GoCardless – strong revenue growth but losses widen

GoCardless, the London-based account-to-account payment specialist, has deposited its financial results for the year to June 2022, showing impressive revenue growth of 44% to £70.4m, but also widening operating losses of £61m. 

The company’s vision is to become “the world’s bank payment network,” and it aims to achieve this by offering account-to-account payments that can help merchants improve cash flow and reduce the headaches of chasing payments and managing conflicts between merchants and customers. These, it claims, are endemic in the card world.

GoCardless, which mainly offers direct debits and subscription payments, has expanded its core acceptance services to include additional products, such as “Success +,” which uses payment intelligence to increase the chances of a successful transaction, for example by retrying at specific times when the payee is more likely to have funds. It is also moving into open banking following the acquisition of Nordigen, a Latvian bank API aggregator.

For a payment type often thought of as cheap, GoCardless charges a premium price. The company’s standard pricing is 1% + £/€0.2 to a maximum of £/€4 or 2% + £/€0.2 for international transactions. Moreover, 37% of GoCardless’ revenue now comes from “committed” merchants who pay a monthly fee on top of transaction costs for additional features such as having their brand name appear on their customer’s bank statements.

Total payment volume rose 44% to £22.7bn, and revenue also grew 44% to £70.4m. GoCardless’ take rate is a very creditable 31bps, and its investors will be hoping that it can sustain the premium pricing as it enters new markets.

The company has opened an office in New York to supplement those already established in London, Paris, Munich, Melbourne, and San Francisco. Although global expansion is top of the priority list, the UK and Ireland still account for 80% of GoCardless’ revenue.

The total number of merchants grew 10% to 76,000, with both revenue and volume per merchant increasing 25% to £925 and £298.000, respectively. GoCardless has a wide range of clients from SMEs to large enterprises, including blue-chip names such as Tripadvisor, DocuSign, and the British Government.

The company charged £114m of administrative expenses for 2022, notably £74m for employees. The total staff count rose by 239 to 825 at an average cost of £106k per person. The main headcount increase was in operations, which includes “the increasingly complex compliance needs of a global business.” One example is the additional payment licence obtained in France to serve the EU.

Fraud and bad debt are not eliminated by account-to-account payments, and GoCardless holds £2.7m as merchant deposits where clients “operate in a sector with a very high failure or chargeback rates.” It also has provisions for £1.9m for failed payments and £3.8m for fraud losses, equivalent to 8% of turnover. Sensibly, GoCardless is trying to get its merchants to fund their share and has launched Protect+, its first anti-fraud product.

Total operating losses for the year were at £60.9m, and accumulated losses now stand at £171m. Despite the red ink, GoCardless is well-funded, having raised $306m in February 2022 in a round led by Pereira and Blackrock. To justify the $2.1bn valuation, GoCardless will need to deliver broad-based international expansion while maintaining high margins and negotiating the move to open banking.