Visa and Mastercard continue to prosper in Europe with total total scheme volume rising 11% in Q2 to €1.206 trillion, outpacing retail sales growth by some distance. The average transaction value (ATV) fell 2% to €32.89 as low-value purchases continue to migrate from cash to card.
Visa still processes more than Mastercard in Europe but the margin is narrowing. Mastercard has been successful in winning issuer portfolios from its arch rival and is growing more quickly. In Q2, Mastercard’s volume rose 12.3% compared with 10.5% at Visa.
Speaking about the Q2 results, Michael Miebach, Mastercard’s CEO said he believed the pandemic forced Europe to digitise more quickly but that the continent still offers great growth potential. “If you look at the economies in Germany, in Italy, there’s significant cash … that we can go after,” he explained. Where markets are already digitally mature, he still sees opportunities saying “The Nordics is a good example of that. There’s a whole new set of business models coming up… So I’m excited about the Europe outlook, and we continue to invest there. Bottom line.”
One of Mastercard’s main growth drivers is the conversion of Maestro cards – mainly in Germany and Netherlands – to debit Mastercard. The switch seems to be going well and Miebach reported seeing spend per card doubling because they can now be used online and outside their home country. 14m cards were converted in H1.
Visa is fighting back. It has resigned Lloyds Bank in the UK for debit and won its credit portfolio back from Mastercard, gaining an additional 10m credentials for consumer and commercial cards. Visa also renewed its commercial card contract with Raiffeisen and expanded consumer debit and credit in Czech and Romania, bringing 2m more cards. Visa has pushed hard on its Olympic sponsorship and claims to have added 100.000 merchant locations in France and issued nearly 6m Olympic branded cards.
Of course, cash isn’t going away. Together, Visa and Mastercard processed €271bn cash transactions in Q2. The total volume is flat but the transactions are gently declining (down 3%) as the ATV rose 5% to €159.
Both schemes have updated investors on lawsuits. In the UK one large legal action has been rumbling on since 2013 in which over 1150 merchants made a claim relating to excessive interchange fees. Visa says it has settled 475 merchants but £500m of claims still remain to be agreed. Meanwhile, the UK Competition Appeal Tribunal is hearing a class action related to interchange fees on commercial cards for which Mastercard is on the hook for damages of up to £1bn. Finally, a new lawsuit has begun in Portugal in which merchants are claiming damages of €400m from Mastercard for excessive interchange fees.
In product news, contactless is now the standard way to pay at POS. 80% of Visa’s face to face transactions outside the US are contactless with 55 countries at >90% contactless at POS.
Mastercard reiterated its commitment to phasing out PAN card entry for eCommerce in Europe in favour of one-click checkout. This is primarily delivered by the mass adoption of network tokens to support stored-credentials used by merchants for account-based checkout. Tokens have been a huge success. Worldwide, Mastercard says tokenised transactions were up 49% year on year. Visa has over 10bn tokens generating, it says, an incremental $40bn eCommerce revenue for merchants and saving more than $600m fraud.
Both schemes are still pushing Click to Pay for guest checkout but it’s tough going in the face of entrenched competition from PayPal, ApplePay, Stripe, Shopify and others. Mastercard says Click to Pay transactions “more than doubled” and it is “working with our merchants and bank partners to drive adoption.” Visa is integrating Click to Pay and Visa Passkey which enables cardholders to authenticate themselves using biometrics. Visa says it has “hundreds” of issuers representing more than 50% of eCommerce volume in pilot.
Visa Direct, a product which allows money to be sent to Visa cards, is finally delivering results. Total transactions were up 41% to 2.6bn in the quarter and European volumes using Visa Direct for person-to-person transactions “nearly doubled.” In the UK, Weavr, a fintech, is using Visa Direct to offer employee expense reimbursement, reward, recognition and earned wage access.
Neither scheme disclosed numbers relating to open banking although Visa said Tink, its open banking business, “continues to sign new partners.” With the continued growth in push-payment fraud, Visa sees an opportunity to sell its fraud expertise to banks. Visa Protect -a risk scoring solution – has piloted with Pay.UK and showed “average of 40% uplift in fraud detection” when applied to A2A transfers.
Forrester’s latest analysis of merchant payment providers makes for fascinating reading. The scoring can be a little incoherent at times but the report includes unparalleled direct feedback from Forrester’s clients. Stripe and Adyen come out best but don’t escape criticism. Stripe is “expensive” and Adyen’s support “can be hit and miss.”
Global Payments and Worldline, neither of whom participated in the research, score badly. Forrester doesn’t think either has done enough platform integration.
To celebrate its top spot, Adyen has made the report available free of charge. It’s worth a read and a reminder to always engage with analysts. The more you communicate – product roadmaps, customer testimonials, invitations to events etc – the better coverage you get.
Forrester aside, Worldline had a good month by recent standards. The beleaguered processor has won the fight with arch-rival Nexi to become the exclusive partner of Cassa Centrale Group. The deal doubles the size of Worldline’s Italian business by adding more than 90,000 POS terminals processing €9bn annually.
The next Italian bank up for grabs is Banca Popolare di Sondio which is reportedly considering selling its merchant services business and ending its partnership with Nexi. Worldline is said to be in poll position to pay €70-€100m for 25K POS processing €2.2bn. Nexi, BCC Pay and Market Pay are also in the running.
Worldline has also finalised its JV with Credit Agricole in France. Meriem Echcherfi, currently head of merchant services at the French bank, will run the new business which will should be live in early 2025. This is smart move. The first rule of bank partnerships is to hire your general manager from the bank.
Nexi reported decent full year results with merchant services revenue up 6% in Q4 2023 and a particularly good performance in Germany. Management will be relieved that Unicredit, Italy’s largest bank, looks set to renew it partnership with Nexi and extend the relationship to additional countries.
Stripe celebrated becoming cashflow positive for the first time. This takes the pressure off a possible IPO. “We’re not in a rush,” said the CEO. Stripe’s 2023 letter to shareholders was very bullish but didn’t disclose the company’s revenue or profit numbers.
The letter did reveal that payment volume rose 25% in 2023 to exceed $1tn and that the business is increasingly servicing larger merchants. More than 100 of Stripe’s clients process over $1bn and it has been signing good omni-channel customers such as Hertz. The car rental giant is moving its worldwide payment acceptance to Stripeincluding installing BBPOS terminals in 3,000 locations. The big win for Hertz is to be able to accept Apple Pay. Although this seems a low bar, it’s a real pain point in the US.
PAX Technology had a difficult 2023 as key customers showed “increased prudence in payment terminal deployment.” Revenue was down 18% to $860m and profits down 12% to $150m. In Europe, PAX called out good performances in Italy, the United Kingdom, Turkey, Spain and France but Germany proved more challenging.
Although than 50% of sales are Android terminals, PAX is struggling to generate revenue from services. Sales of SaaS solutions associated with the 11m devices connected to MAX Store were just $13m.
Paypoint, one of the UK’s leading ISO’s, will consolidate all its processing with Lloyds Bank Cardnet. Paypoint’s 20,000 merchants deliver around £7bn volume and the acquiring relationship had been at risk, notably from Global Payments Inc., which inherited a chunk of Paypoint’s merchants when it bought EVO last year. It looks like Lloyds’ ability to extend its offer to include a bank account and commercial card won the deal.
We saw several interesting fund raises this month.
PPRO, the white label local payments platform, raised €85m, taking its total investment to an eye-popping $462m. PPRO has some great customers including Stripe and PayPal and insiders tell me it hopes to be EBITDA positive by the end of 2024.
Flowpay, the Czech merchant cash advance specialist, raised €2.1m to expand out of its home market. Already boasting key local ISV partnerships including Dotypos, Storyous and Shoptet, Flowpay is one to watch.
Bezahl, a Cologne based supplier of payment acceptance to car dealers, raised €22m. The business already has 130 clients serving 1,100 locations. Bezahl charges a monthly fee per location and sends most transactions to Adyen for processinghttps://www.youtube-nocookie.com/embed/zplTu4QN3zA?rel=0&autoplay=0&showinfo=0&enablejsapi=0
Staying in Germany, REWE, the supermarket giant, has spun out its payment acceptance team with the brand name of Payment Tools. REWE’s strategy mirrors that of its French rival, Carrefour, which demerged its payment division as MarketPay.
Finally, GoCardless has bought Nuapay, a specialist in SEPA Instant, UK direct debits and open banking, from EML Payments, the hapless Australian processor, for €34m. Nuapay, based in Ireland processes €44bn of A2A transactions annually and is forecast to lose €1.2m EBITDA this year. GoCardless also revealed its latest financial results in an exclusive interview with Sifted. Discussing a substantial loss of £80m on sales of £92m, the CEO said “The results demonstrate that we’re moving from strength to strength.”
MPE 2024
This year’s Merchant Payment Ecosystem conference in Berlin was as good as ever. Read this special edition of Business of Payments to discover more about the end of cards, digital Euro and the slow uptake of open banking.
I moderated an entertaining panel discussion nominally about consumer behaviour but actually covering a variety of topics from Saudi investment in Fintech to why Finland’s largest retailer chose Adyen for its payment processing. The panelists were Adil Riaz from NearPay, a SoftPOS vendor, Gábor Bujáki from OTP Bank, Hungary’s largest acquirer, Janine Kaiser from The Payments Association EU and Kai Lindström from S-Group, Finland’s largest retailer. Watch the conversation below..
Schemes
Visa and Mastercard’s landmark deal to end 20 years of US litigation on “swipe fees”attracted much press coverage. The schemes have conceded an average 7bp reduction in Interchange paid to card-issuing banks. Although retailers will have more freedom to introduce surcharging, it’s likely that large merchants on IC++ pricing will see most of the benefits. Consumers may be annoyed by some potentially rather complex POS flows as merchants attempt to calculate differential surcharges by card type.
JP Morgan has become the first US bank to join Carte Bancaires. A spokesman said the move was “mainly a request from our customers, the use of the [CB] network being less expensive than that of other card networks.”
Ireland no longer has a local scheme so it’s hard to understand recent thinking in Dublin. Ireland’s Central Bank announced that the country’s payments strategy “needs drastic change” only months after the competition authorities killed an attempt to do just this by outlawing the introduction of a domestic mobile payment scheme. Revolut, which is wildly popular in Ireland, will likely profit from this regulatory confusion.
Blik, the fast-growing Polish mobile payment standard, has restated its international ambitions. With launches already planned in Slovakia and Romania, management believes “Blik Euro” could become a pan-European payment system. Local vendors are innovating with Blik. Posnet is offering Blik acceptance at cash registers without the need for a payment terminal. eService (Global Payments) is providing the processing. Fees are 0.6% + 1.4c.
Wero, the new QR based mobile payment scheme promoted by the European Payment Initiative is supposed to launch in June. However, the EPI has not posted any news on its website since December. We await updates with interest.
Capital One has revealed more of its plans for Discover, the US card network it hopes to acquire later this year. The new owners want to “fix” the network’s international acceptance, “which is not quite where it needs to be, for the entirety of our card business today,” said its VP Finance.
While there still seems a strong business case for Just Walk Out in small format stores, Amazon’s decision will come as a blow to other retailers that have bought its technology, presumably to benefit from Amazon’s well-funded roadmap. One of these may be Delaware North, a hospitality vendor that has just installed Just Walk Out technology to sell beer at London’s Wembley Stadium.
Other vendors are available. Lekkerland has installed three AI-based smart fridges at an EV charging station in Saxony. You tap your payment card, open the door, remove the items and are automatically billed. Portuguese start-up, Reckon.ai is providing the technology.
We’ve been talking about RFID to automate grocery checkouts for over twenty years but it’s still not ready. Walmart has withdrawn a pilot in which it used RFID to verify whether customer’s self-scanned purchases were accurate.
Sometimes simpler is better. Take a look at Sticky, a Manchester-based start-up which allows consumers to pay by simply tapping a cheap NFC label. “You can get a drink in five seconds with our physical digital labels. It’s faster than a card,” says the CEO. Sticky charges £60/month for eight “flows.”
Product
Retailers say that returns abuse is the leading source of fraud, overtaking phishing for the first time.Here’s a good round up from Edgar Dunn which shows the scale of the challenge. Unsurprisingly, this trend is leading to a big increase in chargebacks so why don’t retailers dispute more of them? One reason may be the risk of offending good customers. This New York restaurant complained when a customer used a chargeback to reclaim a deposit for a cancelled booking and the ensuing argument became very public.
Wild story incoming. Last month, we had to cancel our Boston trip after I was hospitallized. As a result I had to use travel insurance to get my money back on our hotel, train, and restaurant reservations. Today I got this message from @tableboston pic.twitter.com/d7jc84rllJ
The UK has a cunning plan to fight fraud. New legislation will make Faster Payments slower to give PSP’s time to investigate suspected bad transactions.
Dwayne Gefferie lays out the strategic case for PSP’s to move into orchestration or infrastructure-as-a-service. Or both. However, it’s not clear how much money is in orchestration. One analyst says the market will grow from $846m today to $4.8bn by 2032. Aite, a more reliable source, suggest the actual revenue reported by dedicated fintech orchestrators today is less than $25m. Looking on the bright side, Aite says “there’s plenty of room for providers to grow.”
Merchants are divided on whether to go with a single payment provider or use “orchestration” to manage a series of best of breed vendors. Hugo Boss is using Adyen for all its in-store and online requirements. Why not use multiple suppliers? “We are not a petrol station. We are Hugo Boss,” explains the retailer’s head of payments.
InPost, Poland’s last mile delivery specialist, has launched a payment wallet called InPostPay. It could do well as it builds on an installed base of over 9m mobile app users.
Many are sceptical about Click to Pay but the schemes’ much delayed attempt to compete with one-click wallets is finally coming to Europe. ING is offering Click to Pay with Mastercard, initially in Spain. Visa has launched Click to Pay in Francewhere Adyen is the first PSP to offer the product. It claims 4% points increase in authorisation rates compared to a standard transaction.
ISVs and their payment partners are scrambling to offer pay-at-table. Toast, the US restaurant software vendor, has launched in the UK with an impressive solution running on Adyen’s POS hardware. “Long battery life and durable,” says one IT Director.
Revolut launched its acquiring business in 2021 but we heard little news until it launched point of sale software with integrated payments. Aimed at retail and hospitality, Revolut POS is based on Nobly, the ISV it bought in 2021. The software appears to be free and transactions start from 0.8% and 2c for domestic cards. International cards are 2.6% which is pricey for any merchant in a tourist location.
There’s a small but growing category of software vendors aiming at making life easier for people who run payment businesses. Kani, founded in Newcastle, reconciles PSP transaction data with the information provided by the card schemes. Torus, started by an ex Mastercard consultant, won the innovation competition at MPE with its pricing software that gives acquirers better control over their portfolio profitability. Both are worth a look.
SoftPOS
SoftPOS is a downloadable payment application that turns any Android or iOS device into a payment terminal. The standards regime is quite complicated. Matt Jones gives a good explainer of how it all fits together.
This technology seems finally ready for prime time. Tabesto, a vendor of intelligent ordering tools for restaurants, says 90% of sales are a new product called Fox, an integrated all-in-one kiosk with no external POS or printer. Customers can choose SoftPOS payment apps from Worldline or DejaMobile. Here’s it is in action at Waffle Factory.
Deja Mobile, based in France and now owned by MarketPay, has some good case studies. Two months after launch with Rabobank in the Netherlands, 1,200 micro-merchants have activated the service of which 80% are generating transactions.
I’m not convinced PSPs can make any money out of micro merchants but if you want a mass-market customer base you will need to spend money on marketing. Best of luck to Viva, the mPOS vendor partly owned by JPMorgan, which has launched a major advertising campaign in France.
Rubean, the German softPOS vendor quoted on the Munich stock exchange, expects 2024 revenue of c.€2.5m, doubling year on year but below expectations. The company predicts sales rising to c.€10m by 2027 on the back of new contract wins including Commerzbank Global Payments.
Referring to emerging rules for variable recurring payments (VRPs), widely believed to be the best hope of driving mass market adoption, the regulator says it has asked the industry to “get on with it.” Jack Wilson from TrueLayer takes issue with this and writes the industry is now “moving at the pace of the slowest” and that the slowest is the regulator itself. The industry is complaining that it is in limbo waiting for the results of a consultation on how open banking should be priced and without a clear way of making money, has little incentive to commercialise new products.
The lack of an acceptance mark or scheme brand is also major stumbling block. Looking at the checkout page below, how would consumers know they can pay with their banking app? Clue: Vyne is an open banking vendor.
Despite the current uncertainty, there is some good news. Ecospend, Trustly’s UK business says that 30% of payment volumes at Hargreaves Landsdowne, a retail investment manager, are made using open banking.
Ecospend has been the supplier to HMRC (the UK tax authority) which has long been the poster child of UK open banking payments. With Ecospend’s initial 3 year term completed, HMRC is retendering its banking contract. The winner is likely to be one of the 15 vendors selected to join the Government’s framework contract.
A number of vendors are building an interface to allow open banking payments at POS using contactless NFC in place of cumbersome QR codes. Kevin, the Lithuanian fintech which made some high-profile layoffs before Christmas, has demonstrated A2A NFC payment on iPhone. Click through and read the comments which indicate some scepticism.
MultiPay, the UK POS focused PSP is doing something similar. Acquired.com is providing the open banking connections. Assuming the technology works, is there a business case? Alexander Peschkoff explains why A2A payments at POS don’t have commercial appeal.
More importantly, A2A payments may just be too slow for POS. A killer table from the UK Future of Payments Review shows the time it takes for a user to initiate a payment. PIX is regarded as best in class but, with Apple Pay as a comparator, even 20 seconds is too slow for POS merchant payments. Shoppers will keep using cards for a long time yet.
Artificial Intelligence
Klarna’s CEO has clarified that although the company’s AI chatbot is doing work equivalent to 700 people, this is entirely unrelated to the 700 people he layed off in 2022.
It doesn’t matter how clever your chatbot. RSR Resarch says consumers want to talk to a real person.
But the AI demos keep getting better. This ChatGPT video certainly passes the Turing Test.
Possibly, one of the most appropriate uses of AI is to count the number of mentions of AI in corporate earnings calls. Hat tip to PayPal. And to FXC for asking its robots to research this pressing question.
Rapyd’s Icelandic boss hit back at calls for a merchant boycott following the Group CEO’s strong support for Israel’s war in Gaza. “Claims such as that Rapyd works in Israeli settlements in the West Bank and that the company supports the Israeli army’s war on Gaza are completely false”, he wrote.
It’s been a good month for bloated corporate buildings. Fiserv has finally opened its new $37m HQ. “Welcome to Milwaukee. We have been waiting for you Fiserv,” said the mayor. PAX went bigger. Its new $46m HQ in Shenzen is 18 storeys high.
Payments from a Merchant Perspective – useful (and free) research from Arkwright. Standardised and low-friction open banking is their number one ask.
Wirecard latest. Dan McCrum, the FT journalist who broke the story, gives a good interview to Chris Skinner. Four years on, the story itself gets even stranger. It seems that Jan Marsalek, Wirecard’s fugitive COO, was working for Russian intelligence and has recently been living in Russia under the assumed identity of an Orthodox priest.
Visa and Mastercard’s Q3 financial results are well covered elsewhere. At Business of Payments, we’re more interested in what the investor updates tell us about trends in the European market and the success (or otherwise) of new products.
Mastercard continues to outperform Visa in Europe although its pace of growth has moderated. The two schemes are now almost neck and neck. Mastercard’s merchant payment volume grew 26% in Q3 to $602m while Visa’s was up 20% to $637m. Total scheme volume was up 23% in dollar terms although this falls to 14% when calculated in euros. Overall ATV was steady at $36.24.
European politicians and regulators have long been worried about an over-reliance on US payment networks. The European Payments Initiative and the Digital Euro are two of the latest responses. Asked about the threat of protectionism, MichaelMiebach, Mastercard’s CEO was adamant that his business would always have a role in any payment ecosystem saying. “We’re seen as a technology company, a global technology company, not necessarily as a US payment brand.” That’s a bold statement and one which does not align with current sentiment at the European Central Bank and elsewhere. Dependence on foreign owned payment systems is a risk for any jurisdiction.
Last week, Worldline’s profits warning highlighted weakening European payment volumes, especially in Germany but Miebach said he saw no slowdown. “Consumer spending remains pretty steady in Germany and generally in Europe…. So Europe’s been a bright star, continues to be for us. So we don’t quite relate to what others are reporting.”
Portfolio wins
The deceleration in Mastercard’s European volume growth is primarily due to the removal of the NatWest portfolio win (16m cards) from the annual comparisons. But Mastercard has continued to win new card portfolios including 10m Deutsche Bank cards and 20m from UniCredit. Miebach said the Deutsch Bank conversion “has already started. It’s a combination of debit and credit. It will happen over an extended period of time. It’s not a flip-the-switch kind of scenario.”
Mastercard is also working with issuers to migrate more than 100m Maestro cards (mainly in Germany and the Netherlands) to its own-brand debit product. This is good news for consumers as their cards will now work online. It’s less good news for merchants who will be faced with higher transaction charges.
Visa is also positive about Europe, remarking that it has opened seven new locations over the last five years and more than doubled its workforce. Visa claims more than 100 relationships with European fintechs and even bought two of them – Tink (open banking) and CurrencyCloud (cross-border money transfers).
Excluding Maestro, the total number of Mastercards in Europe rose 13% increase to 796m. Visa did not publish numbers for card this quarter but reported that, excluding the UK, the number of active Visa cards in Europe is up 50% since 2019. Including the UK, where it has lost one third of the debit market to Mastercard, the figures would not seem so pretty. However, Visa’s management says it expects to migrate 40m cards from 40 issuing clients in Europe over next few years. The company says that these incomings portfolios are skewed to high margin cross-border transactions.
Tokenised transactions
Increasingly, cards are tokenised which means that the fraud-prone 16 digit PAN is not included in the transaction data. Visa processed 14bn tokenised transactions worldwide in Q3, up 60% year on year. Tokens make card transactions significantly more secure, and this means that issuers are much less likely to block them. This is very good news for merchants. Ryan McInerney, Visa’s CEO, said “we’re seeing, on average, somewhere between 4% and 5% higher approval rates across our partners. And we also see it with a reduction in fraud — a 30% reduction in fraud.”
Mastercard reported “the number of tokenized transactions has more than doubled over the past two years. We just processed over three billion tokenized transactions in one month.” Management highlighted the importance of tokens in allowing Mercedes-Benz customers in Germany to “pay for fuel directly from their vehicle using only their fingerprint.”
Open banking
Although Visa was blocked from buying Plaid, an open banking leader in the US, it was able to acquire Tink, a similar business HQ’d in Sweden. Management said that Tink “continues to perform very well in Europe…and we look forward to the opportunity to bring Tink outside of Europe.”
Mastercard has acquired Token, another European open banking provider. Questioned about the commercial model for the schemes to enter open banking, Mastercard’s Miebach said “We’re putting in our open banking connection to make it clear is there a balance on the account. It’s called the payment success indicator. That is the product. And it is a per-click fee related to the API call. So that is the model.”
Contactless
Mastercard says contactless now represents 63% of face-to-face transactions globally. Miebach explained why mass transit was so important. “By converting transit to Open-Loop, we gain access to more low-ticket, high-frequency transactions, both at the station and the surrounding merchants.”
Visa reports 76% of all F2F transactions outside the US are contactless, up 5ppts. The US is growing more quickly, albeit from a lower base. Contactless share was up 13ppts to 40%. Rapid transit is driving adoption worldwide. Visa says it enabled 150 new transit systems for contactless, taking the global total to 750. Impressively, 40% of these new customers are using Cybersource, Visa’s in-house acceptance solution, as their payment gateway.
Gateways
Cybersource seems to be out-performing Mastercard Gateway Services, its direct competitor. Cybersource attracted 2,600 additional customers in 100 countries in Q3. McInerney put its success down to investments in omni-channel, tokenisation (vital for mass transit) and fraud prevention capabilities.
Both schemes have products that allow money to be sent to one of their cards. Visa reported 7.5bn Visa Direct transactions globally in Q3 up 19%. In Europe, it is supported by 1000 programmes managed by 100 Visa partners. McInerney said Visa Direct is “focused on bill payments, on earned wage access, on insurance disbursements, on P2P more broadly in new geographies around the world, both domestic and cross-border.”
Visa and Mastercard announced a strong set of Q1 2023 results, with global net revenues at both schemes rising 11% to $8.0bn for Visa and $5.7bn for Mastercard. The networks highlighted continued growth in high-margin international transactions, with Visa’s international transactions up 19% in Q1, and Mastercard’s cross-border volume up 35%. However, the two companies have experienced contrasting performance in Europe, with Mastercard outperforming Visa, mainly due to the shift of Natwest’s volume, recently won from its arch rival.
Visa’s CEO, Ryan McInerney said “I have been at Visa for nearly a decade and I have never been more excited about the opportunities in front of us.”. Visa’s operational leverage saw net income rise 17% to $4.3bn. In contrast, Mastercard’s operating income was up just 6% to $3.1bn, mainly due to higher rebates paid to banks as it competes ferociously to put its logo on credit and debit cards.
Both Visa and Mastercard reported trading in Europe was ahead of expectations, with Vasant Prahu, Visa’s CFO, saying “Europe is strong, defying what we may have expected going into the year. If there is a positive surprise, it’s clearly Europe.” Michael Miebach, Mastercard’s CEO, said that not only were macro factors better than feared, but the secular trends from cash to cards in a number of key European markets were still moving strongly in its favour.
Mastercard had the better quarter in Europe, mainly due to the shift of Natwest’s volume. Mastercard’s European purchase payment volume rose 22% to $510bn. In constant currencies the increase was 31% leading Miebach to say “we feel very well positioned in Europe.”
The number of Mastercards issued in Europe was up 16% to 743m and, despite its imminent demise, the number of Maestro cards also rose slightly to 387m. Visa no longer publishes similar numbers for Europe.
Visa’s European volume grew just 3% to $540bn although excluding currency fluctuations and the UK, it also arrives at underlying volume growth of 31%. Total transactions were up 12% to 14.7bn with ATV falling 8% year on year to $36.8.
Both companies remain focused on contactless payments, which is accelerating the shift to digital payments by replacing small cash-based purchases. Visa reports that contactless transactions account for 74% of all POS transactions outside the US, while Mastercard notes that over 100 of its markets have reached 50% contactless penetration. Although the US is catching up with a 10-percentage point increase in contactless transactions year-on-year, tap-to-pays still only accounts for 34% of POS transactions. Meanwhile, globally, contactless payment on mass transit is rapidly expanding, with Visa processing 745 million “tap-to-ride” transactions in the last two quarters, a 35% increase, and available on 650 transit systems.
The schemes discussed contrasting strategies to grow from their core of credit and debit processing.
Visa+, the newly announced, “network of networks” has attracted a great deal of interest. This product will allow users of P2P apps to send money to each other through a personalised payment address issued by Visa. Pilots with Venmo, Paypal and Western Union are expected soon but the product is for US domestic use only.
Visa management is also excited about Visa Direct. This product allows money to be sent to any Visa card but also via 66 ACH networks, 11 real-time payment networks, 16 card networks and 5 gateways to reach 7bn endpoints globally. Visa announced new deals in Latin America and the APAC but not in Europe.
Mastercard is promoting value added services to its existing banking and merchant customers. Worldwide VAS revenues were up 19% in Q1, largely driven by strong growth in cyber and intelligence solutions as well as “scaling of our identity and authentication solutions.” These are crowded markets but Mastercard’s management believes access to its unique data pool gives it differentiation.
Examples of VAS wins in Europe include MediaMarktSaturn, the large German electronics retailer, using Mastercard’s “test and learn capabilities to support the assessment and optimisation of new business initiatives.” There’s a good case study available which shows how Mastercard evaluated the impact of the retailer’s price-matching strategy.
Generative AI is this year’s hot topic. Visa’s McTiernay said: “We’ve got people all over the company that are tinkering and dreaming and thinking and doing testing and figuring out ways that we could use generative AI.” Miebach at Mastercard was more cautious. “We’ve encouraged our employees to experiment with the technology, but we set very clear guardrails. Don’t do it in production…. We will lean in, but make sure that we are a trusted party when it comes to scaling it up.”
Despite the reputational risk of association with crypto, Visa is maintaining investment. McInerney said “We see the potential for stable coins. … We’re enabling on and off ramps on crypto. We’re working with exchanges around the world to issue their users Visa credentials. And we’re developing the capability for our issuer and acquirer partners to have a choice to settle in stable coins.”
Mastercard posted a 1% increase in European payment volume to reach $502bn in Q4 2022, outperforming rival Visa Europe, whose volume decreased by 4% to $546bn, according to company reports. Mastercard has gained significant ground on its larger rival, securing issuing portfolios from prominent banks including NatWest, Santander, and Deutsche Bank, contributing to its growing market share. Europe now accounts for 29% of Mastercard’s global volume, as compared to 20% for Visa.
Michael Miebach, Mastercard’s CEO, noted that, confounding expectations, continental European consumers have proven to be “fairly resilient” due to fiscal cushions and energy-saving measures, although the UK market “might be a little more shaky“. He sees continued growth opportunities in Germany and CEE, with a “dramatic digitisation opportunity“, particularly with contactless payments at POS.
Combined Visa and Mastercard payment volume rose 8% when counted in Euros, roughly in line with consumer price inflation and overall economic growth. With domestic volume growth likely to remain constrained, the financial performance of both card schemes will remain closely linked to the evolution of high-margin cross-border transactions.
The news of China’s reopening, coupled with both schemes reporting strong growth in cross-border transactions, has been welcomed by analysts. Mastercard reported a 20% increase in cross-border volume at constant currency, excluding intra-EU transactions, with continued strong numbers running into January 2023. Visa reported a 31% increase in cross-border volume at constant currency, with Europe’s inbound and outbound travel now exceeding 2019 levels.
Both sets of management made a series of product-related updates.
Visa Direct, a product that enables merchants and financial institutions to make payments to Visa cards, has seeing good progress, much to the delight of Visa’s management. In Q4, the product recorded 1.9 billion transactions globally, a year-over-year increase of 39%. Visa regards Visa Direct as the key to unlocking the vast potential of the B2B payment market, with new deals being secured with leading companies such as Go Henry. This product now allows parents to more easily top up their child’s Go Henry debit card.
Click to Pay is the card schemes’ competitive response to highly successful one-click payments such as Apple/Google Pay and PayPal. In one form or other, the product has been operational since 2012 but has made little progress. Mastercard reported a new distribution partnership with Adyen.
In a different approach, Mastercard has opted to partner with Token for its open banking initiatives, instead of acquiring or building the necessary capabilities in-house. The company has reported a partnership with UK’s Secure Trust Bank, a provider of point-of-sale finance, though it has also declined to disclose its transaction volumes.
Mastercard announced its role in powering the eFaktura service, widely utilized by the Norwegians for bill payments. Additionally, Tysys has partnered with Mastercard to offer digital receipts to 5 million cardholders in the UK and US. The digital receipts will be made available through Mastercard’s Consumer Clarity product, developed by Ethoca, which aims to reduce chargeback queries by providing consumers with detailed information regarding their transactions.
Mastercard’s Q3 results showed healthy increases in worldwide revenues, mainly due to continued strong growth in high margin international transactions. Worldwide cross border payment volume was up 29% in constant currencies with very high growth (+73%) in travel related spend offset by smaller increases (+13%) in cross-border eCommerce.
With investors worrying about macro conditions, management reassured that Mastercard is well prepared for the coming storm. Michael Miebach, CEO said: “Consumer spending remains resilient and cross-border travel continues to recover. The macroeconomic and geopolitical environment remains uncertain. Inflationary pressures have remained elevated. Should the market outlook weaken, we are prepared to act quickly to modulate our expenses.”
Local currency weaknesss hit Mastercard’s European business, just as it has with all the global payment companies reporting in dollars. Sachin Mehra, CFO, revealed that every $0.01 change in the $/€ exchange rate hits topline revenue by $55m per quarter.
Currency fluctuations apart, management is very positive on its European operations as it believes Mastercard is outperforming Visa in winning issuing mandates from banks and fintech’s. Sachin Mehra said: “We continue to see good Mastercard performance in Europe. Remember in terms of what you are seeing in our metrics, you’re seeing not only what the underlying economies are doing but also the impact of our share growth which has been taking place in Europe. It’s kind of the amalgamation of all of that which is coming through.”
Total purchase volume on Mastercards in Europe[1] was up 1% to $478bn in Q3 but looks healthier (up 16%) when measured in constant currencies. Whichever measure chosen, Mastercard beat Visa whose European payment volume was down 6% in dollar terms in Q3.
ATV on card purchases was up 8% to $33.61.
Mastercard’s forced withdrawal from the Russian market impacted the total number of purchase transactions, which fell 7% to 14.2bn. This is the second successive quarter of decline. The total number of cards[2] rose 5% on the quarter but remains 1% below Q3 last year.
In line with the continued shift to digital money, Mastercards are used less frequently for cash withdrawals. Cash volume in Europe fell 24% to $142bn with ATV down 16% to $142.
Intra-EU cross-border is a good indicator of the health of the European travel/tourism market and continued to show strong year on year increases – up 36% y-o-y and 40% up on 2019. However, Mehra expects “some moderation within Europe” in Q4 as comparisons get tougher.
Mastercard reported strong growth in the UK where it has won a large issuer customer from Visa. Less positive was a $208m provision for litigation with UK merchants relating to allegations of over-charging Interchange. This follows a $27m settlement with a UK merchant in Q3 21 in a similar but unrelated case. The merchant is believed to be Sainsburys, a large supermarket.
Elsewhere, management is bullish on Germany where a portfolio win at Deutsche Bank will shortly come on stream and Mastercard also hopes to benefit from the forthcoming switch from Maestro to Mastercard debit. This is expected to drive additional eCommerce transactions because Maestro cards cannot be used on the Internet.
Despite the meltdown in crypto trading activity, Mastercard continues to build out its Defi ecosystem. In Q3 it announced plans for whitelabeling a crypto asset tracking and custody solution from Paxos Trust Company. This gives Mastercard some option value without needing to make a financial commitment. Whether any of its bank partners had decided against offering crypto services, but will now change their mind because Mastercard is sponsoring a product, is an open question.
Mastercard has also struck a deal with Checkout.com and Young Platform in Italy to use Mastercard Send as an off-ramp for crypto to fiat conversion. Again, this is low risk but gives Mastercard some upside if trading restarts in earnest.
Other product news included:
Impressive results from Mastercard’s Digital First solution which provides a set of tools allowing issuers to better manage cardholder accounts. Across the first 200 banks taking part, Mastercard reports 2ppts higher approval rates, 4ppts reduction in fraud and 10% higher average spend per account. Chase in UK, Citi Banamex and ING in Spain are among the latest European customers.
Dynamic Yield, a product recommendation and personalisation engine bought from McDonalds for $325m, has gone live with a German fashion brand with 1400 stores.
Mastercard’s European payment volume grew a healthy 14% in the second quarter with ATV ticking up slightly. CEO Michael Miebach said that “spending trends are positive, although the risks related to both the supply of natural gas and higher interest rates remain headwinds.”
Miebach, like his counterpart from Visa, also highlighted the long-term potential of Mastercard’s push into Openbanking in Europe.
Mastercard announced a series of impressive cross-selling product wins with European financial institutions as the card brand strengthens its position in payment-related services.
Paysafe will offer Mastercard Send (allowing easy pay-outs to Mastercards) to its merchant customers in the UK and the EU.
Postepay is using Mastercard’s Identity Check payment authentication service in Italy and claims double digit improvements in approval rates
Dwolla, Synctera and i2c have signed up as openbanking partners
On the product front, Mastercard continues to promote the much delayed Click to Pay. Other than to say that it is now enabled in 20 markets, no other information was forthcoming. Similarly, we’re in the dark about how much BNPL volume is running through Mastercard Instalments.
One new acquisition was announced in the quarter. Mastercard purchased Dynamic Yield from McDonalds which had, itself, only bought the company in 2019. Total cost is $325m including $219m goodwill. Dynamic Yield is a SaaS platform that offers “individualized product recommendations, offers and content based on a range of factors, including past purchases, page views, time of day, current store traffic and trending products.”
As a footnote, the decline in Maestro may have slowed or even stopped. The number of cards issued edged up 1% in Q2.
