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.
Lemonway, the French marketplace payments specialist, has published very impressive results for 2023. In a press-release, Lemonway reported payment volume up 25% to €9.6bn while revenue doubled to €32m. Management says the business made a maiden operating profit of €5m.
Lemonway is getting better at converting payment volume into revenue. The take rate rose from 0.21% to 0.33% in 2023. The €1.9bn incremental volume gained in the last 12 months delivered an impressive additional €15.7m net revenue at a generous take rate of 0.83%.
Marketplace (sometimes called platform) payments is a complex domain. Critically, providers need to be able to onboard large numbers of sub-merchants, often in multiple jurisdictions, with each requiring AML/KYC checks. Marketplaces also require the ability to construct a single shopping basket with items from several suppliers, often in different currencies; calculate taxes and direct payments the right recipients.
There are several strong marketplace payment vendors based in France including MangoPay (now owned Advent which processed €12bn in 2022), and Limonetik, acquired by Thunes. But this is an increasingly competitive market. Stripe and Adyen also now have credible marketplace propositions.
Lemonway’s strong performance was driven by increased volume at a number of key customers including SNCF Connect, a service run by French railways which sells travellers tickets for train journeys throughout Europe. Lemonway has facilitated €4.3bn of transaction value so far.
Other customers include Billetweb, which supplies turnkey ticketing services to live venues, Decathlon which offers 3rd parties vendors the ability to sell on its website and Ecole de Ski Français for whom Lemonway onboarded 1,200 sub-merchants in a single project.
Although Lemonway offers a full PSP solution, the technology is modular, and customers can take all or part of the stack. For example, Ecole de Ski Francais uses Payplug for collections and Lemonway for managing payments between the sellers and purchasers.
Other partners include two large French banks. Lemonway is working with Société Générale to serve B2B marketplaces managed by the bank’s large corporate customers and AXEPTA, the payment acceptance spinoff from BNP Paribas.
Lemonway sees B2B marketplaces as a key growth area and has opened an office in Hamburg to help sell to German Mittlestand manufacturing companies.
Lemonway’s management is very confident about prospects for 2024, forecasting payment volume reaching €12bn. Having raised €50m from Breega, Speedinvest and Toscafund, the companys says it is now self-financing and has no need for further capital. There are few independents left in the marketplace payments sector. This makes Lemonway a prime acquisition target but, after its fine performance in 2023, any valuation will be at a significant premium.
Discover’s Q4 results showed a continued slowdown in volume processed on behalf of its 25 network partners. These are third party schemes, such as SIBS and RuPay, whose cards run over Discover rails when used outside their home country.
Network partner volume was down 16% in Q4 to $8.7bn. Management said that Ariba Pay, a longstanding Discover partner which helps businesses settle invoices, was the main contributor to the poor performance. Partner volume has been on a downward slide since the end of the pandemic. This trend is particularly surprising in the light of reports from Visa and Mastercard of continued c.20% growth in cross-border commerce, and will be giving Jason Hanson, Discover’s new payment supremo, pause for thought.
In contrast, Diners which is still largely a series of national franchises, continues its positive trend. Boosted by the upturn in global travel and tourism, Diners volume grew 14% to $10.5bn.
Elavon continued its strong rebound from the pandemic in 2022. Financial accounts deposited at UK Companies House show European payment volume rising 35% to €141bn, well above 2019 levels.
Based in Dublin, Elavon Europe is owned by US Bank Corporation and accounts for roughly 30% of the bank’s global acquiring volume. Winner of Acquirer of the Year at the MPE conference, Elavon is particularly strong in travel, boasting over 100 airline customers worldwide. Virgin Atlantic, which announced it was working with Elavon for acquiring and multi-currency conversion is the latest.
Total revenue was up 23% in 2022 at €379m, again well above pre-pandemic levels. Net merchant processing revenue was particularly strong, up 34% to €332m, of which equipment rental (likely to be mainly POS terminals) accounted for €28m. The overall take rate nudged down 1bp to 0.23%.
Looking at merchant receivables, Elavon’s business still seems primarily focused on customers in the UK and Ireland although it does have a meaningful presence in Germany, Poland and Norway. Elavon also has branches in Luxembourg and Spain.
Elavon has a small division providing corporate trust services. Performance in this business line wasn’t so positive with sales falling 34% to €41m. Negative real interest rates in the Eurozone weren’t helpful.
Overall, operating income (gross margin) was up 28% at €420m.
Management have kept a firm control on costs. Operating expenses rose just 4% in 2022 to €404m. Staff costs were up 8% to €211m. Although staff staff numbers rose 6% to 2,427, the average cost per employee was up just 2% at €91K. In contrast, the marketing and business development budget rose 32% to €18m which shows confidence in future returns.
With its strong presence in the risky airline sector, Elavon keeps an keen eye on its total chargeback exposure. This rose to €16.5bn at the end of 2022 and aligns with information that the volume of airline tickets sold but not delivered increased 39% to €3.2bn.
It’s unlikely that all Elavon’s airline customers would fail at the same time but this figure shows why some acquirers are uneasy about onboarding customers in the travel sector. It’s helpful for Elavon Europe that its giant US parent provides a financial guarantee.
2022 was a benign year for trading. Total chargeback provisions at Elavon totalled just €0.5m or 3bps of end year exposure and credit losses remained low at just €5m or 1.34% of net processing revenue.
Turning to the bottom line, Elavon recorded a pre-tax profit of €14m, its first since 2019, at a margin of 4%. This remains rather lower than the €44m recorded before the pandemic, at 12% margin, but, with continued recovery in the travel sector backed with product investment, the trajectory looks very positive.
It’s early days but Rubean looks like being one of the winners in the nascent European SoftPOS market. The German start-up has won a number of key partnerships including a major deal with Correos, the Spanish Post Office. Total user numbers have grown to 25K from just 6K at the end of 2022.
Rubean’s main product is PhonePOS, a softPOS application which it offers as a hosted, whitelabel, product to banks, acquirers and enterprise merchants. SoftPOS is a downloadable software application that allows any Android device to accept card payments. Rubean charges its customers a monthly fee per user and a click fee per transaction.
Rubean is based in Munich and listed on the local stock exchange. CCV, the Dutch payment gateway has a 30% stake. Competitors include Softpos.eu (Worldine), Rubean is based in Munich and listed on the local stock exchange. CCV, the Dutch payment gateway has a 30% stake. Competitors include Softpos.eu (Worldine), Mypinpad, Phos (Ingenico) and Softpay.io which works with Nexi, Elavon and others.
Management says that sales rose to “more than” €1m in 2023 on the back of several new contracts. EBITDA losses were steady at €3.5m. Nuways, a broker, projects sales growing strongly to €2.9m in 2024 but suggests that fresh fundraising may be necessary.
Rubean’s strong customer list includes Correos, the Spanish postal service, the German Sparkassen, BBVA in a contract worth €1.5m, Global Payments/KBC Group in Hungary, Czechia and Slovakia and, most recently, eMerchantPay, a British high-risk acquirer looking to expand into low-risk POS business.
Trustly, one of the European leaders in account-to-account (A2) and open banking payments, reported a challenging 2022 including a significant fall in revenue and a fine from the Swedish regulator.
Headquartered in Sweden, Trustly connects its 8,300 merchants with up to 12,000 banks in 33 countries. Customers include Norwegian Airlines. Backed by Nordic Capital and Blackrock, Trustly styles itself with some justification as the “outright leader in A2A payments” having processed $42bn in 2022. This claim needs qualifying as it refers to merchant (ie consumer to business) payments. Other A2A flows are much larger. For example, JP. Morgan moves $10 trillion each day between business bank accounts.
In 2022, turnover fell 36% to €124m[1] due to “a new strategic direction and the decision to leave certain markets temporarily.” There was a particularly sharp decline in revenue from supplementary services – currency exchange and monthly fixed fees – which fell from €24m to just €5m.
The vast majority of revenue is from Northern and Western Europe. At the end of 2022, Trustly had business in Finland, Czech, Denmark, Germany, Malta, Netherlands, Norway, Poland and Spain. It exited the UK, Austria and Belgium although has since returned to the UK with the acquisition of Ecospend.
Unlike many open banking players, Trustly is trying to create a branded acceptance mark that is offered by eCommerce gateways such as Adyen as consumer payment option alongside cards, PayPal and so on. Trustly isn’t particularly cheap. Adyen’s standard price list offers Trustly at 50c per tx + 3% loading for gambling, travel and financial services. This compares with 27c for a SEPA direct derbit or 22c for iDEAL.
In February 2022, the Swedish Financial Services Authority fined Trustly 130m SEK (€12m) related to compliance with anti-money laundering regulations. The regulator was not happy with Trustly’s role in the payment chain between the gambling industry and the banks, saying “”a company that has chosen fast and simple as its business concept in the gambling industry needs to be very thorough in its work to prevent money laundering. We have identified in our investigation that this has not been the case.”
The reorganisation certainly helped control operating costs. Trustly sharply reduced employee numbers in Sweden but hired aggressively in Portugal resulting in personnel expense falling 47% although staff numbers remained constant at 377. Average cost per employee fell from €155K to €82K.
Despite falling revenues and the fine from regulator, Trustly still managed to break even in 2022 which is a creditable performance in the circumstances. The business is normally highly profitable. In 2021, Trustly had made €34m at an operating margin of 17.4%.
The refocused Trustly retains the backing of its key investors and made two major acquisitions in 2023 which position the group as one of the major consolidators of the highly fragmented European A2A and open banking payment market.
In 2023, Trustly bought Ecospend in the UK. Although the terms weren’t disclosed at the time, Trustly UK Ltd accounts show the purchase price was £28m. Ecospend, a licensed payment institution, brought a key customer relationship with the British Government and connections with 80 UK banks. Ecospend’s payment volume was reportedly £7.5bn in 2022.
The second key acquisition was SlimPay, the French recurring payment and A2A specialist. This deal, for a reported price of €70m, closed in January 2024. Slimpay reported post-tax losses of €1.8m on €11.3m sales in 2022. The deal brings Trustly 2,000 good quality merchant customers in transportation, media, fitness and financial services including SNCF and EDF.
The two acquisitions not only give Trustly greater geographical spread but help to balance Trustly’s reliance on iGaming and other high-risk sectors. With the usual warnings about execution risk, Trustly should be one of the winners as the European open banking payment market evolves.
[1] Trustly reports in SEK but I’ve converted the financials to euros at the average exchange rates for the year in question.
Allpay, a highly profitable British PSP focused on the public sector, has reported excellent results with turnover up 21% to £48.7m in year ending June 2023. Operating margin rose to a very creditable 16%.
Along with Pay360 (recently sold by Capita to Access Group), Allpay is one of a small number of specialist providers of bill payment solutions to the UK public sector. This includes direct debits, card payments, debt collection tools, a white label app and the ability to accept cash payments via the Paypoint, Payzone and Post Office retail networks. Allpay boasts more than 500 housing associations and one third of British local authorities as clients.
Allpay also has a growing business supplying pay-out products which allow authorities to distribute benefit payments directly to low-income families, often onto one of Allpay’s pre-pay Mastercard’s. During the cost-of-living crisis, more people have been relying on state assistance of various kinds and Allpay reported a record £37.5m loaded to its cards in March 2023. These cards can include MCC and ATM blocking as well as spend limits that give public sector bodies more control on what money is spent on.
Allpay manufactures cards for itself and others and has invested £1.5m into new production technology.
Prepay is fast becoming an excellent business line for Allpay. Revenue from pre-pay and other services grew 72% to £10.3m. Turnover from the much larger bill payment segment was up 12% at £38.4m.
Cost of sales rose just 2% resulting in gross profits increasing 47% to £25m.
Administrative expenses were up 28% to £17m including £11m of staff costs. Employee numbers rose 6% to 271 at an average cost up just 5% at £40K. Allpay is based in rural Herefordshire and less impacted by the high and rising pay costs hitting Fintech providers in London.
Operating profit more than doubled to £8m with margins rising to a very creditable 16.3% compared to 9.4% in 2022.
Allpay is growing nicely, has a blue-chip customer list, maintains a positive cash flow, is largely debt-free and pays a consistent dividend to its owners. With Killeen now 67 years old and still the sole owner of the company, Allpay must be an attractive acquisition target for private equity or trade buyers.
JP Morgan is struggling to turn market share gains into revenue. Positioned at the commodity end of the processing market, JPM’s volume has been outpacing its competitors since 2017 (see chart) but turnover has been lagging. From data presented at a recent Investor Day, I calculate JPM generated just $1.25bn revenue on its colossal $2 trillion volume in 2022. Worldpay, with a similar total volume processed, recorded sales of $4.8bn in the same year.
JPM’s management doesn’t see scope for increasing prices. Instead, it wants to grow profit margins by commercialising developer-friendly value-added services and expanding outside the US, especially in Europe. JPM modestly told analysts that merchant acquiring was “still work in progress” and that it remains committed to investing in product and distribution.
A key part of JPM’s European expansion plan was the $800m it spent to buy 49% of Viva Wallet. Less than 12 months after the deal, the US bank had already fallen out with its new partner. Two of JPM’s board directors resigned and Haris Karonis, Viva’s founder and CEO, replaced them with his own people. Viva has expanded from its mPOS roots and the resignations are said to stem from management’s decision to process payments for a Greek adult entertainment channel. A golden rule of M&A is “don’t do joint ventures” but, if you must, always take a majority stake.
“Dark clouds are gathering over European payment firms” according to Jefferies, a research firm out to generate headlines over the festive season. On closer reading, most of the gloom centres on the general economic outlook rather particular issues with individual businesses. The exception is Worldine which the analysts believe faces “multiple company-specific headwinds.” It’s no surprise that Worldine is reportedly considering asset sales or investment from Credit Agricole to shore up its sagging share price.
And in Spain, Redsys, which routes payments on behalf of over 60 financial institutions, shocked the nation with two outages in November. These were the company’s first failures in 12 years.
Payment investors everywhere will be cheered that Stripe is finally making money ($). Revenue has rebounded after a quiet 2022 while costs have been kept well under control. Sales to enterprise customers are going particularly well although there’s a clear risk of over-reliance on a few key relationships. One analyst suggests Shopify alone accounts for one third of Stripe’s payment volume.
London based SumUp which claims 4m small businesses customers in Europe, the Americas and Australia has raised €285m fresh funding at a valuation of €8bn. The cash will be spent on widening the product beyond mPOS to broader financial services and expanding beyond its current 36 international markets. SumUp now claims to have positive operating cashflow.
Raypd’s controversial CEO has made waves in Iceland with his vocal support for the Israel government’s war in Gaza. Two large merchants have already announced they will boycott the processor. It’s certainly an opportune moment for Adyen to enter the Icelandic market, announcing a partnership with Straumur, part of Kvika Bank, which claims 25% market share.
The sector is not dead yet. Nice-based Izicap, which has a clever SME proposition sold in partnership with Bank Populaire, Credit Agricole and Nexi is still trading and hasn’t yet exhausted the €15m raised in 2022. And I’ve been impressed with Krowd, a London-based start-up with a strong merchant proposition that powers some Amex offers programmes.
Brexit bonus
Outside the EU, the UK competition authorities have discovered a backbone. The Payment Systems Regulator (PSR) is reviewing cross-border interchange fees paid by UK acquirers on card-not-present transactions from Europe. Before Brexit, EU regulations kept these fees at 0.2% for debit cards and 0.3% for credit. Freed from the dead hand of Brussels bureaucracy, Visa and Mastercard increased them to 1.15% and 1.5% respectively, generating a handy extra £150-£200m annual Interchange for issuing banks in the EU. The PSR says “we have not seen any persuasive evidence to indicate that the increases were necessary or appropriate” and is expected to re-impose the previous Interchange level.
Paradoxically, the PSR says it has no interest in regulating Interchange flowing the other way, from EU merchants to UK issuers. British banks will be happy. European merchants less so.
EPI is a northern European initiative but there’s a similar move in the south of the continent. Spain’s Bizum, Italy’s Bancomat Pay and Portugal’s MB Way have agreed to allow customers to make instant payments across each other’s networks. The three mobile payment solutions carried a total of 1.47bn transactions in 2023 on behalf of 43m people so there could be considerable demand for the service.
The national debit schemes are also working on inter-operability. French integrators FrenchSys and Elitt have partnered with Lavego, a Munich-based network operator, to bring Girocard acceptance to standard FRv6 terminals. These are supported by all French acquirers and this move could help Giro gain wide acceptance in France. The move underlines Giro’s ambition to move well beyond its narrowly defined German debit heritage.
New Shopping
We’re tracking the growth in autonomous stores in case because this could spark the long predicted shift in transactions from the merchant’s devices to the shopper’s phone. If so, it could have profound implications for European merchant payments.
SSP, a catering company, has opened autonomous stores at Dublin and Oslo airports. Shoppers tap a payment card on a PAX IM30 unattended terminal at the entrance before picking up sandwiches or other purchases from the shelves. Planet (the acquirer) makes a pre-authorisation and generates a token which is sent to Zippin, the Californian vendor providing the store software platform, camera and sensors. On exit, the final basket is calculated and Zippin sends a payment request to Planet.
There’s a fine line between an autonomous store and a large vending machine. Carrefour has opened an 18m2 fully autonomous shop near Brussels airport. Shoppers need to have downloaded the Carrefour BuyBye app before entering the shop. Reckon AI, a Portuguese start-up, is providing not only the technology but also helped design the outlet.
Autonomous stores need sophisticated artificial intelligence to spot product sold loose, such as fruit and vegetables. Aldi says 3/10 customers buying loose products won’t use conventional self-checkout machines so it is piloting automatic recognition of fruit and vegetables in Cologne using Diebold Nixdorf’s “Vynamic Smart Vision” product.
As consumer frustration with badly implemented self-checkout machines grows, this use of AI a potentially great way of helping customers and cutting costs at the same time. Shoppers take 15 seconds to select the right fruit or vegetable from the menu, but the AI can do this in just 3 seconds.
Retail is about choice as much as convenience which is why we’re seeing merchants offer multiple checkout options in physical stores. For example, some Tesco convenience stores are now offering four choices – staffed, traditional self-scan checkout, Magic Tills (which tell you what’s in your basket but you pay on the terminal) or GetGo (scan a QR at the store entrance and just walk out with payment automatically billed to your account). Trigo is providing the sensor technology.
Wearable payments
Advances in provisioning card credentials are making it easier to turn any object into a payment device. There’s a lot going on in the industry although it’s doubtful whether any of these ideas will get beyond niche use cases as long as we’re all carrying a phone in our pockets.
SmartChip Switzerland has demonstrated a contactless enabled fingernail (see video) working with Infineon and Digiseq, a UK vendor which claims the leading platform for managing remote card credentials. Dave Birch, Digiseq’s chair, explains how it works. Digiseq and Infineon have also worked on a pre-certified ring-inlay which jewellery producers can build into their products.
In Poland, Invispay has launched a range of payment-enabled watch straps priced between €99 and €299 which can be provisioned with card credentials from a number of local banks. Wearonize, a Swiss fintech-as-a-service, is providing the technology.
Tapster is a Swedish start-up also looking to turn personal objects of various kinds into payment devices. Working with Fidesmo as its technology partner, Tapster is supplying a payment ring to customers of Italian bank, Intesa Sanpaolo. The devices use Mastercard tokens.
I’m still not convinced but I’ll let Tapster’s CEO makes his (quite entertaining) case.
Product
One of the reasons for Worldpay’s recent underperformance has been the lack of a convincing international retail offer so the creation of WorldPay Omnichannel as a partnership with FreedomPay is good news. This proposition brings together Freedom Pay’s POS and Worldpay’s eCommerce gateways through a single integration with common tokenisation across the platforms. HMV, the British entertainment retailer, is the first customer, taking Worldpay Omnichannel for its Dublin and Antwerp stores.
Elsewhere, Worldpay’s British merchants have facilitated a total of £10m charity donations via its integration with Pennies, a 3rd party service that rounds-up POS transactions to the nearest pound. Given that Worldpay has been working with Pennies since 2011 and that the Pennies integration is used by 14 of its largest merchants, £10m does not sound very much. I’m not criticising Worldpay, and £10m is very welcome for the charities that have benefited, but there may be better ways of persuading shoppers to make more meaningful donations.
Mastercard and Visa’s attempts to introduce sonic branding never caught on but Paytm in India is making $150m pa from subscriptions to its Soundbox service which gives merchants audible confirmation that payments have arrived.
Wesub, a Polish start-up, is looking to become the Klarna of subscription commerce. Wesub takes ownership of the product at point of sale and is responsible for collecting payments from the consumer. The business has recently expanded into France and Switzerland.
Pay Eye, another Polish start-up, has launched in the USA with its biometric payment product and is getting good media coverage.
Two new value added services for POS terminals are tipping and digital receipts. Matt Jones looks at the culture of tipping and the implications for payment products. Vendors to watch include TiPJAR in the UK and Béné in the US.
Digital receipts are attracting attention, especially since the French Government finally implemented a partial paper receipt ban in August 2023. Hat tip to Pi-xcels, on winning the Worldine Payments Challenge in Paris with its clever way of passing a receipt to the shoppers phone without needing an email address or number. “No app just tap,” they say.
Group payments is another growing category. People need help dividing payments for shared holidays or electricity bills. Collctiv is an early leader, having processed £37m from 160K pots and 800K users. Users can settle with Apple/Google Pay or PayPal. The business has expanded to the US following its participation in Techstars New York. A combination of Ryft, a marketplace payment specialist, and Stripe handle the processing on a fintech-as-a-service model.
Regulators are getting tough on fintech as a service start-ups following the high-profile failure of Railsr and others. The moral for customers is that outsourcing compliance sounds great but you’re only as good as the supplier you choose. If they make mistakes, you could be in trouble.
SoftPOS
SoftPOS enables any Android or iOS device to accept card payments. This presents vendors of ruggedised handhelds an obvious upselling opportunity to their existing retail customers. Zebra, the industry giant which boast over 10,000 channel partners has announced its first SoftPOS customer. Thom Group, the French jeweller is implementing the solution in 600 stores and says it will help staff break free from fixed till points. Softpos will be running on 1,000 Zebra EC50 mobile terminals. Rayonnance acted as integrator with Axepta BNP Paribas as the acquirer.
Courier delivery is also proving fertile ground for SpoftPOS. PolCard (Fiserv) is implementing its solution with DHL delivery drivers working on behalf of the Media Expert electronics retailer. PolCard’s PolGo application is integrated with Media Expert’s own software on the DHL device.
The value of Softpos in many markets is reinforced by the growing availability of soft fiscal printing. Again in Poland, Worldine has launched combined Softpos, ePOS software and soft fiscal printer on one Android device. The fiscal software comes from Wirtualne Kasy Fiskalne, a Polish start-up whose name helpfully translates as virtual cash register. There’s a general solution for retail and very niche one one for vending machines at car washes
Open banking
The deadline for setting up the body to oversee the development of open banking in the UK has been postponed once again. We’re now expecting it to go live towards the middle of the year with the first deliverable – the snappily titled “non-sweeping Variable Recurring Payments” (VRPs) – unlikely to appear until Q3.
PSD3 offers grounds for optimism but won’t move the dial in the short term. Jan Van Vonno from Tink engagingly explains its the new regulations likely impact on open banking in just three minutes.
Maybe 2025 will be the year open banking goes mass market. It’s not going to be 2024.
For widespread adoption, we need clear use cases that add value to merchants and shoppers. For example, many airlines reject Revolut cards because they are pre-paid. In response, the bank fintech has launched Revolut Pay for Airlines which converts Revolut card transactions into A2A payments. This advantages both consumers, who get 1% cashback, and airlines who receive a guaranteed payment. Revolut Pay would make a great application for open banking payments.
POS payments might be another. Kevin, a well-funded Lithuanian fintech, is the first to develop open banking payments at POS via NFC. Here the product team explains how it works.
Yet even if/when volume accelerates, there remains the question of how anyone’s going to make money from open banking. The European Payments Council has published default fees for “premium” open banking services which range from 2c-4c per transaction. The tariff for the Euro equivalent of VRPs, for example, would be just 2.72c. That’s not much. Massive scale will be needed to generate meaningful profits.
Cash
The latest annual payment survey from the British Retail Consortium shows cash usage growing for the first time in many years, from 15% to 19% of their members’ transactions. The BRC thinks this is “reflects a choice by many households to use cash to budget more carefully.”
Nevertheless, many merchants are going cash-free and this is worrying policymakers, especially in the UK, Sweden and the USA where LA is the latest US city to bans cashless stores. Washington DC, which also passed a rule obliging merchants to accept cash, has begun enforcing the new regulation. One restaurant owner, anxious about robberies, is refusing to comply. “Even if I have to gather a couple of violations, I don’t think you can really put a dollar value on the safety of the staff and the guest,” he said.
Meanwhile, in Germany one cafe put up this sign “Due to the current tax situation, we will unfortunately no longer accept card payments from January 1, 2024. We ask for your understanding. Thank you!” This “tax situation” may be that VAT is reverting to pre-Covid levels or maybe that the restaurant does not want to pay any tax.
Credit: @ted_knudson
Crypto corner
We’ve certainly come a long way in 12 months. Last February, a far-sighted individual paid $1.6m for this Bored Ape NFT jpg. It’s no ordinary monkey. The million dollar ape features “solid gold fur, with a multicolour grin, service uniform and heart-shaped glasses”. Priceless.
The bubble is over. Bored Apes are on offer around $60K as I write.
In CBDC news, British MPs have warned that plans for a digital pound (known as Britcoin) should proceed with caution, saying: “The extent of the benefits is unclear… nor is it yet clear that a digital pound is the only (or best) means of achieving them.” Other than that, they think it’s a great idea. Meanwhile, the Bank of England has hired Diana Carrasco, head of merchant services at Lloyds Bank, to head the project.
Other news
Looking to the New Year, here’s a collection of 140 trend decks compiled by the world’s top analysts. AI is everywhere but it’s like Crypto and Metaverse never happened. As Groucho Marx might have said, “here are my forecasts. If you don’t like them I have others.”
Benedict Evans gives an entertaining presentation discussing AI and concludes that nobody knows what’s going to happen. And if Ben doesn’t know, nobody does.
Maybe Sebastian Siemiatkowski has the answer. Klarna’s CEO has implemented a hiring freeze, saying that AI productivity tools inevitably mean he will need fewer staff.
With dogged determination, Wordline is ploughing on with its Metaverse strategy, announcing “season two” of its Metaverse Shopping Hub. The product is now available for Decentraland and Spatial. And through PayOne for DACH markets. If anyone every makes to the end of season two, please let me know.
EasyPark Group (owner of RingGo and ParkMobile) sold by BMW/Daimler to private equity investors in 2021 has been hacked. Customer data including partial PANs was stolen.
And I had the great pleasure of moderating a webinar for MPE featuring two giants of central European payments – Ralf Gladis, CEO of Computop and David Rintel, CEO of Trust Pay.
And you can meet me in person at MPE in Berlin. I’ll be moderating panel discussions on financial inclusion and customer experience.
