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.”