Primer API, a well-funded start-up that provides software allowing merchants to manage their own payment stack grew revenue to £2.9m in 2023 according to its latest financial accounts. 40% of turnover comes from the UK but Primer recorded sales growth in Europe, USA and around the world. Although management has trimmed costs, the UK-based business made an operating loss of £15.6m.
Founded by Gabriel Le Roux, a former Braintree executive, Primer believes it has spotted a gap in the market with large merchants with complex payment needs that have outgrown sole supplier offers from PSPs but are not willing or able to build their own payment infrastructure.
Primer claims to be the world’s first open automation platform with a drag and drop framework that merchants can use to easily build a payment stack to sell online. This offer includes Primer’s own headless checkout which merchants can configure to set up their preferred payment flow.
Management is at pains to differentiate Primer from the small army of lookalike payment orchestrators competing for business today. Primer does offer routing to multiple acquirers including Worldpay, Stripe and Global Payments, but the software also manages 3DS, fraud, sales tax and reporting,
Primer’s target market is enterprise customers that have identified payments as a significant strategic challenge and likely have already hired an experienced in-house payment product team. A great example is Conforama, the French furnishing retailer which selected Primer and has been impressed with both its products and customer support.
The company has cut back on its heavy platform development spending although investment remains considerable. Administrative expenses fell from £24.5m to £18.4m in 2023 as employee numbers were reduced from 136 to 101. Staff are spread over 26 countries. The business is fully virtual, and everyone works remotely. Management believes this enables it to hire product and client management teams located close to its customers.
The operating loss narrowed to £15.6m from £24m in 2022 although the deficit improves to £12m after banking a £3.4m tax credit. Accumulated losses stand at £43m.
Primer is well funded. It raised $50m at a $425m valuation in 2021, supplemented in 2023 with a further £16.6m convertible loan and finished the year with £28m cash in the bank.
Although expecting “significant growth” in 2024, management says it is “mindful of market conditions” and is monitoring its cost base accordingly. Nevertheless, Primer has publicised expectations of increasing revenue 200% in 2024 which would take sales to almost £6m. This would be an impressive performance but remains a long way from profitability.
FSI, a Milan-based private equity fund, has completed its c.€100m investment into Bancomat, Italy’s domestic card payment scheme. With the new capital, Bancomat will engage Nexi to refresh its core technology infrastructure and accelerate plans to expand operations outside its home market.
Bancomat is currently owned by an unwieldy consortium of 105 Italian banks led by Intesa San Paolo and Unicredit. After its investment, FSI will hold 44% of the shares and has installed a new, streamlined board of directors which, it is hoped, can take decisions more quickly and be better placed to compete with Visa and Mastercard.
Fabrizio Burlando, a former BCG consultant and long-time Mastercard executive has been appointed as Bancomat CEO. He will need to oversee a sharp change in its business model. The scheme has operated for years as a co-operative organisation working largely to recover its costs. Now having accepted private equity backing, Bancomat will need to focus on growing its top line.
Bancomat’s 2023 results demonstrate that, despite its scale, the scheme generates relatively little revenue. Total sales were up 8% to €52.5m with the bulk of this turnover coming from the operation of Pago Bancomat, its core debit card issuer and acceptance business.
30m Pago Bancomat cards in circulation today, issued by 190 member banks, and can be used at 2.5m points of sale. Total payment volume processed was €119bn in 2023, up 4%. In common with the rest of Europe, Italy has seen a marked shift to contactless transactions, stimulating card use for lower value purchases. Bancomat’s ATV was down 4% to €47.20.
Pago Bancomat revenue was up 11% to €35.8m amounting to just 1.4 cents for each of its 1.85bn transactions. This equates to 3bps of turnover compared to the c.20bps or c.$0.12 made by Visa on its worldwide card business. .
Bancomat works on a conventional four party model with Interchange set at 0.2% although there is a discount to 0.1% for transactions under €5. Merchants typically pay c.1% per transaction, leaving the balance for the costs and margins of the acquirers such as Nexi, Worldline and many small banks.
Bancomat’s recent innovations include adding acceptance to Nexi’s SoftPOS application with 22.000 devices activated in 2023 and its inclusion in the Google Pay wallet. Apple Pay is reportedly coming shortly. Bancomat has also started issuing commercial cards.
Bancomat Pay, a new mobile-app based payment product offered through member banks allows both P2P and P2B transfers. Bancomat Pay is growing swiftly from a low base. Volume was up 83% to €0.44m although revenue rose just 19% to €0.5m, equivalent to 5 cents per transaction.
FSI will likely be looking to grow Bancomat Pay internationally. Bancomat has already signed an agreement with Bizum (Spain) and SIBS (Portugal) for interoperability of their products. It is taking a similar approach to working with Bluecode (Austria) and Twint (Switzerland) and has a pilot working for the European football championship in Germany.
Reflecting the long-term decline in cash transactions, ATM volume was down 4% to €106bn and ATM revenue fell 5% to €4.4m.
Bancomat has an existing partnership with Discover, has added Discover to its ATM service and is working with Italian acquirers to put Discover live at POS. In 2023, Discover paid Bancomat €2.2m incentive fees.
Despite the higher revenues, Bancomat’s EBITDA fell from €16.6m to €5.9m due to higher operating costs.
Staff numbers rose slightly to 81 at an average cost of €104K, up 12% on 2022.
EBIT swung from a profit of €12m in 2022 to a loss of €4m in 2023 due to €16.6m write-downs and break-fees associated with the termination of its plans to create a new business unit, a “payments hub” joint venture with SIA, a technology supplier subsequently merged into Nexi.
Bancomat’s new strategy is to commission Nexi to build a new payments infrastructure but as a vendor rather than business partner.
Vectron offers Shift4 the opportunity to cross-sell payments to its 65,000 merchant locations and through a network of 300 dealers, mainly in DACH and Benelux. Vectron, quoted on the Frankfurt stock exchange, reported €3m EBITDA on sales of €37m in 2023. The move is bad news for Euronet, Vectron’s current payments partner.
Although the EBITDA multiple is high, cost per merchant location is the metric most commonly used by American payment folk when valuing ISVs. By this measure, Vectron is a bargain at just €1,300 per merchant location. In contrast, Shift4 paid $250m for Revel, a US restaurant ePOS vendor with only 18,000 locations last month.
I met with Shift4’s team at Money 20/20. They explained the company’s model is to buy old-school ISV’s that have not yet monetised payments and to aggressively cross-sell into the installed base. Merchants are then offered an upgrade path to Skytab, Shift4’s in-house ePOS product.
While many believe ISV’s will take a major share of payments distribution in Europe, there is plenty of life in the bank partnership market. Worldline is paying €120m for the merchant services business of Credem Banca at “a double digit multiple.” This would be Worldine’s fifth portfolio acquisition in Italy and builds on its current run rate of €35bn processed annually from 320,000 merchants. Nexi is Credem’s current partner and reportedly would expect to be able to retain just 25% of the merchants.
Figure 1 Wordline Italy – source Q1 results deck
The market reacted positively to Wordline’s Q1 results. Although revenue grew just 2.5%, management confirmed it was on track to deliver €200m annual costs savings including cutting 330 posts in France. Worldine’s retrenchment is already having an impact on its supply chain. Ingenico, the French terminal vendor spun out of Worldine is threatening to layoff most of its 100 staff in Belgium blaming weak demand from its largest customer.
Meanwhile, BBVA’s proposed €12bn hostile takeover of Banco Sabadell threatens to torpedo Nexi’s expansion into Spain. The Italian processor had agreed to buy Sabadell’s merchant services business for €350m. The deal includes a 10-year exclusive lead referral deal which might now be worthless. BBVA has a strong in-house merchant services proposition which it will probably prefer to sell through Sabadell’s branches instead of Nexi’s products.
In other bank partnership news, Global Payment’s JV with Commerzbank has gone live just six months after announcing the deal. The offer is very basic but to get anything to market in that time is impressive. Elsewhere, Global Payments has cemented its position in Greece by acquiring EDPS, one of the largest multi-acquirer POS terminal providers. Global inherited a joint venture with National Bank of Greece from its acquisition of EVO Payments last year.
Neo banks are also looking to add merchant acquiring to their business product portfolios. Revolut claims 15,000 merchants accept in-person payments using its simple in-house proposition of free micro card-reader, gateway and payment links. Pricing starts at 1% + 20c. Tide, the UK SME bank, offers a card reader for £89 with all transactions at 1.5%. Tide is as a payment facilitator using Adyen products and will extend to Germany shortly.
Santander beefed up PagoNxt, its payment division, with the purchase of Wirecard’s Munich operations in 2021 for a reported €100m. This was the part of Wirecard that did exist and had real customers but PagoNxt was unable to compete with Adyen, Stripe and others for new business in Germany. PagoNxt is now exiting Germany with the loss of 350 jobs in Munich and will now concentrate on Iberia and Latin America.
Nayax, an Israeli unattended payment specialist quoted on NASDAQ, has raised $63m additional capital after reporting a storming Q1 which saw a 44% increase in connected devices to reach 1.1m. Nayax specialises in unattended payments in vending, kiosks and EV charging. Its latest European win is ASO Vending which will use Nayax terminals in its 8,000 machines in Slovakia.
In other funding news, Ekko, a green payments venture based in the UK, has raised $2.5m to support its efforts to educate consumers by showing the Co2 generated by their online shopping baskets. This is an increasingly crowded market. Connect Earthdo something similar and already have partnerships with KBC in Belgium and Tide in the UK which will see Co2 figures added to bank statements. Competition is fierce. Mastercard is offering an identical service to its European issuing clients powered by Docomony, a Swedish start-up.
SumUp, the mPOS provider which claims 4m merchants in 36 countries, has raised a giant €1.5bn loan. The CFO said the cash would allow SumUp “to refinance existing debt as well as have firepower to take advantage of any opportunities that arise over the next six months.”
In a landmark report, the UK’s Payment Systems Regulator has found that scheme fees charged by Visa and Mastercard have risen 30% in real terms since 2019 with “little or no link to changes in service quality.” These largely unjustified charges are costing acquirers (and their customers) an extra £250m annually in the UK alone.
Scheme fees contain a mix of per transaction and ad valorem elements charged over different time periods and are near impossible to reconcile. The PSR reports “some of the largest acquirers in the UK told us that they need to purchase additional services or consultancy services from the schemes in order to properly understand their fees and services, and several acquirers reported their ‘accidental’ purchase of some services.”
Disappointingly, the regulator has backed away from capping scheme fees. Instead, it is proposing to oblige Visa and Mastercard to publish more detailed financial information including justification for any increases.
Vendors see a clear problem to solve and we’ve seen a growing number of start-ups offering acquirers tools to manage scheme fees and portfolio pricing. Torus from Estonia won the innovation competition at this year’s MPE conference in Berlin but you could also take a look at Finflag, based in Brussels and founded by two former PwC consultants.
The position may be even worse in France where, according to the national competition authority, average card transaction charges have risen from 0.27% to 0.44% since 2018. The French economy minister has called on the EU to act against Visa and Mastercard as soon as the new Commission is installed later this year. Switzerland is not waiting that long. Its competition watchdog has capped Mastercard debit interchange at 0.12%, well below the EU’s level of 0.2%. A decision about Visa debit is expected shortly.
French press reports that the European Payment Initiative (EPI), a consortium of French, Benelux and German banks, will launch first in Germany and Belgium (July) followed by France (September) with the Netherlands following rather later. The service, called wero, is a mobile payment wallet running on SEPA Instant Payments and positioned as a European competitor to Visa and Mastercard.
Blik, the Polish mobile payment standard backed by local banks and Mastercard, goes from strength to strength. Transactions were up 40% in Q1 with payment volume totalling €17bn. Blik now works P2P, at POS and online including a much upgraded service to support subscriptions payments.
With the pandemic’s travel bans a distant memory, payment service providers have restarted projects to include Chinese schemes in their acceptance proposition. In Germany, the Sparkasse have added Alipay+ to the S-POS app as part of the Chinese payment brand’s effort to widen acceptance on the back of its €200m sponsorship of the European football championships. Alipay+ will also be available on 50,000 terminals managed by DNA Payments, a UK acquirer.
We’re seeing a steady launch of new autonomous stores in Europe, each of them contributing to the long-term shift of transactions from POS to consumer app.
Rewe has opened its third site in Germany using technology from Trigo. Shoppers decide at the exit whether they want to “just walk out” or follow a more traditional checkout route. Rewe has also worked with Pixevia, a Lithuanian AI platform for autonomous retail that just raised an additional €1.5m to fund international expansion.
Also in Germany, toy retailer Vedes, has opened an autonomous shop at Munich Airport. This isn’t the only new technology at the airport. There’s also an annoying robot vending machine called Jeeves which takes payments via QR code.
A cheaper alternative to decorating the shelves and ceilings of stores with AI powered scanners is to put the technology in the shopping cart instead. Instacart, a US online supermarket turned technology vendor, expects to have thousands of its “caper carts” deployed in grocery stores by the end of this year. One retail blogger is not impressed.There is still too much manual keying, the carts are not big enough and you still have to pay at a standard checkout machine. Decide for yourself.
Product
Visa provided this month’s big news with a set of announcements that reposition the analogue credit card further into the digital world. This includes a new flexible credential that will allow shoppers to toggle between different card products issued by the same bank. Think Curve but restricted to a single bank’s products. Commentators have been very positive and there’s good analysis in Simon Taylor’s newsletteralthough others suggest the flexible credentials won’t be simple for merchants to manage.
Checkout.com has launched a new AI powered product called Flow which helps merchants choose the right payment methods to present to each customer. Flow then customises the checkout so that shoppers are asked for the appropriate information in the right order using the merchant’s colour palette. Retailers love being able to customise third party services with their branding.
Stripe announced last month that it was unbundling its product to allow merchants the option of using alternative processors including Adyen, Braintree (PayPal), Checkout and Worldpay. The Batch Processing newsletter gives the technical detailsbut concludes this new “orchestration” capability isn’t up to Stripe’s usual high engineering standards.
In mass transit, passengers on the Paris Metro can now use Apple Pay to travel on the network by adding the Navigo pass to their Apple wallet. Flowbird, (ticketing system), Conduent (integrator) and Worldline (processor) delivered the solution.
Electric vehicle charging is a fast-growing and highly complex niche segment of the payments industry. This case study from Computop, the German PSP part owned by Nexi, highlights the challenges. One of the toughest is to allow drivers to pay for their electricity using their preferred app rather than having to download a different one for each provider.
Open banking
Matt Jones wrote a good piece on why open banking is not happening. In short, the touted benefits – faster settlement, lower fees and no chargebacks – carry no weight with consumers. This was echoed in a panel discussion I chaired at the ePay Summit featuring two leading merchants – one from the travel sector and one from fashion – neither of had immediate plans to offer bank transfers as a payment option.
Figure 2 Panel discussion on open banking payments featuring execs from SuperDry, National Expresss, Truelayer and Ivy
For open banking payments to grow, we need an acceptance mark, scheme rules, an agreed pricing strategy, single-minded focus on customer experience and, most importantly, effective leadership from the banks. Without their active support, neither the regulator nor the payments industry can make the market happen.
There’s no lack of committees making recommendations, but the UK’s alphabet soup of open banking working groups, regulators and industry lobby organisations is hard to navigate. This month, JROC (a committee grouping the various regulatory bodies overseeing the financial system) published proposals for a “future entity” to be tasked with setting the standards needed to bring open banking into the mainstream.
The new body will have a mandate to promote open banking although it’s still not clear how it will be funded. The payments industry thinks the banks should pay. The banks are not so keen.
There are good use cases for open banking payments today such as paying of credit card bills or buying cars but none offer significant transaction volumes. Investors are getting worried and we’re beginning to see consolidation of the unnecessarily large number of open banking vendors.
Fabrick, the aggressive Italian open banking specialist backed by Banco Sella, has bought Germany’s FinAPI. The purchase price is reportedly rather lower than the “high double-digit millions” reportedly offered by Yapily in 2022. The combined Fabrick/ FinaAPI business processed more than €65bn from 800 customers in 2023.
I had a good discussion with Todd Clyde, CEO of Token, at Money 20/20. He told me that Token is taking an indirect route to market via banks and PSPs rather than direct to merchant. Token has a blue chip customer list including Mastercard, Computop and Nuvei which together process 41% of all card payments in Europe. Nobody knows when the market will move from card debit to open banking but Token believes it should be well positioned if/when it does.
GoCardless, the London based A2A vendor which has been reporting significant losses says it is now pushing for profitability. The CEO told journalists “We’re pretty close to profitability now, and we’re in a position where we’re very well capitalised – we have a lot of cash on the balance sheet.”
Trustly is one vendor making money from A2A, publicising 2023 revenues of $265m via an exclusive with CNBC. “Adjusted” EBITDA rose to $51m from $33m in 2022. Growth has been very strong in the US but an IPO is still more than a year away.
One market where open banking should take hold quickly is Poland because bank transfers (known in English as “pay by links”) were commonly used for online payments before Blik came along and swept the market. You’d expect PBLs to be replaced by open banking but PBL volume is still growing. I’m told that the open banking APIs are generally not yet at the quality of the older, direct integrations supporting PBLs.
Crypto Corner
While the introduction of ETFs has reinforced crypto’s role as a speculative asset class, these synthetic currencies could have a role in countries whose central bank money is compromised by inflation or political isolation.
But stablecoins are also not what they seem. Visa reports that 90% of stablecoin transactions come from bots rather than real people. While there’s nothing wrong with robots trading with other robots, these figures suggest that stablecoins, like other crypto instruments, cannot be considered a generally accepted means of payment.
Central banks are continuing to develop their own digital currencies (CBDCs) in response to the perceived threat from private initiatives such as Tether. The Bank of England has completed a proof of concept which demonstrates digital pounds (Britcoins) could be accepted on today’s standard POS terminals. There’s plenty of technical detail here for those interested.
Meanwhile, the Merchant Payment Coalition which groups Ikea, Auchan and other large retailers, has issued its response to proposals for a digital euro. The merchants primarily see the digital euro as a way of making B2C payments cheaper. They ask for a fixed fee per transaction “as close to zero as possible” and free of charge for low value payments. The retailers call for all other fees to be paid by consumers not merchants.
We’ve not heard much from the metaverse recently but Walmart have opened a store on Roblox and, for the first time, are selling real-world items. The user experience needs work. After trying out products on their avatars, users can load a browser window on a virtual laptop within Roblox to access Walmart.com and pay by typing in their credit card details. If this the future of retail, retail has no future.
In other news
Banking as a service (BaaS) allows Fintechs to expand quickly but comes with a regular reminder to check your BaaS providers financials. The collapse of Synapse in the US has hit over one hundred fintechs, some of whom will never recover.
In a move described by one newspaper as “Curve pivots to porn and gambling” the card-based digital wallet announced customers could now use their Curve card to pay high risk merchants, even ones blocked by their own card issuer. Eight days later, Curve announced a U-turn saying “We wish to clarify that if your underlying payment source provider does not permit certain transactions, Curve can’t allow them either!”
Klarna reports using GenAI has cut marketing costs by $10m annually, notably a $6m saving from replacing stock photographs with images generated by Dall-E. This is how Bing Image Creator imagines Klarna’s marketing department.
Here are two useful research reports to download and keep for the next time your boss asks for a strategy deck. Worldpay’s Global Payments Report is a helpful reference for statistics on the state of play in payment acceptance while Cap Gemini’s Payment Trends 2024 focuses on back office transformations needed to support decentralised finance, ISO 20022, PSD3 and other buzzwords.
Blusesnap, a US based PSP, has paid $10m to the US Federal Trade Commission in settlement for knowingly processing payments for “deceptive and fraudulent” companies. The FTC was particularly annoyed that management ignored warnings from Visa, American Express and Bluesnap’s own internal fraud monitoring team.
In other legal news, Rapyd, the London HQ’d acquirer/processor is being sued for $1.1m unpaid sales commissions by a former employee in Singapore. Rapyd’s CEO says the transactions in question were “round-tripping” and only done to boost volume on the platform. The salesperson says the client was moving their own funds through Rapyd’s multi-currency treasury products and so was eligible for commission payments.
The new year has started brightly. High margin eCommerce and cross-border transactions are growing, there are encouraging signs that merchants are willing to pay for value added services and last year’s cost-cutting is boosting profitability across the industry.
Adyen is taking full advantage and is reaping the rewards from its single-minded focus on platform investment. Net revenue was up 21% in Q1 with most volume growth coming from enterprise customers, especially in the US. Adyen has been winning share because of its ability to provide omni-channel solutions. Adyen says 515 of its “Unified Commerce” customers process in multiple regions and it now supports a total of 279K POS terminals. One happy client is Bayern Munich which uses Adyen for F2F and online payments.
While Adyen’s policy is to offer a complete payment solution to as many customers as possible, Stripe announced a major change in product strategy as it decouples payments from rest of its embedded finance products. The new, modular approach will please many merchants not wanting to be tied into Stripe’s processing but risks opening the Stripe customer base to more competition from niche specialists.
The unstoppable rise of Stripe and Adyen and their successful move into face-to-face payments is putting pressure on the incumbents, many of whom will be forced to consolidate to survive. Reviewing the outlook for payments M&A, TSG suggests large acquirers and private equity groups are willing buyers of profitable businesses provided that sellers recognise valuations are well down on 2021.
Insiders have told me that Global Payments has bought takepayments, a leading UK ISO with 75,000 merchants, for a reported $250m. The deal is looking like a reverse takeover because Clive Kahn, the entrepreneurial founder of takepayments will now lead Global’s sales/marketing for UK & Ireland. The deal comes as a blow to Barclaycard Payments for whom takepayments had been an important channel partner.
Token services and payment orchestration are both markets with too many vendors with sketchy business models chasing a limited pool of merchants. It’s no surprise to see consolidation.
TokenEx of the US has bought Ixopay, a Vienna-based orchestrator which works for DHL, Siemens and eToro among others. This LinkedIn discussion gives a sense of the debate within the payment industry about the value of orchestration. While merchants gain more control, orchestration risks introducing another single point of failure.
On the Continent, the Italian press reports that investors have poured cold water on the idea of merging Nexi and Worldline, citing the cultural challenges of putting together French and Italian companies with difficult records on labour relations.
Turning to business results, Mollie, the Dutch PSP which raised an astonishing $800m in 2021, revealed operating losses narrowing to €28m in 2023 from €107m the previous year. Revenue reached €99m boosted by expansion to the UK, Germany and France while the bottom line benefited from making 10% of the workforce redundant. Adrian Mol, the founder, admitted “we hired too many people in a short time and went too far. The company is no longer efficient.”
HiPay, a Paris based PSP specialising in retail, iGaming and marketplaces reported a strong improvement in profitability in 2023 following a year of cost-cutting. An 11% increase in revenue to €65m helped turn a loss of €8m into a profit of €2m.
Turning to investment, Flatpay, a Danish SME-focused payment facilitator, raised €45m to expand out of Denmark into new markets including Germany and Finland. Working with acquirers Shift4 and Rapyd, Flat Pay has won 6,000 merchants in its home market and forecasts €3bn volume this year. Recognising the value of a software/payments bundle, management says that 25% of customers also take Flatpay’s ePOS system.
Flagship Consulting says PSPs should be making at least 20% of revenue from VAS, notably vertical software for small businesses and foreign exchange, payouts and virtual bank accounts for enterprise clients. The potential gains are significant such asEuronet’s new partnership with SOFTONE (a Greek ISV) shows. The deal gives the acquirer access to 75,000 retail and restaurant customers.
How do you get ISVs to partner with your payment business? Good commercial terms are important but US research from TSG shows ISVs also need easy merchant onboarding, high quality customer support and developer-friendly APIs.
These can all be delivered with a dedicated ISV platform such as Payrix, now owned by Worldpay, or Cardstream which is set for the big time having recently joined Mastercard StartPath. Nexi looks to be creating an in-house ISV platform from Orderbird, a German restaurant software vendor it inherited from the acquisition of Concardis.
The shift to ISV distribution impacts acquirers risk models too as PSE Consulting explains. The good news is that ISVs are well placed to monitor ongoing merchant behaviour and flag potential problems. The bad news is selling software is normally unregulated and ISVs have little understanding of compliance.
Scheming
Q1 started brightly for the payment schemes. European volume was up 12% with Mastercard again growing a little faster than Visa.
Both brands say they are increasing debit volume at the expense of domestic schemes such as Carte Bancaire. Visa says it has converted 20m domestic cards to Visa debit over the past five years. Mastercard migrated 7m Maestro to debit Mastercard in the last quarter alone. Overall, international debit cards doubled their share in Germany to 4.1% in 2023 according to EHI. These cards are more expensive than Giro and retailers are not happy about paying the higher fees.
In the US, retailers have protested against last month’s legal settlement in which Visa and Mastercard agreed to reduce interchange fees. The National Retail Federation (NRF) says its members would save just $6bn of their $100bn annual payments to the schemes. Another concern is that allowing differential surcharging by card type leads to a confusing customer experience like we see in Australia today.
Figure 1 Photo form @mjenkins88
Sadly, the NRF has lost the plot in also supporting an unhinged campaign accusing Visa and Mastercard of collaborating with China Union Pay to steal American data. This sort of paranoia undermines the federation’s credibility.
Europeans are sensibly taking a less combative approach to China. I do like this promotion for Alipay on the Dutch/German border showcasing terminals from Adyen Worldline and Nexi all featuring the Chinese QR based wallet.
Domestic QR schemes are expected to provide stiff competition for cards. Arkwright Consulting have summarised the details in an excellent report but much will depend on whether the current fragmented landscape can consolidate into a small number of regional schemes or, even better, a single solution based on the European Payment Initiative (EPI).
The EPI, owned by a consortium of banks, has a technical solution based on iDEAL, the Dutch online A2A standard. Adrian Mol isn’t happy. He accuses iDEAL’s new foreign owners of mainly looking for an excuse to charge higher merchant fees.
For large format stores, Amazon believes its Dash Carts are the ideal automation solution and claims shoppers spend 10% more when they use one of these smart shopping trolleys. Richard Crone, a retail consultant, has made a helpful videoshowing how the Dash Carts work. A key insight for the payments industry is that they shift yet more transactions from POS to mobile.
Germany, with its rich history in vending machines, has been quick to adopt autonomous stores but the robots have a legal right to a day of rest. In many states, autonomous stores are banned from opening on Sundays.
Here’s two more AI powered shopping innovations from Germany.
Backwerk, the German bakery chain, has implemented image recognition to speed up self-checkout. This video shows how easy it is to buy a croissant. The self-checkout is from Pan Osten and the software from Smoothr.
EDEKA, a German supermarket, is using Diebold Nixdorf’s age verification solution to decide whether a self-checkout can sell you alcohol. If the robots think you look more than five years over the legal age, the self-checkout will let you buy a drink. If not, an assistant is summoned to check your ID. The retailer says 80% of transaction are automatically approved, greatly speeding up the checkout.
In biometric payment news, PopID, an early leader in facial recognition, has installed its technology at 300 branches of Steak ‘n’ Shake in the US and claims transactions (check-in + payment) take just 2-3 seconds, slightly quicker than Apple Pay. User adoption is going to be a challenge because consumers need to register their face. This offer of a $10 discount if you sign to “pay with a smile” makes sense.
Figure 2 Photo from Lois Beckett, the Guardian
Voice recognition is next. Elavon Europe has announced a deal to provide payment processing for audico, a voice-activated ordering system. Audico straddles the apparently unrelated use cases of ordering food in corporate hospitality boxes and helping the elderly live more independent lives.
Meanwhile, scientists in Poland have created an algorithm to encode a bank account number in your speech pattern. They believe this will be useful when the country introduces a deposit scheme for plastic bottles. People can throw a bottle into a recycling bin, say their name and be reimbursed.
Stripe has given a fascinating insight into the scale of its development operationswhich include a remarkable 6bn test runs daily. Stripe’s test card number alone has been used 12bn times. Rollouts are progressive and inspected against 55,000 different metrics. You can find out more by watching the Stripe Sessions.
Stripe’s checkout page now offers over 100 local payment methods. Management believes a wide choice is needed to secure a greater share of transactions from enterprise merchants. “What we’ve heard historically is, hey, we need more payment method coverage if you want us to go all in on Stripe,” said its CFO. Like Adyen, Stripe is also making good progress with omni-channel retail and has won URBN brands for 700 stores worldwide.
DCC is another opportunity to rip off customers. The ex-CEO of Wise (who knows something about cross-border fees) took to Twitter to complain about a Banco Santander POS terminal lying about commission fees. He says the (already excessive) 5.5% mark-up was 7% in reality.
With marketplaces taking an increasing share of eCommerce transactions, more vendors are providing specialist payment processing. The latest is 1Point6, backed by BNP Paribas, which has signed its first customer, a pizza franchise in South West France.
Market Pay, a Paris based acquirer spun out of Carrefour, will be providing acceptance and processing for REMA 1000, the Norwegian grocery chain. The deal sees PAX A35 terminals deployed across over 1000 stores and brings €200m processing volume. The technical solution was built by Novelpay, the Franco-Polish developer acquired by Market Pay last year.
Delupay is a new French QR payment wallet which takes a direct debit at the end of the month for your purchases. What could go wrong with this open invitation to friendly fraud?
SoftPOS
One of the big selling points of SoftPOS is that merchants no longer need payment terminals because any Android device can be payment enabled. Tabesto, a French smart kiosk vendor has an early lead. Already working with MarketPay, it has announced a partnership with Worldline.
We’re keeping a close eye on Rubean, a German SoftPOS vendor listed on the Munich Stock Exchange. It reports €500K sales in Q1 and announced a new contract win with SEUR, Geopost’s Spainish subsidiary which will equip “thousands of devices” with Rubean’s software. Couriers taking payments on the doorstep is a good early use case for SoftPOS.
Congratulations to Nearpay, the Saudi SoftPOS vendor, which has joined Mastercard’s StartPath.
Elsewhere, Visa announced a pilot in Brazil in which shoppers can pay for eCommerce purchases by tapping a payment card on their own phone. From a card scheme perspective, this is treated as a POS transaction which means it is cheaper for merchants and more likely to be authorised by the card issuer. Symbiotic, a Brazilian startt-up, is providing the SoftPOS application.
The idea is not unique. Maxa, a London-based start-up, has been proposing something similar for some years without yet gaining much traction. There are some interesting use cases but the need for consumers to download an app or for merchants to include Maxa’s technology within their own app could be a barrier to adoption.
Open banking
The UK Government seems determined to promote open banking payments as part of its efforts to modernise the nation’s payment infrastructure. Mike North has a good summary of the latest proposals in his newsletter. Hannah Regan from the British Retail Consortium argues that before open banking payments becomes mainstream it needs to be cheaper than cards for all transaction values (not just high ones), become quicker (30 secs average is too slow) and needs an acceptance mark.
To make this a reality across Europe, we need to see active co-operation from the banks. Klarna has helpfully ranked the quality of APIs from 6,000 banks in 16 European countries. Netherlands came out top and Portugal last.
UK open banking payments grew sharply in March 16% month on month although total volume remains modest compared with cards and direct debits.
The unexpectedly slow growth of open banking is causing some investors to run out of patience. This was illustrated by Konsentus, a high-profile London-based provider which has been sold to its founders in a pre-pack administration for just £350K. More on the Business of Payments blog.
If merchants genuinely want to persuade consumers to break the card habit, they need to offer incentives. Truelayer has a good testimonial from JamDoughnut which reports 90% of sales are with open banking payments after the site started offering double cashback for bank transfers. Uber, which uses Stripe’s Link product to offer bank payments is now offering customers discounts when they don’t use cards.
Figure 4 Credit: Jeff Weinstein
Brite, the Stockholm HQ’d open banking vendor which raised $60m last year, has expanded into Germany with distribution through a partnership with Shopware, a popular small business eCommerce platform. In an interview with Sifted, Brite’s founder says her idea for a pan-European A2A solution was sparked by Klarna’s unwillingness to invest in developing Sofort.
Finally, Trustly, the Stockholm based A2A provider, reported strong transaction growth in 2023 with payment volume from its 9,000 merchants up 79% to $58bn. Management said it had “solidified its market-leading position in the US” but gave little other information. Trustly is sponsoring West Ham Football Club and produced a nice commercial to persuade fans to use open banking when buying tickets.
Cash
Public policy statements are backing continued access to cash even though shoppers seem less and less inclined to use it. 15% of people say they never carry cash at all. However, the Bank of England says cash is still “hugely relevant” but forecasts its usage will halve by 2032.
The press likes to cover stories of renegade small businesses refusing to accept electronic money like this baker in Belgium, or this café owner in Essex who offers a 10% discount for cash payments. However, the future is more likely represented by an Australian community which has gone wholly cash free.
Crypto corner
With the founders of the two largest exchanges now in gaol, the chances of crypto currencies finding any meaningful role in merchant payments is as far away as ever. The user experience is still terrible although for crypto bros this remains a feature not a bug as you can tell from this utterly baffling Solana commercial.
My guess is that we’ll carry on buying things on credit cards with analogue dollars for a while yet.
It’s very easy for criminals to put fake QR codes where customers are expecting legitimate ones. Car parks are a prime target.
Getting consumers to change the way they pay is tough. Habits are difficult to break. But London’s transit authority reduced the sale of paper tickets by one third overnightwith a simple prompt that using contactless cards was cheaper.
Lloyds Bank announced it was axing compliance staff so the bank can move at greater pace. Executives had complained that compliance functions were blocking strategic transformation. Many readers of this newsletter will sympathise.
Rapyd, an Israeli company, remains under pressure in Iceland following its founder’s strong support for the war in Gaza. Local press reports the processor has removed its logo from packaging to keep a low profile.
Nuvei may be going private but Ryan Reynolds (who has a stake in the business) still makes the best commercials in the payment business. It’s a low bar but he consistently jumps over it.
Where to find me
I’ll be moderating the open banking panel discussions at ePay Europe in London on 21 May. And I’ll be at Money 20/20 in Amsterdam on 4/5 June.
Konsentus, a leading open banking technology provider, has been sold to its management in a pre-pack administration for just £350K according to documents deposited at UK Companies House. Konsentus continues to trade and the 19 staff on London have been transferred to a new company.
The sale shines a light on the difficulties common to many vendors as the market for open banking grows much more slowly than expected
Konsentus was founded in 2018 by Mike Woods and Brendan Jones to provide open banking directory services to central banks, financial services regulators, and financial institutions. It claims to consolidate data from more than 115 registries or databases in Europe.
High profile advisor, David Parker, also invested and joined the board. Mastercard invested in 2019 followed by a VC, Middle Game Ventures in 2020. The business raised £7m of capital in total, supplemented by £2m loans from Israeli bank, Mizrahi Tefahot.
The administrators say that the company had “anticipated that open banking would be adopted at a much faster pace than was the case.” It blames both the war in Ukraine and the uptick in global price inflation.
As a result of the slow pace of market development, Konsentus “experienced cash flow difficulties and attracting new customers became challenging.” Despite taking actions to reduce operating costs, the company “was still under pressure from its creditors and was unable to pay its liabilities as they fell due.” HMRC was threatening winding up for non-payment of taxes which presented an imminent risk of insolvency leading to the appointment of administrators in February 2024.
The administrator’s report shows that despite claiming to be active in 37 markets around the world, Konsentus made sales of just £1.7m in 2022/23. The operating loss was £1.9m, taking accumulated losses to £9m.
Management has spent £7m developing the company’s products and also acquired a French business, Open Banking Europe (OBE) for £1.46m which is now being wound down.
Konsentus has been offered for sale as a going concern since early February. The administrators say that it attracted plenty of interest with 16 parties signing the NDA to receive full particulars. However, all 16 declined to bid for the company, citing “high customer churn, low recurring revenues and customer renewal risk.”
The only offer received was from the founders themselves at a knock-down price of just £350K. The money is payable in stages over the next 12 months plus 5% of any turnover between £2 -£3m and 7.5% above £3m.
There is general consensus that open banking offers the chance to reengineer the relationship between banks and their customers in new and exciting ways. In taking control of a leading technology provider for just £350K, the new owners of Konsentus may have got themselves a bargain if they can finance trading until reaching breakeven.
GoCardless, the London HQ’d account to account (A2A) specialist, reported losses widening to £77m in the year to June 2023 despite higher revenues and good progress on upselling value added services. The business wants to be the “world’s bank payment network” and provides recurring and one-off payments using direct debits and open banking through offices in London, Paris and Melbourne with a growing support centre in Riga.
GoCardless, has raised an astonishing total of $529m from investors but says it is now conscious of the market’s “reduced appetite to invest in later stage growth companies.” Management says it will now drive “the business to profitability as quickly as possible and achieve EBITDA break even within 12-18 months. No additional financing will be necessary.
The new strategy was backed in March 2024 by the €34m acquisition of Nuapay. Based in Ireland, Nuapay is a mature business that processes €44bn of direct debit, SEPA Instant and open banking transactions. Although Nuapay’s previous owners were forecasting €1.2m EBITDA losses, it could be quickly profitable if successfully integrated into GoCardless.
Returning to the 2022/23 financial year, GoCardless total payment volume rose 37% to £31bn with revenue rising 31% to £92m. The take rate dropped by 1bp to 0.3%.
GoCardless supports a wide range of large and small merchants including Tripadvisor, AON and The Guardian newspaper. Total merchant numbers grew 12% to 85,000. The operational metrics of existing customers look good. Volume per merchant was up 22% to £364K and revenue per merchant grew 17% to £1,080.
Revenue per customer has increased as GoCardless successfully upsold a range of value added services charged above the basic fees of 20p per transaction + 1% for domestic transactions and 2% for international ones. VAS include adding the merchant’s name on the shopper’s bank statement (£50/month), Success+ which uses AI to improve acceptance rates for 0.25% per tx and Protect+ which reduces fraud risk for 0.15% per tx.
Less positively, GoCardless saw a higher rate of cancellations and a larger number of renewals at lower committed revenues. Cancellations were primarily due to merchant failure which is understandable given the macro conditions but the downsells were attributed to “under utilisation of expected volumes.”
Management is looking to derisk revenue by shifting customers from pay as you go to contract plans that promise lower prices and extra sales/service support in return for minimum spend. Committed revenue was up 54% to £40.5m and now accounts for 44% of total sales.
The global strategy has a long way to run. GoCardless is still very dependent on its home markets of UK & Ireland which saw sales up 26% to £70.9m and represent 77% of total revenue. International sales grew 50% from a low base to £21m. Merchants are spread very thinly with France, where GoCardless has an office, the only international market (£8m) making a significant contribution.
Cost of sales was up 43% at £21.5m while administrative expenses rose 27% to £145m including a 23% increase in employee costs to £90.9m. Staff numbers rose from 692 to 764 with average cost up 11% to a very generous £119k.
Following its decision to prioritise profitability, GoCardless launched a restructuring programme that included taking a £7.7m charge. 219 job were lost as operational support teams moved to Riga where GoCardless already had an office through its acquisition of Nordigen, an open banking vendor. The business has since opened a new office in Latvia which is expected to welcome more than 300 employees by the end of 2024.
Operating losses widened to £77.5m from £60.9m in 2022, equivalent to £911 per customer. Accumulated losses stand at at a not inconsiderable £249m. In contrast, Trustly, a comparable European A2A provider of roughly the same size as GoCardless, reported break-even at its last financial results.
A2A transactions are not risk free and GoCardless is cautious with its accounting. Fraud loss provision was up 11% at £4.3m, bad debt up 60% at £2.5m, inactive account provision increased 65% to £3.2m and overdue receivables rose 53% to £3.0m. Total provisions stood at £13m or 14% of turnover.
To guard against future losses, GoCardless now holds £6.5m in merchant deposits, more than twice the amount retained a year earlier.
Looking ahead, management sees the company’s prospects as very healthy with the market opportunity for A2A payments remaining strong. The CEO told Sifted that “despite the touch macroeconomic environment, these results demonstrate that we’re moving from strength to strength.”
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.
