2023 was a difficult year for Cardnet as the Lloyds Bank/Fiserv joint venture was hit by the impact of the cost of living crisis on its core UK high street merchant customers.
Despite UK retail price inflation running almost 10% in 2023, Cardnet’s total payment volume fell 8% to £54.6bn. Credit slightly outperformed, dropping just 3% to £14.7bn. Debit volume was down 9% at £39.9bn.
Gross revenue from merchant service fees fell 3% at £314.3m. The decline was cushioned by price increases. Revenue per transaction rose 8% to 31.1p
After deducting interchange, scheme fees and Fiserv’s costs, Cardnet’s net revenue was down 12% at £52.8m “primarily driven by the impact of the cost of living crisis on activity levels along with client attrition.” Fiserv’s fees rose from £8m to £14.5m.
Cardnet’s owners want to return the business to growth. Melinda Roylett, ex PayPal and Square, has been appointed as MD and is rumoured to have been given some very aggressive targets. Her plans have been backed with £13m spend on a “Strategic Investment Programme,” up from £6m in 2022. These costs helped drive up overall operating expense 37% to £35.5m.
Cardnet, 51% owned by Lloyds, aims to recruit new merchants by leveraging the bank’s corporate relationships. A good example is Lloyds’ partnership with PayPoint, one of the UK’s largest ISO’s. This deal will see Cardnet become the exclusive supplier of merchant services to Paypoint’s 60.000 small business customers.
PayPoint currently writes business for both Cardnet and EVO (now owned by Global Payments) but chose to standardise on Cardnet because of the wider banking product set that Lloyds brings. PayPoint currently has about 10,000 merchants with Cardnet and 20,000 with EVO. The remaining 30,000 take merchant services from other suppliers and will be a key target for the new partnership. In return, Cardnet has promised to make significant product investments through its Fiserv relationship and to launch a merchant rewards scheme based on PayPoint’s Love2Shop loyalty products.
Cardnet has no staff of its own. All employees are managed by Lloyds or Fiserv and recharged to Cardnet. Salary costs rose 24% from £14m to £17m.
With revenues down and costs up, the bottom line suffered. Profit before tax was down 40% at £23.2m, although the overall margin remains an impressive 16%.
The shareholders have dipped into reserves to pay a dividend of £34.5m. This is rather lower than the £54.1m they shared in 2022.
Despite the growth plans, Cardnet’s fortunes remain closely tied to the UK high street more generally. Management’s outlook is rather downbeat, saying “The business is aware that the combined effects of higher consumer cost of living and interest rates reducing at a slower rate than originally expected have negatively impacted consumer discretionary spend in retail, leisure, travel and hospitality sectors.”