returns abuse is the leading source of fraud, overtaking phishing for the first time.Here’s a good round up from Edgar Dunn which shows the scale of the challenge. Unsurprisingly, this trend is leading to a big increase in chargebacks so why don’t retailers dispute more of them? One reason may be the risk of offending good customers. This New York restaurant complained when a customer used a chargeback to reclaim a deposit for a cancelled booking and the ensuing argument became very public.
Wild story incoming. Last month, we had to cancel our Boston trip after I was hospitallized. As a result I had to use travel insurance to get my money back on our hotel, train, and restaurant reservations. Today I got this message from @tableboston pic.twitter.com/d7jc84rllJ
The UK has a cunning plan to fight fraud. New legislation will make Faster Payments slower to give PSP’s time to investigate suspected bad transactions.
Dwayne Gefferie lays out the strategic case for PSP’s to move into orchestration or infrastructure-as-a-service. Or both. However, it’s not clear how much money is in orchestration. One analyst says the market will grow from $846m today to $4.8bn by 2032. Aite, a more reliable source, suggest the actual revenue reported by dedicated fintech orchestrators today is less than $25m. Looking on the bright side, Aite says “there’s plenty of room for providers to grow.”
Merchants are divided on whether to go with a single payment provider or use “orchestration” to manage a series of best of breed vendors. Hugo Boss is using Adyen for all its in-store and online requirements. Why not use multiple suppliers? “We are not a petrol station. We are Hugo Boss,” explains the retailer’s head of payments.
InPost, Poland’s last mile delivery specialist, has launched a payment wallet called InPostPay. It could do well as it builds on an installed base of over 9m mobile app users.
Many are sceptical about Click to Pay but the schemes’ much delayed attempt to compete with one-click wallets is finally coming to Europe. ING is offering Click to Pay with Mastercard, initially in Spain. Visa has launched Click to Pay in Francewhere Adyen is the first PSP to offer the product. It claims 4% points increase in authorisation rates compared to a standard transaction.
ISVs and their payment partners are scrambling to offer pay-at-table. Toast, the US restaurant software vendor, has launched in the UK with an impressive solution running on Adyen’s POS hardware. “Long battery life and durable,” says one IT Director.
Revolut launched its acquiring business in 2021 but we heard little news until it launched point of sale software with integrated payments. Aimed at retail and hospitality, Revolut POS is based on Nobly, the ISV it bought in 2021. The software appears to be free and transactions start from 0.8% and 2c for domestic cards. International cards are 2.6% which is pricey for any merchant in a tourist location.
There’s a small but growing category of software vendors aiming at making life easier for people who run payment businesses. Kani, founded in Newcastle, reconciles PSP transaction data with the information provided by the card schemes. Torus, started by an ex Mastercard consultant, won the innovation competition at MPE with its pricing software that gives acquirers better control over their portfolio profitability. Both are worth a look.
SoftPOS
SoftPOS is a downloadable payment application that turns any Android or iOS device into a payment terminal. The standards regime is quite complicated. Matt Jones gives a good explainer of how it all fits together.
This technology seems finally ready for prime time. Tabesto, a vendor of intelligent ordering tools for restaurants, says 90% of sales are a new product called Fox, an integrated all-in-one kiosk with no external POS or printer. Customers can choose SoftPOS payment apps from Worldline or DejaMobile. Here’s it is in action at Waffle Factory.
Deja Mobile, based in France and now owned by MarketPay, has some good case studies. Two months after launch with Rabobank in the Netherlands, 1,200 micro-merchants have activated the service of which 80% are generating transactions.
I’m not convinced PSPs can make any money out of micro merchants but if you want a mass-market customer base you will need to spend money on marketing. Best of luck to Viva, the mPOS vendor partly owned by JPMorgan, which has launched a major advertising campaign in France.
Rubean, the German softPOS vendor quoted on the Munich stock exchange, expects 2024 revenue of c.€2.5m, doubling year on year but below expectations. The company predicts sales rising to c.€10m by 2027 on the back of new contract wins including Commerzbank Global Payments.
Referring to emerging rules for variable recurring payments (VRPs), widely believed to be the best hope of driving mass market adoption, the regulator says it has asked the industry to “get on with it.” Jack Wilson from TrueLayer takes issue with this and writes the industry is now “moving at the pace of the slowest” and that the slowest is the regulator itself. The industry is complaining that it is in limbo waiting for the results of a consultation on how open banking should be priced and without a clear way of making money, has little incentive to commercialise new products.
The lack of an acceptance mark or scheme brand is also major stumbling block. Looking at the checkout page below, how would consumers know they can pay with their banking app? Clue: Vyne is an open banking vendor.
Despite the current uncertainty, there is some good news. Ecospend, Trustly’s UK business says that 30% of payment volumes at Hargreaves Landsdowne, a retail investment manager, are made using open banking.
Ecospend has been the supplier to HMRC (the UK tax authority) which has long been the poster child of UK open banking payments. With Ecospend’s initial 3 year term completed, HMRC is retendering its banking contract. The winner is likely to be one of the 15 vendors selected to join the Government’s framework contract.
A number of vendors are building an interface to allow open banking payments at POS using contactless NFC in place of cumbersome QR codes. Kevin, the Lithuanian fintech which made some high-profile layoffs before Christmas, has demonstrated A2A NFC payment on iPhone. Click through and read the comments which indicate some scepticism.
MultiPay, the UK POS focused PSP is doing something similar. Acquired.com is providing the open banking connections. Assuming the technology works, is there a business case? Alexander Peschkoff explains why A2A payments at POS don’t have commercial appeal.
More importantly, A2A payments may just be too slow for POS. A killer table from the UK Future of Payments Review shows the time it takes for a user to initiate a payment. PIX is regarded as best in class but, with Apple Pay as a comparator, even 20 seconds is too slow for POS merchant payments. Shoppers will keep using cards for a long time yet.
Artificial Intelligence
Klarna’s CEO has clarified that although the company’s AI chatbot is doing work equivalent to 700 people, this is entirely unrelated to the 700 people he layed off in 2022.
It doesn’t matter how clever your chatbot. RSR Resarch says consumers want to talk to a real person.
But the AI demos keep getting better. This ChatGPT video certainly passes the Turing Test.
Possibly, one of the most appropriate uses of AI is to count the number of mentions of AI in corporate earnings calls. Hat tip to PayPal. And to FXC for asking its robots to research this pressing question.
Rapyd’s Icelandic boss hit back at calls for a merchant boycott following the Group CEO’s strong support for Israel’s war in Gaza. “Claims such as that Rapyd works in Israeli settlements in the West Bank and that the company supports the Israeli army’s war on Gaza are completely false”, he wrote.
It’s been a good month for bloated corporate buildings. Fiserv has finally opened its new $37m HQ. “Welcome to Milwaukee. We have been waiting for you Fiserv,” said the mayor. PAX went bigger. Its new $46m HQ in Shenzen is 18 storeys high.
Payments from a Merchant Perspective – useful (and free) research from Arkwright. Standardised and low-friction open banking is their number one ask.
Wirecard latest. Dan McCrum, the FT journalist who broke the story, gives a good interview to Chris Skinner. Four years on, the story itself gets even stranger. It seems that Jan Marsalek, Wirecard’s fugitive COO, was working for Russian intelligence and has recently been living in Russia under the assumed identity of an Orthodox priest.
The payment world reconvened in Berlin last week for Merchant Payment Ecosystem, in my view the best industry conference in Europe. MPE is friendlier than most conventions- people will take a meeting and chat to the person next to them. It helps that the organisers produce just this one conference. They really care about their customers and keeping content fresh to match the changing focus of a loyal audience
The payment industry seems in good form. Despite the Fintech Winter and rumours of layoffs at the big companies, the conference took the entirety of the Berlin Intercontinental for the first time. This was bad news for people who come every year to freeload by sitting at the bar networking with those who had a ticket.
The sponsor slots, the best barometer of the health of a conference, were full and the plenary and break-out sessions well attended. Exhibitors told me that they had good traffic to their stands and came away with a number of useful conversations. If Money 20/20 is where you go to find investment, MPE is the place to find new commercial partners.
But success depends on where you’re sitting. Compared to previous years, the traditional payment players were largely absent. For example, there were just two delegates from Worldline and only one from Nexi while Checkout and Adyen, the new kids on the block, sent seven delegates each. The open banking vendors and terminal manufacturers were less numerous than of late. In their place, I found a small army of payment orchestrators. I’m told that the organisers received an extraordinary 25 entries for “payment orchestrator of the year.”
Cardmaggedon
Turning to the content, there was much discussion of when we’ll see the long-promised shift from cards to other forms of digital payments. This is important because the payment ecosystem knows how to make a good living from card payments and isn’t quite so confident about how to add commercial value to bank transfers. There’s a real threat that all the profit could leak out of the industry.
Bain has predicted “peak card” in 2029 in the US but probably a little earlier in Europe where national account to account (A2A) schemes are growing swiftly and a digital Euro is on the horizon.
Open banking
Open banking was meant to be the future of A2A but is getting a bad press. Several speakers were openly dismissive.
David Rintel from Trust Pay, a Bratislava based eCommerce acquirer, told the audience that open banking is far from delivering the promised revolution. The user experience is horrendous, there’s no payment guarantee for the merchant, no consumer protection and, despite PSD2, there’s no European solution. The APIs provided by the banks are not standardised and this makes them difficult for Fintechs to work with. Simas Simanauskas from Connect Pay was even less complimentary. Open banking “is crap” he told the audience. It’s almost impossible to design a payment flow using the retail bank APIs, he explained.
Lea Siering from Token, one of the larger open banking vendors, gave a spirited defence of A2A payments. Open banking will maximise acceptance, reduce costs and save the planet, she said. Token claims A2A payments generate 0.4g less Co2 per transaction than cards.
Long term, big picture, it’s clear that open banking has huge potential. But none of the open banking advocates on the platform addressed the short-term obstacles of poor user experience highlighted by the developers.
If open banking is unlikely going to replace cards before Bain’s deadline, will the digital euro have an impact?
Digital Euro
The Digital Euro session was well attended but left many of us with more questions than answers.
Evelyn Witlax from the ECB was a strong advocate for the project and was ably backed up by Fredrik Rydbeck of the Swedish central bank. It’s clear that policymakers need to address the potential implications for financial inclusion and economic resilience if cash disappears. It’s also apparent that Europe desperately needs to reduce its dependency on foreign operators of its payment infrastructure. There’s a clear risk that Trump 2 could order Visa/Mastercard to close operations in any country he doesn’t like.
But that doesn’t mean that the digital Euro is the answer, certainly not the one that would run according to the draft rules outlined by the ECB.
Merchants will like the fact that this new currency should be cheaper to process than today’s euro but will be less excited to learn that acceptance will be mandatory and that they aren’t allowed to hold any digital euros themselves.
While the ability of the digital euro to operate offline will certainly help make the payment system more resilient, the requirement for ID checks for online payments undermines the argument that the digital euro is simply digital cash.
Most importantly, nobody can explain why consumers should be excited. They can travel around Europe today with their local debit card (co-badged as appropriate) and buy what they need with little trouble. Until the ECB and friends can explain the problem they are trying to solve, there’s a risk that (as Dave Birch put it) we just create a slightly annoying pre-pay debit card.
Mobile payments
A more credible threat to cards comes from the growing number of domestic mobile payment schemes that have successfully wrapped a great customer experience around A2A transfers. David Rintel called out Blik in Poland, Payconiq Bancomat in Belgium and iDEAL in Holland. Each of these is taking 65%-70% of domestic eCommerce payments. There’s also Bizum in Spain and MB Way in Portugal.
Fragmentation is a problem. To replace cards, these schemes will need acceptance outside their home country and work is already underway to extend their reach. Blik is opening in Slovakia and Romania and Payconiq/iDEAL is the foundation of the European Payments Initiative which launches its “wero” wallet later this year. Wero’s 14 founding banks cover 75% of accounts in central Europe.
Two new mobile payment schemes showcased at MPE. Raifaissen has launched RaiPay across its footprint in central Europe and the Balkans. And Gini Pay Connectis an interesting new idea from a start-up whose image-recognition software already sits inside many German banks’ consumer apps. You take a photo of a bill and pay with a direct debit from within the app.
The technology behind these products is often quite simple but distribution is much harder. It takes a lot of expensive marketing to get consumers to download an app which is why support from local banks is so important. So it’s no surprise that the most successful schemes all have local banks as shareholders. Blik also has Mastercard as an investor which would explain its very bullish international ambitions.
Consumer behaviour shifts driving the future of payment acceptance
I moderated an entertaining panel discussion nominally about consumer behaviour but actually covering a variety of topics from Saudi investment in Fintech to why Finland’s largest retailer chose Adyen for its payment processing. The panelists were Adil Riaz from NearPay, a SoftPOS vendor, Gábor Bujáki from OTP Bank, Hungary’s largest acquirer, Janine Kaiser from The Payments Association EU and Kai Lindström from S-Group, Finland’s largest retailer. Click on the photo to watch the conversation.
Innovation
Three interesting start-ups pitched to the audience in the final of the innovation showcase. The winner was Torus but only by a small margin.
1 Click Procurement – a PayPal equivalent for the corporate travel market. This tool could help finance teams in large enterprises who are often frustrated by the low compliance rates with expense policies.
Ballerine – an AI merchant risk platform. This software allows acquirers/PSPs to onboard SMEs at scale by automating (and orchestrating) KYC/AML checks. It sounds too good to be true but is worth investigating.
Torus – pricing analytics for merchant acquirers. Most processors use spreadsheets rather than commercial software to calculate merchant pricing. This results in frequent errors, especially with merchants on IC++ plans, and missed opportunities to exit or reprice unprofitable customers.
SoftPOS
This technology seems finally ready for prime time. Deja Mobile, based in France and now owned by MarketPay, presented some good case studies. Two months after launch with Rabobank in the Netherlands, 1,200 micro-merchants have activated the service of which 80% are generating transactions.
Deja Mobile also showcased two enterprise use cases. Tabesto, a vendor of intelligent ordering tools for restaurants, has launched Fox, an integrated all-in-one kiosk with no expternal POS or printer. Payment is via the Deja Mobile app. Fox has been a very successful launch and now accounts for 90% of Tabesto’s new kiosk sales. Here’s it is in action at Waffle Factory.
The Deja Mobile SoftPOS app is also live on Famoco hardware at a chain of bowling alleys. The screens are used for at-lane ordering of food and drink. The client says food and beverage revenue is up 30%-50%.
Other SoftPOS vendors present at MPE included NearPay, which claims over 50,000 installations in its home market of Saudi Arabia, and Yazara, the Turkish leader.
In a quiet show for POS innovation, I was impressed with POP Codes, based in Calgary, which offers tools to allow merchant acquirers to use the terminal screen for merchant communications. Pricing starts at $2.50 per month per POS.
Merchants
The merchant perspective was provided by Atze Faas, a long-term BP exec, who now represents Eurocommerce on the newly formed Merchant Payment Coalition – Europe. This is a lobby group looking to address the rising costs of payment acceptance. The major areas of concern are the lack of competition in the payment industry, the lack of transparency of its charging structure, the many regulatory gaps and the industry’s continued insistence on ad valorem pricing. Why should a €1000 transaction be more expensive than a €100 transaction? Why should CNP be more expensive than CP? Atze challenged the industry to explain because he felt that SCA had dealt with the risk issue.
It’s certainly true that SCA has reduced fraud levels, but it’s also introduced friction that has led to reduction in legitimate transactions too. And SCA is no guarantee that the customer is who they say they are. Chris Read, EVP Identity Solutions at Mastercard, explained that the dark web is now awash with fake credentials such as passports and driving licences. You can “buy” a bank account for €200 or less.
If there’s one bright spot, it’s that experts seem more worried today about the explosion of first party fraud. Merchants are appalled by these pesky Gen Y consumers who spend their leisure time on Tik Tok exchanging tips on how to rip off merchants – cheating on eCommerce returns or scamming McDonalds for free burgers as compensation for fake negative reviews. Paradoxically, the payment industry is in the clear. If merchants are defrauded by their own customers, we’re not to blame.
Artificial Intelligence
Artificial Intelligence (AI) may be the latest buzzword but it holds more promise than Blockchain and the Metaverse.
Fraud is an early use case. Galit Shani-michel from Forter showed the impact of moving fraud decisions from simple rules to AI powered decisions. She told the audience that fraudsters were using AI to reverse engineer rules and merchants need to stay one step ahead.
Forter recommends using AI to optimise payment authorisation, for example choosing whether to use a PAN or network token or to ask for an SCA exemption or route to a particular acquirer. She explained that some issuers are more likely to approve a transaction that uses a network token and others less likely. And some issuers don’t mind, in which case AI can recommend saving money by not asking for a network token in the first place.
Visa’s Natalie Kelly spoke of “Fraud GPT” which writes scam emails in multiple languages, making Japan accessible to phishers for the first time.
Franceso Burelli of Arkwright Consulting said we are “at the top of the hype curve” but predicted 10-15% layoffs across the board as businesses start using AI to automate manual processes. It is this “potentially radical improvement,” that is driving stock prices higher, he explained. Burelli also said he’s seen good use cases in financial services for ESG monitoring, KYC/AML and faster coding.
AI is moving at such a pace that nobody knows the likely impact. Dave Birch talked about the potential for personal AI helping us make our daily purchases. I would hope my robot is a tough negotiator but how do you market to a machine? You’d expect that AI would make rational purchase decisions and be less swayed by brand than the average European.
AI even offers to put me out of business by writing articles about the payment industry. Drafting an earlier post, I wrote “people being rude about open banking” which LinkedIn’s AI wanted to change to “it’s disappointing to hear people being rude about open banking. Let’s remember that open banking has the potential to revolutionize the way we manage our finances, making it easier and more accessible for everyone.” Hallucination, bias or common sense? You choose.
See you next year in Berlin for MPE 2025. There will be lots to talk about.
Worldline’s share price took another battering as management blamed weak consumer spending for slowing revenue growth in the year ahead. The company also took a €1.15m impairment charge following its decision to terminate €130m annual revenues from online merchants after pressure from the German regulator.
Worldine now needs to cut costs, accelerate platform consolidation and secure investor support. 8% of employees will be fired, including 240 of its 1200 staff in Belgium, under a change programme devised by Boston Consulting Group. The unions are not happy, believing Worldline’s directors are the true villains of the piece.
A very public battle is brewing. Activist investors have arrived on Worldline’s share register, facing off against the European financial establishment represented by Credit Agricole and Six Group. I asked Bing Image Generator for an illustration.
Also in Italy, keep an eye on Fabrik, an open banking vendor which has bought Judopay, a UK mobile-focused PSP, taken a stake in Banxware, a German embedded lending platform and swallowed Axerve, an Italian POS payment provider with over 100,000 merchants. Fabrik is controlled by Sella, a small bank based in Piedmont, grew revenue to €55m in 2023 and welcomed a minority investment from Mastercard.
ABM Amro has chosen Buckaroo to provide payment acceptance to its Dutch customers. This is a good win for Buckaroo, a PE backed consolidator formed from Sisnow, an online gateway and SEPAY, a POS-focused acquirer selling NEXGO terminals. ABN Amro was formerly in a JV with Fiserv called EMS but sold its stake to the US giant six months ago.
PayPal’s Q4 results disappointed investors but its European merchant business was a rare bright spot, delivering 20% of worldwide revenue and growing at 11% year on year. Nevertheless, PayPal remains strategically challenged by its multiplicity of platforms. “We have not invested enough in creating a single platform. That again slows us down when it comes to innovation,”said the CEO.
One to watch. FlatPay, a POS based payment facilitator (PF) from Copenhagen working with Shift4 and Rapyd, has won 6,000 merchants in its home market and forecasts €3bn volume this year. FlatPay offers a free terminal and a 0.99% for all card transactions. Management says that 25% of customers also take its ePOS system. Flatpay raised €15m last year and has just launched in Germany and Finland.
Secure Retail has bought STS, a long-established software business which supplies payment applications for complex use cases such as airlines. UK based Secure Retail is ambitious to grow beyond its heritage in hardware distribution and related services.
In a busy month for corporate activity even the advisors are getting in on the act. Oliver Wyman has acquired Innopay, which groups 60 consultants in Amsterdam and Frankfurt. In Paris, Oaklen, which advises almost all French luxury brands on their payment strategies, has undertaken its second management buy out. This time all 30 consultants will become shareholders. Oaklen anticipates growing its turnover from €9m to €11m this year.
Large consulting practices have a mixed track record with buying specialist payment expertise. EY seems to have made a success of Innovalue, bought in 2016, but Accenture made a mess of First Annapolis whose management quit and formed Flagship Consulting.
Flagship produces great content and has helpfully counted the PFs in Europe and North America so we don’t have to. American software vendors have embraced this model of embedded payments. 43% of PFs in the US are ISVs compared to just 8% in Europe. It’s probably only a matter of time before Europeans catch on to the margin available by combining software and payment processing. The consultants also reveal that many PFs fail. Flagship count an annual attrition rate of 6% in North America and 16% in Europe.
The most successful ISV/PF is Shopify which reported that $45bn of volume passed through Shopify Payments in Q4 2023, up 32% year on year. Shopify surcharges merchants 0.6%-2.0% per transaction if they don’t use its in-house processing which now accounts for 60% of total platform volume. Shopify Payments is powered by Stripe.
Europe’s domestic schemes, old and new, seem to be prospering. Girocard, the German debit card once thought to be in terminal decline, reported a buoyant 2023with volume up 7% to €304bn. The card is now accepted at 1.132m terminals, up 8% on 2022. The payment ecosystem has noticed. Stripe has become an NSP, a gateway/processor for Giro.
Visa was delighted to report 2023 German market figures showing volume growing 25%, rather faster than its domestic rival, and that its cards are accepted at more terminals than Giro for the first time. Visa and Mastercard have been boosted by the success of SumUp which has steadfastly refused to offer Giro.
Twint is now accepted at three quarters of local merchants and is built into the payment flow. You can see from the photo how shoppers are automatically presented with the Twint QR code at checkout. It’s not cheap. Merchants pay 1.3% + 0.3CHF which is more expensive than debit.
Credit: Christoper Uriarte
Four Czech banks have together launched Cvak, Czech for “click”, which works by the shopper tapping their phone on an NFC card by the till. Cvak charges a flat rate of 0.8%.
Cards remain the best option for payments when travelling abroad but inter-operability between domestic schemes could provide a more convenient option for consumers. Indian visitors to France can now pay with rupees using UPI which has linked up with Lyra, a local QR based payment wallet. The Eiffel Tower was the first merchant and merited a news item on Indian TV.
It would be wonderful if the European Payment Institution (EIP) could do the same with its “wero” product – linking domestic schemes in a unified customer experience. It’s worth reading this interview with one of the EPI’s directors which explains how “wero” will work.
Fully autonomous stores are very expensive. For large-format grocery, Smartcarts are a cheaper option and have the advantage of being able to display information tailored to whatever purchases the shopper has put in the trolley. Amazon calls them Dash Carts.
Instcart is pursuing the same strategy. “Ultimately, where we want to take it is Pokemon GO,” said one exec, talking about the potential of gamified supermarket shopping powered by its Caper Carts. “Complete nonsense,” snorted one retail commentator. “Are we to believe that the best Instacart can come up with to revolutionise grocery shopping is to offer carts with a touchscreen that displays ads and also plays games?”
Apple’s Vision Pro virtual reality headset is certainly more revolutionary but is it any good for shopping? Here’s a good round-up of what’s on offer from leading brands.
Apple regard Vision Pro as a standard computer and its built-in Safari web browser supports the usual payment methods including Apple Pay. Credit card entry and one-time-passwords are likely to be more of a struggle. Or you can just bang your head on the merchant’s payment terminal.
EV charging is also giving the payment industry a headache. 36% of drivers own four or more different cards or tokens to charge at competing networks according to new research from Payment Genes. When asked, drivers say they’d rather pay for charging with a card than download yet another app.
People waiting for a charge are a captive market for shopping. Gridserve, an EV charging company, has used Amazon’s Just Walkout Technology in its “all electric” service station at Gatwick Airport. Also including a café and driver lounge, the main benefit of the technology is the shopping insights it provides which, Gridserve says, help it decide which products to stock.
Elsewhere, Santander has cleverly repackaged its standard payment link product into a new proposition called “social selling.” Merchants can attach the links to posts on social media. Getnet (PagoNxt’s PSP) is providing the technology.
Tap. Pour. Go. Industrial-sized beer vending machines from Boxbar which pour two drinks in under 30 seconds. It’s very popular in Manchester. Adyen and Square are providing payment processing.
FreedomPay’s European expansion continues with a Redsys integration and a new office in Madrid. This will be an attractive option for international brands who want to consolidate their POS technology to a single platform but keep the low-cost card transaction routing offered by local banks via Redsys.
Revenir AI, a London based start-up, has raised £2.5m to support its automated VAT refund service, offered as a white-label to banks. Revenir says that £30bn of VAT reclaims are left unclaimed by cross-border shoppers in the EU. The service sits inside your banking app, automatically alerts when a qualifying purchase is made and links directly to the local tax office to process a refund.
SumUp, which announced new funding last month, has released a slew of new product features which widen its portfolio well beyond mPOS. These include a business “bank” account, a kiosk and eCommerce webshop. Provision of this full-service bundle will help SumUp compete with eCommerce players such as Shopify which are quickly extending their reach into the physical world.
New research in UK and France from Yocuda, a digital receipt vendor, shows the key to adoption is to highlight the environmental cost of paper and to better link digital receipts and loyalty programmes. Meanwhile, Singapore based Pi-xcelswon Ingenico’s start-up competition at Paytech 2024 with a really clever way of sending a digital receipt to the shopper’s phone at POS without needing their phone number or email address.
SoftPOS
SoftPOS is wasted on micro-merchants when the technology can be transformational for large enterprises, cutting costs or enabling innovative customer experiences. Here’s a good example. Viva’s SoftPOS application turns Kate Media’s Android tablet into a payment device that restaurants can afford to put on every table.
Rubean, a German SoftPOS vendor, has won the deal to supply Commerz Global Pay, the new joint venture between the German bank and Global Payments. Rubean is thought to be charging €1.40-1.50 per merchant per month plus 2-3c per transaction. Anyone familiar with German banks will think forecast sales of 100,000 merchants by the end of 2025 are wildly optimistic.
In Poland, SoftPOS grew from 11,000 to 33,000 installations during 2023. This is a big increase but still small compared with the 660,000 terminals placed with SMEs by the Cashfree Poland programme. The early market leader is Polcard (Fiserv) which accounts for 50% of SoftPOS installations.
Open banking
Open banking is expected to take a large share of payment transactions in the long term but merchants have been slow to adopt the new technology, causing financial strain in this emerging market segment. It’s clear that there are too many open banking vendors. The Konsentus tracker shows 572 third party processors across Europe, of which two thirds can initiate payments. It’s time for a shake-out.
The first casualty is Kevin, a well-financed vendor based in Vilnius. Kevin has raised $65m and hired 300 staff across Europe but recently needed an additional $25m “bridging round” and is now reportedly making significant layoffs. One employee said “In December, we were actually given a Christmas package: a hoodie, some coffee cups and whatnot. But we didn’t get paid.”
Many in the industry are pinning their hopes on commercial variable recurring payments (cVRPs) which are (roughly) the open banking equivalent of card on file. Yapily is first to announce a product although it only works for NatWest customers at launch, highlighting a key drawback of open banking payments. The merchant is a prisoner of the customer experience provided by the shopper’s bank.
Standard open banking payments will quickly become commoditised so it’s important for vendors to differentiate with related value-added services. Volume Payments, a London-based open banking start-up working with Modulr, has launched one click age verification. This could be very useful for gambling, gaming and other merchants that need to integrate KYC checks into their onboarding flow. Pricing is 0.4% + 15p per transaction.
Elsewhere, Trustly is making good progress in the nascent UK market. Its Ecospend subsidiary has now processed a total of £3.3bn from 1m taxpayers on behalf of the British tax authorities. Total volume was up almost 40% in 2023.
Volt, the self-styled network of open banking networks, has been granted a UK e-Money licence which will allow it to stand in the money flow and move beyond offering a purely technical service. Volt believes it can rival Visa and Mastercard but the comments on this LinkedIn post suggest industry commentators are sceptical. One points out unkindly that Kevin was making similar claims until recently.
Visa and Mastercard have both stopped issuing crypto/fiat cards. This is very sensible. The regulatory fog is just too thick. In a clever workaround, Transak, which describes itself as a Web3 payments infrastructure provider, has linked to Visa Direct. This will allow people to cash out their crypto winnings to any Visa card.
Central Banks took fright at the crypto boom and began work on central bank digital currencies (CBDCs). Strategic autonomy is a key driver. The ECB has announced that only European suppliers will be involved in the digital Euro.
The British aren’t worried about such matters. India’s TCS is reportedly the front runner to manage the UK’s Faster Payments Network which processes 90% of salaries and 70% of household bills. Mastercard, through its Vocalink business, is the incumbent.
Other news
The Scottish Government has invested in ScotPayments which it hopes will be used by 200 public bodies to process 25m transactions each year. Scott Logic is the implementation and development partner.
Why has embedded finance taken so long? According to a new study from four Dutch banks, it’s partly about financial institutions not yet making the cultural changes needed in their organisation but mainly about compliance. Technology is not the issue.
Klarna has been an early adopter of AI, working with Microsoft. The company says its AI assistant is doing the work of 700 full time agents and getting similar satisfaction ratings to real people. Klarna says it will drive $40m profit improvement this year.
eService remains the top POS acquirer in Poland with 324,000 terminals out of a total market of 1.28m according to Cashless.pl. Polskie ePłatnośc (Nexi) is second and Polcard (Fiserv) third.
Paysafe has a new brand identity underlining its commitment to the “experiential economy.” I rather like the new approach. It’s clear, consistent and concise.
Latest research from FT Partners, the Fintech advisor, outlines the themes it will be pitching to clients this year. Expect growing deal flow in real-time payments, restaurant technology, B2B payments, embedded fintech of various kinds and (boosted by the ETFs) crypto.
And finally
A typical DCC user experience.
Where to find me
I’ll be moderating panel discussions at MPE in Berlin on 12-14 March and ePay Europe in London on 21 May. In between, you can catch me at Retail Expo in London on 24/25 April.
Global Payments reported strong merchant revenue growth in Europe during 2023 following the acquisition of EVO Payments at the beginning of the year.
Global’s European merchant solutions revenue grew 42% to $1.023bn. The acquisition of EVO’s businesses in Poland, Spain, Germany, UK, Ireland, Greece and Czech Republic likely added roughly $200m sales. This means the organic revenue growth was around 14%, roughly in line with numbers from other long-established merchant acquirers.
Cameron Bready, CEO, is positive about Europe saying “We continue to see good trends across our businesses in Spain and central Europe, each of which delivered high teens growth, and key new European markets entered with EVO, including Poland and Greece, and also achieved double-digit growth.“
Global Payments now employs almost 6,000 people in Europe with the continent accounting for 14% of the company’s global $9.7bn merchant revenue.
EVO adds to Global Payment’s existing strong footprint in the UK (where it inherited a decent merchant portfolio from its 2009 acquisition of HSBC merchant services), Spain (a JV with Caixa Bank called Commercia) and Czech Republic (partnering with Erste Bank). EVO brings joint-ventures with another two local banks – PKO BP in Poland and National Bank of Greece.
The ongoing weakness in the UK economy is still causing concern but management remains positive and is investing in new products. Bready explained that “we are … seeing things stabilize in that market, which gives us a little bit more optimism about where we can go over the longer term in the U.K. We’ve talked about bringing our GP POS solution to the U.K. market, which we think will give us a very competitive point-of-sale to market.”
Spain is clearly a key focus area for Global Payments and will now report separately to the US from the remainder of its European businesses. This reflects the growing importance of its JV with Caixa.
In 2021, Global bought Bankia’s merchant business for €277m through this JV and has recently folded in Universal Payments, EVO’s Spanish business. Caixa Bank, 20% stakeholder in the JV, paid Global $26.2m for its share of Universal Payments, valuing the business at $131m.
Global Payments is positive about its ability to deliver $135m of worldwide annual cost synergies from the EVO acquisition. Management says revenue synergies will take longer to arrive, with groundwork in 2024 delivering in 2025. The first example is the JV with Commerzbank announced earlier this year for which the“acquisition of EVO helped provide a foundation with its existing physical presence and merchant portfolio in Germany.” Commerzbank refers sales leads to Worldline’s PayOne team today.
Bready said the JV, called Commerz GlobalPay, “is expected to launch in the first half of 2024 and will deliver a comprehensive suite of innovative omnichannel payments and software offerings, including our GP point-of-sale software solutions and our GP touch on mobile technology .” Payment partnerships with German banks are difficult to execute. Fiserv’s JV with Deutsche Bank, launched in 2022, is reportedly struggling to make much impact in the market.
Although Global Payments has spent heavily in the US on buying vertically focused ISVs, most of these businesses do not actively market their products in Europe. However, Global Payments did buy a UK software business called Bleep for a bargain price of £12m in early 2020. Bleep provides an ePOS solution for high-capacity retail such as stadiums and recorded a small loss in 2022 on sales of £5m, Bleep has since been rebranded as Global Payments and seems to be winning regular new business such as the SSE Arena in Belfast.
Global Payments worldwide revenue from sales through or in partnership with ISVs, known as “tech enabled distribution” were up 13% at $3.4bn in 2023, Surprisingly, old-school relationship distribution revenues (direct sales, bank referrals and ISOs) grew more quickly, increasing 17% to $3.7bn. With the acquisition of EVO, the new JV with Commerzbank and the proposed purchase of Takepayments, Global Payments management clearly believes there’s life in relationships yet.
Barclays has given more details on the future of its UK Barclaycard merchant acquiring business. Speaking during the bank’s 2023 full year results call, C.S. Venkatakrishnan, Group CEO, reiterated that merchant payments would remain an essential part of the product portfolio but that he was exploring different delivery models.
Barclaycard is the second largest acquirer in the UK and third largest in Europe. Most recent published numbers indicate 400,000 merchants and annual processing volume of around £300bn. To its credit, Barclays has always been effective at cross-selling acquiring to its business banking base, but Barclaycard’s core technology and processes are lagging further and further behind the new market entrants. The position hasn’t been helped by endemic overmanning and bureaucratic decision making which slows down new proposition development and customer onboarding.
Barclaycard has been late to offer new products, such as omni-channel, and has not managed to adapt its front end systems to take advantage of the shift in distribution of payment processing from bank branches to ISVs and platforms. The business is losing market share with both enterprise and SME customers. This gives competitor fintech’s such as Checkout and Dojo a foothold in Barclays accounts, posing a medium-term threat to Barclays core lending business.
Venkatakrishnan explained to analysts “We intend to remain in the full ecosystem of payments, which includes acquiring. It’s just we think that part can be delivered better in partnership with others, and that’s what we’re talking about…. we are exploring how best via partnerships to provide further benefits of scale, global scale and new technologies and innovation to our clients.”
Anna Cross, group finance director, underlined that merchant acquiring “in whatever form is critical to Barclays, the Barclays ecosystem, and in particular, to our corporate and SME clients. So either way, it’s a service that we would expect to have.”
As part of a wider restructure, merchant acquiring – outlined with the blue line in the chart – has been transferred to “head office” alongside other assets held for sale. Barclays has been working on plans for Barclaycard merchant acquiring since last June. It reportedly originally valued the business at £2.5bn based on £300m EBITDA but recent reports suggest it may settle for closer to £1bn.
Barclays management has two main options for a partnership. One would be to inject Barclaycard merchant acquiring into a joint venture with a payment specialist. With Nexi and Worldline distracted, candidates might include Fiserv or Global Payments. Either could bring a modern product set that would be more appealing to Barclays business banking customers.
If a trade buyer can’t be found, Barclays would most likely need to work with a private equity group. Bloomberg reports that Brookfield, CVC and Blackstone have been in discussions. There’s plenty of fat at Barclays. A PE buyer would be able to generate a fast financial return that could be reinvested into product but this would be a slower route to a market-leading set of propositions than a JV with a specialist.
PagoNxt, Santander’s payment unit, saw the benefits of platform consolidation and economies of scale as it announced a second successive quarter of strong profits in Q4 2023. Reporting 25% EBITDA margins, management says that higher profits are primarily due to increasing scale, increased VAS penetration, and a greater share of eCommerce and vertical solutions.
Ana Botin, Executive Chair of Santander said: “We have a unique position.We are on both sides of the value chain. We will use this to become a global leader in payments… We’re driving customer growth by offering a bundle proposition.” This is a claim which most banks could make but Santander is one of the few making a success of the strategy.
The very positive Q4 financial performance follows Santander’s decision to in-source and consolidate its payment activities. PagoNxt comprises all of Santander’s payment assets, including Getnet, a leading multi-national merchant acquirer, Ebury, trade finance, Payments Hub, “already one of the largest processors of A2A payments in Europe” and Superdigital, a financial marketplace for the economic inclusion of the underbanked.
Total merchant payment volume at Getnet was up 19% to €57bn with strongest growth in Europe where volume rose 31% year on year, driven by good results in Spain and Portugal. In the UK, Getnet is “currently operating with a reduced number of customers under our UK FCA licence.” Management says that Getnet Europe has introduced a new vertical solution for airlines and stronger value-added propositions for SMEs.
Mexico volume was up 23% with Brazil growing more slowly at 14%. The new business in Chile increased volume 80% from a low base. PagoNxt says it is now the third largest merchant acquirer in Latin America.
For 2023 as a whole, volume was €206bn, up 22%. Total transactions increased 29% although PagoNxt has stopped reporting the actual number.
Revenue rose 7% to €321m, due mainly to higher merchant volumes at Getnet and strong performance at Ebury. PagoNxt is tasked with growing its business outside of Santander’s banking relationship. 15.8% of revenue in 2023 was “open market”, up 2.2 percentage points on 2022.
Expenses fell 9% to €268m. Payments carries high fixed costs.. As volume has grown, the cost per transaction processed at Getnet fell 16% in 2023 to 3.5c.
Net operating income was €53m, up from €3m same quarter a year earlier, yielding an impressive operating margin of 17%. The EBITDA margin was 24.8% (up 15.7pp on 2022) and management is confident of hitting its 30% margin target by 2025.
Looking ahead, PagoNxt management is focused on scaling its global platform, strengthening distribution through Santander especially to SMEs and maximising the “open market” opportunity through partnerships with ISVs and financial institutions.
Combined scheme payment volume in Europe rose 12% to €1,150bn in Q4 2023 according to latest financial reports from Visa and Mastercard. With nominal GDP growing around 5%, this shows that cards are still taking significant share from cash.
Mastercard and Visa remain neck and neck in Europe. Mastercard’s relative position has been boosted by winning NatWest’s card business, but Visa pulled ahead slightly in Q4. Measured in euros, Mastercard’s volume was up 10% and Visa’s 13%. Combined ATV fell slightly to €33.24.
Mastercard CEO said” Europe has been firing on all cylinders for us,” a sentiment reflected in new client wins, including “flipping” BPER Banca’s debit portfolio in Italy and BNP Paribas Fortis business credit cards in Belgium.
Visa has won Zing, HSBC’s high profile new digital bank. Starting with the UK, Zing will take Visa’s open banking product, Tink, and its cross-border payment service, Currencycloud, as well as issuing Visa cards/credentials to its customers. Visa also renewed issuing agreements with Isbank in Turkey (33m cards), PKO BP in Poland and Piraeus Bank in Greece.
The schemes are taking slightly different approaches to diversifying from their core business of transaction processing, but both strategies seem effective. Mastercard is investing in value added services, mainly for its issuing clients. Global VAS revenues rose 19% driven by cyber and intelligence solutions, fraud tools, security, identity and authentication.
Visa has a stronger capability in services more directly linked to issuing and accepting cards. Its VAS revenues were up 20%. “Cybersource [Visa’s gateway product] continues to have great success around the world, both with their omni-channel services as well as some of the value-added services they have like token management service and the like,” said the CEO. In Q4, Visa acquired Pismo, a next gen banking software / issuing platform based in Mexico but supporting European sales from an office in London.
In product news:
Visa Direct is beginning to create real value. Total transactions were up 20% globally to 2.2bn and there was a remarkable 65% increase in its use for P2P x-border. Meta uses Visa Direct to credit content creators with payments to their debit card. This service is live in the UK, France and Italy.
There was little concrete news on Click to Pay, the schemes’ attempt to create digital wallet to rival PayPal and Apple Pay. Mastercard said that transactions grew 60% in 2023 but did not disclose numbers which is never a good sign. Klarna has agreed to activate Click to Pay this year on its European checkout pages.
Tokens are big business. Globally, Visa manages 8.7bn network tokens, up 55% year on year. Mastercard says tokenisation improves approval rates by 3-6 ppts.
Contactless marches on. Visa says it accounted for 77% of F2F transactions outside the US. America always adopts payment innovation at a slower pace. The equivalent figure for the US is 45%.
GTCR, which has little previous apparent interest in fintech, bought 55% of Worldpay for $13bn in cash and has committed a further $1.3bn for “strategic acquisitions.” These will likely focus on closing Worldpay’s product gap with Adyen and Stripe through extra capability related to servicing platforms/ISVs and on expanding Worldpay’s international POS capability to serve global, omnichannel retailers.
I asked Bing’s image creator to comment on the news. Surprisingly, Worldpay haven’t yet been in touch for the image rights.
Barclays, owner of Barclaycard, the UK’s second largest acquirer, has turned to private equity to rescue its underperforming payment division after having failed to find a trade buyer. Worldline, Nexi or Global Payments aren’t interested but Barclays is reportedly still looking for £2bn at 6.5x EBITDA.
The French do things differently. One week after Worldline appointed bankers to help avoid a possible hostile takeover triggered by its collapsing share price, Credit Agricole appeared as a white knight, taking a 7% stake. Worldline and Credit Agricole recently announced a JV and the French bank has a strong interest in ensuring Worldline goes through with the deal.
In Italy, Nexi is vying with Worldline for the merchant business of Cassa Centrale Banca, a group of 66 regional co-operative banks. CCB processes €2.2bn annual volume from 25,000 POS terminals and is looking for a valuation of €70-€100m. BCCPay, which recently scooped Nexi for a partnership with Banco BPM, and Market Pay, an aggressive new acquirer spun out of Carrefour, are also believed to be in the running.
Turning to Germany, Global Payments is forming a JV with Commerzbank. The new business, snappily called Commerz Globalpay, is 51% owned by Global Payments and will sell products to the bank’s large domestic corporate and SME customer base. While Commerzbank could be a great distribution channel, German banks are notoriously bad at lead generation. Fiserv launched a similar venture last year with Deutsche Bank which is reportedly underperforming.
There seems little prospect of many payment companies floating on public markets this year. According to one VC, many still haven’t adapted to today’s business conditions: “Where you have massive… processing volumes, but you’re still making negative margins, [this] is no longer acceptable.”
Stripe is also an IPO candidate for 2024 and rumoured to be preparing for floatation by raising prices and being much more discriminating about which customers it is prepared to onboard. One industry expert reports Stripe’s “out of the box API pricing” is 2x3x higher than a year ago. Higher prices and more cautious risk policies may trouble some of the fintechs and ISVs which have built their businesses on Stripe.
In case you missed these stories from from the Business of Payments blog:
Allpay, the UK public sector specialist, reported a very positive set of results. Few other payment companies can boast 21% revenue growth and 16% operating margins.
Trustly, one of the European leaders in A2A payments, reported a difficult 2022 as it recovered from a tricky situation with the Swedish regulator.
January trading updates had contrasting impacts on two London-listed payment companies with roots in carrier billing and names like childrens’ TV characters.
Boku, which is shifting its business towards global APMs competing with Thunes and dLocal, reported payment volume up 16% to $5.0bn and sales up 26% to $38m for H1 2023. Less happily, Bango, which has stayed closer to its original telco customer base, downgraded earnings expectations and lost 40% of its market capitalisation. Management says that new, value-added services are proving slow to deliver cash profits.
Checkout.com is the latest vendor to be designated a “significant provider” of card-acquiring services to SMEs in the UK and brought within scope of the Payment Systems Regulator’s directions. Checkout is normally associated with enterprise merchants, but its good performance is thought to be thanks to a growing PF relationship with Mollie, the Dutch PSP which has begun selling to UK small businesses.
Ant Group, the giant Chinese technology group behind Alibaba and Alipay, has made a smart move into European merchant payments with the proposed acquisition of MultiSafepay. This Amsterdam-based acquirer brings a modern omni-channel technology platform (with Sunmi POS terminals) and 18,000 SME customers but the $200m price tag is expensive. MultiSafepay made a net profit of just $1.4m on sales of $50m in 2022.
New shopping
Just walk out is the new self-checkout, concluded Primark’s Chief Architect after a visit to this year’s NRF Retail Show in New York. Although we’ve not seen much activity in the clothing sector, autonomous grocery and convenience openings are coming thick and fast.
Netto has opened what it claims to be Europe’s largest autonomous store in Regensburg, Germany. The technology is from Trigo and, at 800 sq metres with 5,000 SKUs, this is very impressive. Helpfully, fruit and vegetables are automatically weighed and added to the virtual basket when you take them off the shelves.
Trigo is also behind Aldi’s new SHOP&GO check-out free store in Greenwich, south London. There’s no need to download an app, just tap your payment card, or phone, at the entry gates.
You can get an idea of the potential of autonomous technology with this implementation at a UK football club which could eliminate the long queues inevitable when everyone wants to buy a drink at half-time. Sodexho, the catering company, runs the outlet. The technology is from AiFi.
Credit Agricole’s decision to launch a biometric payment card is equally unconvincing. The main advantage is not having to remember your PIN for transactions greater than €50, but this is what Apple Pay is for. Even the French bank’s supplier can see the writing on the wall. Zwipe is shuttering its biometric payment operation to focus resources on access control.
Despite every consumer carrying biometric ID in their personal phone, investors won’t give up on this. Polish fintech, Payvein,just announced fresh funding for its payment service based on Hitachi’s finger vein recognition technology.
What better way to give the thumbs down to biometrics than with AEVI’s suggestion of gesture based payments? The concept seems to involve waving at the payment device with a pre-registered hand signal. Presumably, not a rude one.
Cooking commerce may be a more fruitful concept. Kroger, the US retailer, has partnered with GE so you can buy groceries direct from the LCD screen on your oven. The new service was delivered via a software update to 150,000 domestic appliances.
Product
Apple, under pressure from the EU competition authorities, has finally opened up the iPhone’s NFC chip to 3rd party banking and wallet applications. The move may allow banks to bypass Apple Pay and its c.15bps charges. More excitingly for consumers, this service could facilitate a new market for open banking payments at POS. Mike Kelly explains how this might work. Excitement levels vary across Europe as Apple’s market share ranges from 55% in Denmark to just 10% in Poland. And the ruling excludes the UK. Because Brexit.
For years, PayPal had the best, friction-free online checkout in the business but this advantage has been eroded by Apple Pay, Stripe and others. These new checkouts also move fraud risk to the issuer which makes them more popular with merchants.
PayPal’s set of new product features should help claw back some of the lost ground, especially in Germany where it is still the number one eCommerce payment method. PayPal’s massive global base of 400m customer accounts and 25m merchants means its new one-click checkout recognises 70% of shoppers and is claimed to cut checkout time by more than half.
The product could help merchants benefit from faster checkout where Shopify recognises the customer although the fees will likely be higher than a standard payment gateway. Amazon tried something similar with Amazon Pay although this proposition has struggled and recently announced layoffs. Unlike Shopify, merchants view Amazon as a competitor and avoided offering Amazon Pay if they could.
Shopify is an absolute beast. Its head of engineering says he accepts 23,000 lines of code each weekday and the platform’s app servers handled 60m requests per minute on Black Friday. Blimey.
Irish customers will be delighted they can now use their Revolut card to buy a ticket on the Aer Lingus website. Revolut Pay, a new product, transforms what looks to the cardholder like a debit card transaction into an account transfer. Aer Lingus is reporting impressive performance. Cart abandonment rates are sub 10% and authorisation rates at 98.5% which is pretty good for the airline industry. Published merchant fees for Revolut Pay start at 1% + 20c.
Back in the real world, one obstacle to the growth of the circular economy is how to pay people for products sent for recycling. The Danish city of Aarhus has a solution with this reverse vending machine for disposable coffee cups. People get their deposits back by tapping their payment card. TOMRA provides the machinery and Shift4 the payment processing in this clever use of the Visa Direct and Mastercard Send products.
Computop, the German PSP part owned by Nexi, launched its “Pay to Drive”proposition for EV charging stations using the PAX IM 30 unattended terminals. Computop already has a good customer base in this sector including Compleo and Mercedes Pay for in-car payments.
In scheme news, Carte Bancaire has finally launched an account updater service with the unfortunate Franglais brand of Updat’R. Adyen, MONEXT and Lyra are the first PSP’s to offer the new product.
FX loading can often be a guilty secret in the payment industry. Many vendors depend on marking-up foreign currency transactions for a considerable proportion of their profits and can be vulnerable if their larger customers start to scrutinise their bills too closely. New research from FXC shows how the US providers charge extra fees to their international merchants.
Public policy is turning to how cash can be saved from extinction. The Swedish government has demanded proposals to safeguard access to cash despite the public’s clear preference for electronic money. Only 8% of Swedes used cash for their most recent purchase.
As people need less cash, the fixed costs of running ATM networks are spread over fewer transactions and many locations become uneconomic. In France, three big banks are pooling their ATMs and plan to reduce their number by 30%.
Financial inclusion is normally the reason cited for mandating cash acceptance but this argument ignores the huge benefits of bringing people into digital money. As this new report from the Atlanta Fed explains, people excluded from digital money are also excluded from much of the rest of the economy too. For a plain English description of financial exclusion, read this description of the business of cheque cashing in the US. A cash economy rips off the poor.
It’s still early days in the emerging SoftPOS market but Rubean looks like one of the European winners, having locked down a number of solid distribution partnerships and two enterprise customers in Spain. Read more on the Business of Payments blog.
MagicCube, based in California and one of the first wave of SoftPOS vendors has announced a go-to-market partnership with Shift4. The move comes two years after Shift4 invested in MagicCube and is likely to see the product come to Europe following the American acquirer’s merger with Finaro.
Bain, the consulting company, says that 2029 will be the year card transactions finally stop growing. But Dave Birch thinks we might be even closer to “peak card” than this, especially if large merchants integrate variable recurring payments (VRPs) into their apps. VRPs are the open banking substitute for both direct debits and card on file and promise a better customer experience for consumers at lower cost to merchants.
For the moment, open banking reality is some distance from this promise. A new study shows French banks rejecting 47% of payment transactions using their open banking APIs. “Is this the worst in Europe?” “ask the authors. “Far from it” reply the PSP’s. Portuguese banks are certainly worse. With standard bank API’s so difficult to use in many European markets, it’s no surprise that local schemes linked to SEPA Instant Payments such as iDEAL in Holland or Blik in Poland are prospering.
If the banks are to meet the challenge of producing better quality API’s they clearly need some help. Ozone API in London has raised £8.5m to commercialise its service that enables banks to offer open banking APIs.
The UK was first into open banking but, six years after the adoption of PSD2, the sector is having a long, dark night of the soul. As this good round-up demonstrates, there have been plenty of awards for open banking innovation but nobody is generating many transactions.
Ciaran O’Malley from Trustly posted a killer chart on LinkedIn which shows the extent of the commercial challenge for VRPs. In a two-sided market, there are few win-win scenarios.
This is why the Payment Systems Regulator (PSR) is proposing that the country’s largest banks will be mandated to offer VRPs at zero Interchange for government, utility and regulated financial services.
One of the many reasons Bitcoin has not replaced fiat money is that cryptocurrencies are horribly insecure, often run by crooks and with a terrible customer experience. As Dave Birch put it, “no sane person wants to be their own bank.”
The early hype around crypto set in train projects to launch central bank digital currencies (CBDCs). The Bank of England (BoE) received over 50,000 responses to its public consultation on the digital pound. Many of the concerns expressed were around privacy. The Bank promises that it won’t be able to see your individual transactions, but this won’t placate the zealots.
Any decision to launch Britcoin will be taken “around the middle of the decade” at the earliest but the BoE hasn’t answered the fundamental question of what a Central Bank Digital Currency (CBDC) is for. Neither does this video from the European Central Bank (ECB) shed much light on why anyone would want a digital euro rather than using Apple Pay.
The European Central Bank has begun tendering for some of the components of the digital euro. Worldline, Nexi and the EPI were involved in earlier prototyping exercises and will likely be bidding for the next set of contracts, valued at up to €1.1bn.
Research round-up
Cap Gemini’s payment trends for 2024 places real-time treasury and tokenisation in the top right quadrant. The consultants also see the card market growing in volume but losing share to A2A payments.
A summary up of 2024’s payment topics from the Finanz-Szene blog including wero, real-time bank transfers in Germany (at last) and the implication of TA 7.2 standards for payment terminals. A huge number of devices need replacing in Germany, notably the Verifone H5000s.
An Airwallex survey of SMBs highlights the embedded finance opportunities for payment providers. One interesting finding is that there is very little brand loyalty. 82% of merchants say they would change payment provider if their ISV offered a similar solution.
Chargeback 911’s annual Cardholder Dispute Index is always worth a read, if only to gasp at the average 5.7 disputes raised by each consumer every year in the USA.
35% of global eCommerce sales now go through marketplaces according to an absolute goldmine of omni-channel retail research available free of charge from RetailX. Retail CIOs themselves are planning major system upgrades to meet the needs of channel hopping consumers. This will likely trigger reassessments of their payment suppliers and is yet more bad news for incumbents saddled with legacy platforms.
In other news
UK retailers spent a whopping £1.27bn on card processing fees in 2023 and the British Retail Consortium is particularly annoyed about the 27% rise in scheme fees. The trade body is proposing that larger transactions should be charged as a fixed fee, not ad valorem; an idea likely to meet fierce resistance from the schemes.
One key application of AI is to automate customer service but you need to keep an eye on your robots otherwise they may start thinking for themselves. One AI chatbot working for DPD, a UK parcel delivery company with a mixed reputation, wrote a poem about how bad its employer was.
Where to find me
I’ll be moderating panel discussions at MPE in Berlin on 12-14 March and ePay Europe in London on 21 May. In between, you can catch me at Retail Expo in London on 24/25 April.
