Tag: Cardnet

Lloyds Cardnet – higher prices cushion falling volumes

Geoffrey Barraclough1 Comment

2024 was another difficult year for Lloyds Cardnet, the merchant services joint venture between Fiserv and one of Britain’s largest business banks. Lloyds owns 51% of Cardnet and has embedded merchant services firmly within the overall business banking proposition. Most customers are also customers of Lloyds Bank.

According to documents posted at UK Companies House, higher prices kept Cardnet’s revenue stable in 2024 but the business looks to be caught in a squeeze between Adyen/Stripe/Checkout taking enterprise customers and the “tap pack” of Dojo and others hoovering up small merchants on the high street.

Bar chart displaying Lloyds Cardnet's transaction volume and revenue per transaction from 2020 to 2024, highlighting debit and credit values.

Cardnet has been going backwards since 2021. In 2024, volume fell a further 4% to £52bn and transaction numbers were down a further 10%. ATV rose 7% to £57.57.

Cardnet sells Fiserv products such as Clover. At times, this gives early access to innovation but Cardnet’s ability to grow can sometimes be hampered by its partner’s multiplicity of platforms – a dependence on Fiserv technology that management itself flags as a key risk.

By contrast, Dojo – Cardnet’s most direct challenger at the SME end – saw volumes rise 8% last year to £46bn while also running at significantly higher take rates. Dojo’s model is based on slick onboarding, premium service and bundled terminals, a sharp contrast to Cardnet’s reliance on Fiserv’s legacy platforms.

After deducting interchange, scheme fees and Fiserv’s costs, Cardnet’s net fee and commission income (net revenue) was flat at £53m as management mitigated the impact of share losses by increasing its prices. Net revenue per transaction rose 12% to 5.8p. This is equivalent to a take rate of just 10bps, suggesting that Lloyds gets most of its volume from the bank’s largest (and lowest margin) customers.

Operating expenses rose 13% to £40m. Cardnet spent a further £15.7m in 2024 on its “strategic investment programme,” bringing the total to £38m over the past three years. This initiative is intended to improve onboarding, bring the product portfolio up to today’s market needs and develop new distribution partnerships.

The investment has begun to deliver results. Paypoint, probably Britain’s largest ISO, has selected Lloyds Cardnet as its exclusive acquiring partner. Paypoint chose Cardnet because of the wider banking product set which it brings, but the volume boost will be welcome..

Cardnet has also made some progress with enterprise merchants, cementing its partnership with Ryanair and winning a new supermarket customer. However, fraud losses grew by £3m, suggesting Cardnet is taking on more risk.

Cardnet has no staff of its own. All employees are managed by Lloyds or Fiserv and recharged to Cardnet. Salary costs rose 6% to £15.7m.

Bar chart showing Lloyds Cardnet's net income and profit (£m) from 2020 to 2024, with blue bars representing net income and gray bars representing profit before tax.

Pre-tax profit fell 32% to £15.7m, There was no dividend for 2024, after £87.5m had been paid out in the previous two years. This would seem to suggest the shareholders are committing to return Cardnet to growth.

Management remains optimistic about the future, saying “growth is expected in 2025… aligned with client acquisitions in key growth sectors such as food & drink and travel.” But Cardnet remains in a strategic squeeze: dependent on Fiserv for technology, losing SME share to Dojo, Square and the “tap pack”, and enterprise share to Stripe and Adyen.

Cardnet steps up investment after difficult 2023

Geoffrey BarracloughLeave a comment

2023 was a difficult year for Cardnet as the Lloyds Bank/Fiserv joint venture was hit by the impact of the cost of living crisis on its core UK high street merchant customers.

Despite UK retail price inflation running almost 10% in 2023, Cardnet’s total payment volume fell 8% to £54.6bn. Credit slightly outperformed, dropping just 3% to £14.7bn. Debit volume was down 9% at £39.9bn.

Gross revenue from merchant service fees fell 3% at £314.3m. The decline was cushioned by price increases. Revenue per transaction rose 8% to 31.1p

After deducting interchange, scheme fees and Fiserv’s costs, Cardnet’s net revenue was down 12% at £52.8m “primarily driven by the impact of the cost of living crisis on activity levels along with client attrition.” Fiserv’s fees rose from £8m to £14.5m.

Cardnet’s owners want to return the business to growth. Melinda Roylett, ex PayPal and Square, has been appointed as MD and is rumoured to have been given some very aggressive targets. Her plans have been backed with £13m spend on a “Strategic Investment Programme,” up from £6m in 2022. These costs helped drive up overall operating expense 37% to £35.5m.

Cardnet, 51% owned by Lloyds, aims to recruit new merchants by leveraging the bank’s corporate relationships. A good example is Lloyds’ partnership with PayPoint, one of the UK’s largest ISO’s. This deal will see Cardnet become the exclusive supplier of merchant services to Paypoint’s 60.000 small business customers.

PayPoint currently writes business for both Cardnet and EVO (now owned by Global Payments) but chose to standardise on Cardnet because of the wider banking product set that Lloyds brings. PayPoint currently has about 10,000 merchants with Cardnet and 20,000 with EVO. The remaining 30,000 take merchant services from other suppliers and will be a key target for the new partnership. In return, Cardnet has promised to make significant product investments through its Fiserv relationship and to launch a merchant rewards scheme based on PayPoint’s Love2Shop loyalty products.

Cardnet has no staff of its own. All employees are managed by Lloyds or Fiserv and recharged to Cardnet. Salary costs rose 24% from £14m to £17m.

With revenues down and costs up, the bottom line suffered. Profit before tax was down 40% at £23.2m, although the overall margin remains an impressive 16%.

The shareholders have dipped into reserves to pay a dividend of £34.5m. This is rather lower than the £54.1m they shared in 2022.

Despite the growth plans, Cardnet’s fortunes remain closely tied to the UK high street more generally. Management’s outlook is rather downbeat, saying “The business is aware that the combined effects of higher consumer cost of living and interest rates reducing at a slower rate than originally expected have negatively impacted consumer discretionary spend in retail, leisure, travel and hospitality sectors.”