PayPoint – strong eCommerce performance offsetting weakness in merchant services

PayPoint, a provider of bill-paying locations and one of the UK’s leading independent sales organisations (ISOs), has released a trading update for the three months ending December 31, showing total revenue rising by 10% to £32.5m, roughly in line with inflation. The update revealed a strong Christmas for instore parcel pickups, offset by continuing weak performance in merchant services.

Card payment net revenue rose just 1% to £7.8m, with the total volume processed falling 2% to £1.7bn. The company’s recently acquired ISO, Handepay, had a particularly weak quarter as its legacy Worldpay merchants quit in droves. Handepay lost over 20% of its Worldpay merchants between April and December 2022. PayPoint has signed a four-year contract extension with Worldpay with improved commercial terms, in hopes of protecting this part of its business.

The update also revealed recruitment challenges are still holding back sales efforts, and the company’s original ISO business with Lloyds Cardnet, which has finally introduced next day settlement, had a marginally better performance than Handepay. Payment volume and merchant locations were steady at £0.6bn and 17,500 respectively.

PayPoint’s ISO troubles contrast with Paymentsense which reported 89% growth in payment volume in its most recent results but management points to investment in both the Handepay and PayPoint propositions including a new Android terminal. Nick Wiles, CEO, said “ Sales momentum has continue to build in the quarter across both Handepay and PayPoint, supported by our most competitive and attractive proposition ever and allied with a more detailed focus on customer service and retention, leveraging our AI and data analytics capabilities.”

In other divisions, the highlight was eCommerce. This is a service in which shoppers can pick up parcels from Paypoint merchants that they’ve ordered online. Transaction volume was up 84% to 16.9m in a bumper Christmas season. Although growing swiftly, PayPoint’s revenue equates to just 14p per transaction so it’s hard to see this business line growing into a major revenue earner.

Payments and banking revenue was up 11% at £14.7m driven by the increasing trend to digital transactions and a particular boost from the Government’s Energy Bills Support Scheme vouchers. Householders could redeem these at PayPoint’s network partners.

Elsewhere, PayPoint reports its first customer for its OBConnect Open Banking solution which, it claims, is the first confirmation of payee service offered by an organization other than a bank.

Looking forward, the major news for PayPoint is the acquisition of Appreciate Group for £83m, announced in November 2022, which brings prepayment savings products and a strong voucher and employee rewards business. This purchase is expected to be immediately earnings enhancing.