AIB Merchant Services, the Irish joint venture between Allied Irish Banks and Fiserv (First Data) reported a strong performance in 2022 with profits up 31%.
Dublin based AIBS is Ireland’s largest domestic merchant acquirer. It serves all business types, large and small, with lead generation primarily via the bank network. The product portfolio includes Clover and the business competes with Bank of Ireland Payment Acceptance (Global Payments) and Elavon.
In the UK, AIBMS mainly supplies SMEs through ISO relationships such as Fidelity Payment, Card Saver, Cardcutters Adelante and Payment Plus. Post-Brexit, AIBMS can no longer serve its British clients from Ireland and has established a UK entity which is expected to receive its payment institution licence during 2023.
The third leg of the business is internationally focused and high-risk with domain expertise in gambling and gaming. AIBMS can pay out in 18 currencies and offers multi-functional Merchant IDs (MIDs) which greatly simplify multi-currency and multi-channel operations for complex merchants.
The company’s focus in 2022 was “managing merchant charge back risk and negative balance risk” arising from the pandemic and the economic recovery. This was successfully achieved although management report “some inflationary pressures but no slowdown in merchant sales.”
AIBMS does not report payment volume but does disclose gross fee and commission income – the total amount it billed to merchants including interchange and scheme fees. This figure grew 44% to €780m with particularly strong performance in Ireland which remains the company’s largest market. Although merchant service charges grew 41%, revenue from other fees which includes terminal rental was up just 8%.
Management points to to “economic activity returning to pre Covid-19 levels” and the continued consumer shift from cash to card. Volumes also benefited “substantially from the boarding of large corporate merchants via wholesale independent sales organisations” such as Payzone, the Irish ISO acquired by AIB and Fiserv for €100m in 2019.
Net fee and commission income – after deducting the changes passed through to the card schemes – rose rather more slowly, and was up 16% at €112m. This likely fall in take rate could be due to a growing proportion of enterprise customers in its portfolio or an unfavourable mix of transactions processed by customers on fixed price contracts. Or both.
Operating expenses rose 13% to €57m. Total staff costs were up 16% to €12m. Employee numbers grew from 108 to 135 at an average of €91K each. Credit losses grew 23% to €2.1m or 1.9% of net revenue, modest for a business with a number of high-risk clients.
Net operating income grew 31% to €62m with operating margin up 7%pts to 55%.
Unlike Cardnet, Fiserv’s JV with Lloyds Bank in the UK, AIBMS is still not paying a dividend to its parents “due to the potential for chargeback loss events arising” from the pandemic and “the uncertain economic outlook.” However, AIBMS has made a €75m loan to Fiserv at commercial rates.