Tag: emerchantpay

Brexit and end of crypto bubble hits sales and profits at emerchantpay

Geoffrey Barraclough1 Comment

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. 

Auditor resigns at eMerchantPay citing governance concerns

Geoffrey Barraclough2 Comments

Grant Thornton has resigned as auditor of eMerchantPay, a London based global high-risk acquirer. and wrote:

“In the course of our work, we learned of certain transactions for which we sought supporting information, including management’s evaluation of whether the accounting for them is in accordance with relevant accounting standards and an assessment of risks and compliance with applicable laws and regulations. Following this process, which resulted in an absence of sufficient, appropriate audit evidence, we have been unable to conclude whether the accounting for the transactions is appropriate and whether there has been a breach of applicable laws and regulations.

The nature of the transactions and the absence of supporting evidence have resulted in us becoming concerned about the quality of the Companies’ governance.

Given the significance of these matter, we do not consider it appropriate that we continue to act as the Companies’ auditor.”

Grant Thornton’s resignation, revealed in a document deposited at UK Companies House, will likely delay publication of eMerchantPay’s accounts for the year ending August 2022 and will doubtless also interest regulators.

eMerchantPay employs 322 staff worldwide, the majority at its service centre in Bulgaria but also at sales offices in London, Germany, India and Brazil. The business is regulated as an EMI by the UK’s Financial Conduct Authority. Following the UK’s exit from the European Union, eMerchantPay transferred its continental European customers to an associated company, UAB Phoenix Payments, in Lithuania. In December 2021, eMerchantPay invested €12m into this business “for required capital restructuring to ensure the ongoing strength of the business” noting that the ongoing operation of UAB Phoenix was “critical” for the Group.

The most recent financial statements available show eMerchantPay to be highly profitable company, generating $151m revenue in the year ending August 2021 from processing $5.7bn payments. This was split between in-house acquiring and a PSP/gateway service that links merchants with 3rd party acquirers. Acquiring revenue more than doubled in 2021 to just over $100m with a take rate of 2.7%.

Management said its business had benefited in 2021 from “a market surge in crypto-currency activity”. In addition to crypto and FX, eMerchantPay also specialises in gambling, including casinos.

Like many high-risk acquirers, eMerchantPay has been making efforts to diversify its client base to include low-risk segments such as retail POS transactions. Nevertheless, in March 2023, the company invested $18.5m into Ibanera, “to enable them to keep supporting” Bitline, a Florida based gateway that helps people gamble cryptocurrencies in casinos. Despite current volatility, Jonas Reynisson, eMerchantPay’s founder, CEO and majority owner, believes crypto has a future, saying “Crypto currencies are no longer for speculation by risky traders, but instead represent the transition of Web2 to Web3 environments that requires easy adoption for everyday consumers.”