Elavon Europe’s topline improves but no return to profitability

Elavon Europe, a subsidiary of US Bancorp and one of Europe’s largest merchant acquirers, has reported a sharp improvement in topline performance in its 2021 accounts, as the travel industry recovers from the pandemic-induced restrictions. However, the business has not yet returned to profitability. 

The company, which has a strong presence in cross-border and multinational transactions, particularly in the airline sector, saw total European payment volume grow by 25% to €105bn in 2021, as travel restrictions were lifted. This still falls short of the €110bn recorded in 2019. Europe represents about 25% of Elavon’s global volume.

Total Elavon Europe revenue grew by 24% to €329m, with merchant processing fees rising 18% to €222m. Take rate dropped 1 bp to 21 bps. The company’s equipment rental business, mainly the provision of payment terminals, grew 7% to €26m. 

Pre-tax losses narrowed to €59m from €74m in the previous year, but still remain below the €44m pre-tax profit made in 2019. Despite the challenging trading conditions, the company continues to invest in its European business as a “key enabler of US Bancorp’s international growth strategy.” Elavon’s new European President Hemlata Narasimhan, a former BCG consultant and former executive at Visa, was appointed in August 2022.

Elavon’s business is focused on Ireland (its European HQ), UK, Poland, Norway and Germany. As can been see from the distribution of merchant receivables, the UK and Ireland account for the bulk of customers by location. 

Following the £232m acquisition of Sage Pay in 2020, Elavon now has a significant presence in the UK and Irish SME sector, and the integration of Opayo (as it has rebranded Sage Pay) is well advanced, with increasing merchant acquiring volumes expected. 

Elavon’s focus on European airlines, while potentially risky, has been somewhat mitigated through trimming its exposure. The total value of tickets sold but not delivered at the end of 2021 was €2.3bn, compared to €2.7bn at the end of 2019, with €151m held in merchant escrow. Additionally, the company has introduced a new transaction risk analysis tool, which it claims is the first in Europe to offer SCA exemptions on transactions up to €500.

Revenue recovers and losses narrow at Elavon Europe

Losses at Elavon’s European operations narrowed in 2021, according to documents deposited at Companies Registration Office Ireland. Although revenues picked up from their pandemic lows, the bounce back was not yet strong enough to cover fixed costs. Elavon has a large market share in the travel sector and was hit harder than most of its competitors by the lockdowns. 

Elavon is a unit of US Bancorp and trades in Europe as Elavon Financial Services DAC, based in Dublin. 80% of revenues are from merchant acquiring and related products. The remainder are generated by Global Corporate Trust Services. 

Merchant services volume rose 23% in 2021, having fallen 24% in 2020. This still leaves volumes running 6% below 2019 levels. Nevertheless, management believes the business is “well positioned for opportunities as economies recover.” 

Elavon gives two measures of geographical breakdown of its operations by branch booking location for merchant and issuer receivables. These indicate that 55%-85% of its merchant services business is booked in UK/Ireland with the remainder in Poland, Germany and Norway.

Total operating income (net revenue) rose 24% to €330m. 

Merchant services fee and leasing income rose 17% to €248m of which 90% was processing fees. This number is net of interchange, scheme fees and partner commissions. Equipment rental rose 7% to €26m.

Operating expenses rose 14% to €389m. Staff numbers were down slightly at 2,184 but average costs per employee grew 13% to €90K each.

Losses before tax narrowed to €59m from €76m in 2020, a negative EBIT margin of -18%.

Strategic goals include completing the integration of Opayo, the former Sage Pay business, bought for £232m in March 2020. This acquisition brought £40bn gateway transaction volume and 50,000 merchant customers in UK and Ireland. Opapyo boosts Elavon’s eCommerce merchant services capability “as well as giving access to a broader client base, particularly in the SME sector.” The integration of Opayo is said to be well advanced and its new owner is optimistic. The annual report says: “Together with increasing merchant services acquiring volumes as COVID 19 restrictions are lifted, [Opayo] is expected to drive revenue and net profit growth in future years.” 

Operating in the travel sector, Elavon needs strong risk controls. The value of airline tickets processed but not delivered was €2.3bn at the end of 2021, up slightly on 2020. This represents significant potential liability in the event of airline business failure. To mitigate this, Elavon is demanding more security from its customers. Merchant escrow deposits rose 35% to €151m at the end of 2021 although unrecovered losses remained relatively low at just €3.5m – 59% below 2020. 

Sterling weakness knocks c.$20m from US Bankcorp’s Q3 merchant acquiring revenues

Sterling’s continued weakness knocked about $20m from US Bancorp’s merchant acquiring revenues in Q3. The bank owns Elavon which is one of the larger cross-border acquirers in the European market with a strong position in travel and tourism.

Global merchant volume was up 9% to $136bn. Transaction count grew 12% and ATV fell 2% to $68.98.

Revenues would have grown at a similar rate to volumes but for the strong dollar and weak European currencies. Total merchant acquiring revenue, which has been growing a double digit levels, rose just 4% to $408m in Q3, about $20m lower than at constant currencies. The shortfall was “negatively impacted by unfavorable foreign currency exchange rates, given market volatility in Europe and specifically in the U.K.” according to Terry Dolan, CFO.

Take rate fell 2bps to 0.30%. 

Management believes there is significant untapped potential to cross-sell to its 1.1m business customers in the US. Only 30% of banking customers take payments products today while less than 50% of payments customers do their banking with USBC.

Like most other acquirers, USBC is building a “tech-enabled” distribution channel through partnerships with ISVs and gateways. It claims to have signed 2.5x as many partnerships in Q3 2022 as in the whole of 2019. Tech-enabled revenue outperformed and was up 7%. The company says Talech, an ECR software vendor acquired in 2019, is growing quickly but declined to give numbers other than new sales are running more than 5x 2019 levels.