Tag: First Data

Cardnet grows revenue 5% despite loss of key clients

Geoffrey BarracloughLeave a comment

Cardnet, the JV between the Lloyds Bank of the UK and First Data, grew net revenue 5% to £60m in 2022 despite a fall of 10% in total payment volume to £59bn. The business was hit by the loss of two key clients processing £10bn between them. Underlying payment volume rose 6% 

Cardnet is a merchant acquiring joint venture between Lloyds Bank and First Data (Fiserv) with the bank holding 51%. Cardnet has no staff and is recharged for services provided by the parents. This means its financial accounts are not always directly comparable to more conventionally structured acquirers.

Lloyds provides sales and marketing through its business banking network. First Data is the processor and supplies card acceptance products including Clover. Cardnet also has relationships with 3rd parties including Liberis for Merchant Cash Advance and Qikserve for a mobile ordering app.

Overall debit volumes fell 18% to £44bn due to the loss of the two clients. These were financial institutions which processed £10bn annual volume between them at a very high average transaction value (ATV) of £476.. This transaction profile is typical of the sector, was most probably very low margin and would have contributed little to the bottom line. 

In contrast, higher-margin credit volumes, driven by a resurgence in the travel sector, grew 24% to £15bn. Airlines, hotels and cruises contributed an incremental £2.4bn volume at an ATV of £406 and more than made up for the loss of the financial institution clients.

The more favourable credit/debit mix combined most likely with price increases, drove net fee and commission income up 5% to £60m. This is a good performance in the context of the fall in volume processed. But neither Lloyds or First Data would be happy with revenue lagging UK inflation which was almost 12% for 2022 . Net take rate ticked up 1bp to 0.1% while net income per transaction was steady at 5.3p.

Despite the growth in net fee and commission income, higher costs hit profits. The increased number of transactions drove higher service fees from First Data, Cardnet was recharged an extra £3m staff salaries by its parents and the company spent £6m on its “Strategic Investment Programme.” As a result profit before tax fell 9% to £39m. Nevertheless, management felt confident enough to resume dividends with payments to the shareholders of £53m in 2022 and a further £35m after the financial year end.

“A unified company that’s better than the sum of its parts” – Fiserv reports broadbased growth

Geoffrey BarracloughLeave a comment

Fiserv, the financial technology company, has reported strong Q4 2022 results, offering a glimmer of hope to investors who have been unimpressed with the financial performance of quoted payment companies as of late. In contrast to its peers, FIS and Global Payments, who are struggling to explain why bank and merchant processing sit well together, Fiserv reported broad-based growth across all three of its business units. 

CEO Frank Bisignano stated that the business heads into 2023 “as a unified company that’s better than the sum of its parts … our vision for the cross-sell opportunity between Fiserv and First Data offerings has become reality.” He went on to say that “synergies are apparent, for example, between acquiring and core banking and embedded finance and card issuing services across multiple verticals.”

Revenue rose 9% in the fourth quarter to $4.6bn, with solid increases in turnover across the Merchant Acceptance, Fintech, and Payments/Networks divisions. Although the company does not break down its revenue by geography, CFO Bob Lau noted growth in EMEA, particularly in the issuer space, and added that the Deutsche Bank joint venture is now live and beginning to contribute to growth. See Deutsche Bank’s Vert looking a little green.

Profits were driven by effective cost control. The company saw a 7% year-on-year decrease in expenses, with a particularly sharp drop in the cost of processing and services. This was accompanied by a 1% reduction in SG&A expenses to $1.49bn compared to the 6% rise reported by FIS.

With revenues up and costs flat, operating income for Fiserv more than doubled to $1.179bn, although the year on year increase was flattered by some large acquisition-related expenses from 2021. Adjusted operating income growth was 20%.

Looking at divisional performance, Merchant Acceptance, the unit of most interest to Business of Payments, grew its processing volume by 5%, lagging a little behind the 7-8% reported by Visa and Mastercard. Total transactions only grew by 3%. However, Fiserv management aims to present itself service provider, with a focus on metrics such as average revenue per user (ARPU) and customer lifetime value (LTV) instead of volume growth.

Revenue in the Merchant Acceptance division increased by 9% or 16% at constant currencies. Adjusted net income grew 22% to $648m in the fourth quarter with margins expanding by 350bps to 35%, as a result of “operating leverage and productivity“.

The SMB proposition, Clover, and the enterprise proposition, Carat, both outperformed, with sales growth of 23% and 15% respectively. The number of Clover merchants rose 9% in 2022, and payment volume increased by 16% in the final quarter. 

Clover’s KPIs are all moving in the right direction. The penetration of value-added services reached 16% in the quarter, up from 13% last year, with ARPU growing 12%. For example, where Clover customers subscribe to BentoBox (a restaurant ordering/payment solution that has been part of the Fiserv family since the end of 2021), the company is seeing three times increase ARPU. The new Clover Capital merchant cash advance product is said to be “growing rapidly and favourably impacting customer attrition.” Bisignano noted that Fiserv is on track to reach $3.5 billion in Clover revenue by 2025.

Fiserv is investing in the independent software vendor (ISV) channel, which it considers a low-cost way to onboard fast growing merchants. The company added an impressive 174 ISV partners in 2022 and is building its PayFac, marketplace, and software platform with technology from the newly-acquired UK-based NetPay.

The company also announced two more acquisitions: Merchant One, a long-standing Fiserv ISO based in Miami Beach, which will strengthen Fiserv’s direct channel and offer more opportunities to sell Clover, and Yacare, an Argentinian QR-based payment wallet.

Lloyds Cardnet recovers from Covid

Geoffrey BarracloughLeave a comment

Focused on Britain’s High Street heartland, Lloyds Cardnet suffered more than most during the Covid lockdowns. But as the nation got back to business during 2021, results have improved significantly. Management is pleased that trade has now “returned to normalised levels” although, looking forward, it warned that the cost-of-living crisis might be “negatively impacting on consumer discretionary spend in retail, travel and hospitality sectors.”

In the 2021 annual filings at Companies House, Cardnet reported a small recovery in payment volume but, with good cost control, this resulted in a much bigger uplift in profitability. 

Cardnet is a joint venture between Lloyds Bank and First Data (Fiserv) with the bank holding 51%. Lloyds provides sales and marketing through its business banking network. First Data runs the back office and supplies several products including Clover. Cardnet also has relationships with 3rd parties including Liberis for Merchant Cash Advance and Qikserve for a mobile ordering app.

Total payment volume rose 4% to £66bn on the back of significantly higher total transactions – up 13% to 1,062m. Increasing use of contactless for everyday transactions is the most likely factor driving down ATV  8% to £62.15.

Credit, although a small proportion of the total, outperformed. Volume was up 18%. Debit transaction count grew 12% but ATV was sharply lower.

Net revenue (reported by Cardnet as fees and commission income) rose 11% to £275m with the take rate ticking up 3bps to 0.42%. Profit before tax rebounded 48% to £43m giving a very healthy operating margin of 15.6%.  After two years with no dividend, Cardnet was able to pay out £39.5m after year end.

Fiserv hints at impact of inflation and supply chain troubles

Geoffrey BarracloughLeave a comment

With its Q2 2022 results, Fiserv (parent of First Data) was one of the first payment companies to hint at the impact of both inflation and supply chain disruptions. Bob Hau, CFO, said that margins had been hit by “cost inflation for both labor and material, including point-of-sale terminals.” He went on to explain higher capex spending due to “buying significant amounts of inventory, both in terms of point-of-sale devices, but also in paper and plastic to protect our clients.” So, not only have payment terminals become more expensive but the large players have felt the need to hoard stocks to assure supply to their customers. 

In other news, Fiserv continues to report positive numbers for Clover. This is an all-in-one small business product that include software and payments which accounts for c.20% of Fiserv’s SMB revenues. Gross payment volume through Clover was an impressive $57bn in Q2. Fiserv’s revenue was reportedly up 15% year and it states that 15% of Clover merchants now take software/services in addition to the standard payment acceptance product. This was up 3.5ppts.  

Clover clearly works best when pitched as part of an integrated vertical offer. Fiserv said that BentoBox was now fully integrated to Clover for eCommerce payments. When sold together (Bento + Clover) “we see an over three times increase in average revenue per user versus a Clover-only restaurant.”

Fiserv also sounded bullish on Carat, its “operating system for enterprise clients.” Revenue was up 22% with strong growth reported in Petrol and Quick Service Restaurants. It’s not clear to the casual observer whether Carat is an actual thing or just a clever marketing wrap around Fiserv’s existing product set. Nonetheless, it boasts an impressive client list including McDonalds, Microsoft and Adidas.