The German Sparkassen (savings banks) are among the few European incumbents thriving in payments. S-Payment, the merchant services division of DSV Group, a central organisation providing services to the 353 member Sparkassen, saw revenues rise from €249.5m in 2023 to €291.8m in 2024 — a 17% increase. The information is included with DSV’s 2024 annual report although S-Payment’s profits are not disclosed.
Higher revenues were attributed to “services for marketing and development projects for card-based and digital payment applications, as well as from the high acceptance of mobile payment applications.”
S-Payment volume from Apple Pay and Google Pay reached €7 billion in Q1 2025, up 35% year-on-year. Girocard transactions rose 12% to 295 million, significantly outpacing the domestic payment scheme’s annual growth of 5.6%. S-Payment’s terminal estate also grew by 5%.
The company is bullish on its softPOS (“Scan to Pay” on mobile), which it claims has been downloaded 2 million times and processed 21 million transactions in Q1 2025. The solution supports Alipay+ and Bluecode. Here’s a fun promotional video:
Management is also very positive about wero, Europe’s new account-to-account solution that aims to “close the giropay gap” for online bank payments. One million Sparkasse customers have activated wero within their mobile banking apps, though there’s no usage data yet available.
The S-Payment division also includes:
S-Public Services, which had a particularly strong year. It counts 3,800 public-sector institutions among its clients. Two-thirds of German municipalities already use GiroCheckout for online payments. In partnership with PAYONE, S-Payment won the nationwide tender for ePayBL, the federal and state governments’ online billing platform for administrative services.
40% of PAYONE, the online payment and merchant acquiring joint venture with Worldline. Worldline shareholders will be reassured to learn that no impairments or write-downs related to PAYONE were noted in S-Payment’s 2024 report.
33% of GIZS, a joint venture originally formed to support the now-defunct paydirekt scheme. GIZS has since pivoted to supporting broader payment innovation within the Sparkassen-Finanzgruppe.
22.5% of SRC Security Research & Consulting, which provides PCI and cybersecurity services and is recognised as a Common Criteria evaluation lab.
12% of qards, the issuer processor formed from the merger of Bayern Card Services and PLUSCARD. It now handles over 28 million Visa and Mastercard-branded Sparkassen cards.
Further growth is expected in 2025, with management forecasting “additional revenue through the further development and implementation of both physical and digital payment cards, as well as mobile payment solutions.” Management makes a point of restating its optimism about the future of Girocard, with continued digitisation and a new partnership with PAYBACK, the country’s leading loyalty programme which allows card holders to automatically earn points when they pay by card.
Shift4 is certainly one of the more interesting payment businesses and pretty much the only one to have made a demonstrable success of payment/software convergence. Keen to find out more, I was delighted to join a small crowd of Fintech analysts for a ringside seat at the company’s Investor Day in Las Vegas last week.
Jared Isaacman (below) founded the business 26 years ago and this was his last public event before taking a new job running NASA. Despite his track record of business success, Isaacman is now best known for paying a reported $200m to Elon Musk for space flights.
You can view the whole deck here but first read what I learned from the presentation and side-conversations with the analysts and Shift4’s exec team.
Shift4 feels good about itself. Management is very pleased that the business comfortably exceeded the ambitious targets published at Shift4’s last investor day in 2021. So far, so good but analysts weren’t happy with guidance for 2025 and continue to be nervous about execution risk in Shift4’s acquisition led growth strategy. The stock price tumbled 20% during the week.
Investors are also worried about the change at the top of the company. Jared Isaacman is clearly a very well-liked and respected CEO who leaves the business in fine shape. It’s a tough act to follow. Isaacman, who remains the majority shareholder, has handed some rather demanding objectives for his successor. Taylor Lauber, the incoming CEO, must deliver 30% CAGR revenue and EBITDA over the next three years (see chart below). Meeting the very bullish earnings guidance will require continued flawless execution. There’s not much room for error. Hence the wobbling stock price.
It was probably a mistake to run the Investor Day directly after the Q4 results call. The analysts, busy tapping numbers into their spreadsheets to prepare buy/sell notes that evening, weren’t paying enough attention to the strategy presentations that followed. Undoubtedly, there is risk in execution and succession, but the Shift4 strategy is coherent and well-evidenced.
Two thirds of future growth is forecast to be organic with the remainder coming from cross-selling payments to the customer base of Global Blue and other acquisitions. I’ll come back to Global Blue a bit later, but this deal alone is said to boost Shift4’s target addressable market from $800m to $1.4 trillion by giving a right to play in European retail (see chart below).
Shift4 is focused on verticals where it has a differentiated right to win, weak competition and where there is a strong opportunity to cross-sell payments to software customers. The strategy has been successfully executed with restaurants, hospitality and sports venues in the US. Shift4 plans to take these products global. Retail, a new focus after the Global Blue deal, is more competitive, from both a payments and software perspective, and likely to be a tougher task.
Shift4 takes a vertically integrated approach to its restaurant and hospitality software products (now all called SkyTab) and includes software, hardware, payments, gift cards and installation in the bundle. This means Shift4 can replace four or five vendors for a typical operator. Consolidating multiple payment and software relationships into a single solution from one vendor reduces complexity and cost of ownership for the merchant but also means that Shift4 doesn’t have to compete on price. One of the strongest differentiators is a large library of integrations into 3rd party services such as booking engines, loyalty programmes, ERP systems etc which makes SkyTab hard for competitors to dislodge.
The focus on developing new software features in response to customer demand has helped move Shift4’s merchant base upmarket. The massive resort in Las Vegas where the Investor Day took place ran pretty much all is POS software and payments through Shift 4. Large customers bring bigger payment cross-sell opportunities and don’t go bust as often as small ones. This improves customer lifetime value while keeping acquisition costs under control.
Shift4 is internationalising quickly and will soon be a significant competitive threat to the European incumbents such as Worldline and Nexi. 20% of revenues come from international business today, almost all from Europe. 30% of new merchants signed in Q4 were from Europe and post Global Blue, two thirds of the headcount will be in Europe.
International growth has been based on the Finaro acquisition and, so far, has been primarily from acquirer/processing rather than software. Since joining Shift4, Finaro has doubled its sales and EBITDA while growing POS from 3% to 30% of revenue. Shift4 has now launched SkyTab in the UK and will shortly begin sales in Germany.
Shift4’s growth has been founded on its ability to buy businesses and cross-sell its products to the expanded customer base. It has built a remarkable acquisition machine. Management has demonstrated a clear rationale for buying businesses, a proven screen for choosing the right ones, a keen eye for a bargain and a ruthless process for delivering synergies. I’m impressed but Shift4 has sometimes struggled to convince a sceptical investor community that it can succeed where many have failed
The company’s strategy team has certainly been busy. Shift4 evaluated 300 deals in 2024, did due diligence on 50, made offers of interest on 15 and executed 5. Shift4 says it only works on deals sourced in-house and doesn’t play when bankers send round teaser documents. Interestingly, the last three acquisitions – Givex, Vectron and Global Blue – were all unloved stock-market listed companies with bombed out share prices. No secrets here. The targets were hiding in plain sight.
The main reason for the acquisition led strategy, according to Shift4’s execs, is that it’s cheaper to recruit customers by buying businesses than through direct sales or digital marketing. Shift4’s rule of thumb when evaluating acquisitions is to be able to buy merchants at or below $1000 each and then spend $2000-$3000 in incentives (sales commission and free hardware) to move them to SkyTab. Management contrasted this with Toast’s cost of acquisition which they say is closer to $17,000.
Shift4 has been particularly successful at integrating businesses; keeping what it needs and closing what it doesn’t. Customers of acquired companies are made a good offer to come to Shift4. If they don’t accept, prices rise, and service drops until they change their mind. It’s risky and requires strong nerves but it’s working.
A strong PMO is a competitive advantage. A team of 12 gets involved from the due diligence stage to have an integration plan ready to go on day one. Management gave the example of Appetize, a stadium software vendor which Shift4 bought in 2023. Its best developers were immediately moved to work on Shift4’s go-forward product. 15 months later, 70% of customers had made the switch.
In Europe, the Vectron acquisition is reportedly going well. Vectron, a restaurant software vendor based in Germany, has 65,000 merchants and sells through a network of 300 dealers. Payments had been almost entirely ignored. Shift4 has launched a payment service called Vectron Smart at €34.99/month (including two PAX terminals) and 1.29% per transaction. The Vectron dealer network is reportedly very excited and has already “sold hundreds.” I wouldn’t be surprised to see Vectron’s best developers already working on localising SkyTab for Germany.
There’s a strong contrast with acquisition-led competitors. Some, like Global Payments, have not had a clear day two strategy for the software companies they bought and found themselves supporting legacy products without the capital to invest in a market-leading roadmap. Others, such as Worldline have been unable/unwilling to close superfluous platforms, leaving them with high operational costs and multiple product roadmaps.
Although Finaro was originally bought to provide a platform to support Starlink’s global direct to consumer subscription sales, it first provided Shift4 with European acquiring and strong eCommerce credentials. The Americans have supplemented Finaro’s digital gateway with POS capabilities to create a multi-market unified commerce (UC) product. This has helped win complex European deals in transportation such as supporting EV charging networks from Atlante in Italy and France and Fastned in Northern Europe. The UC platform also supports payment facilitators such as Flatpay in Denmark and, newly announced this week, Curb, the taxi payment specialist in London.
The need to follow Starlink has brought Shift4 the ability to serve customers in a wide range of markets (see below) although it’s not clear, outside Europe and North America, how much capability is with local licences and how much delivered by 3rd parties.
The major news at the Investor Day was the Global Blue acquisition and it certainly could be transformative. Shift4 is paying $2.5bn at a modest 13x EBITDA for the Tax-Free Shopping (TFS) specialist. GB is a well-run, growing business with a quasi-monopoly. If geo-politics don’t intervene, the price is a steal and Shift4 could make its money back even if it delivers no synergies at all.
Global Blue claims almost 80% of the market; processing VAT refunds on $30bn consumer spend at 75,000 luxury goods merchants with a take rate close to 3%. Volume is split 2/3 Europe and 1/3 Asia Pacific. There’s plenty of detail in GB’s investor deck. Shift4 will also be getting a small (€45m rev) but very lucrative (96% margin) dynamic currency conversion (DCC) business and an acquiring licence in Australia.
Shift4’s deal rationale (see slide below) is to cross-sell payments to Global Blue’s retail customers. In Europe, are primarily in France, Spain and Italy. TFS was abolished in the UK in 2020 and Global Blue exited this market.
Shift4 management also believes it has an opportunity to take DCC to Shift4’s US customer base. And there’s potential in better monetising Global Blue’s database of 15m rich people who like shopping and travel.
This strategy isn’t unique. Advent, the private equity group, has put together Planet, a business which combines TFS, a unified commerce platform and European acquiring capability. This sounds a lot like what Shift4 is looking to do.
Planet has also bought several ISVs with a focus on hospitality and luxury but cross-selling has proved tough going, financial results have reportedly fallen short of expectations and Advent is rumoured to be looking for an exit. While the Shift4/Global Blue tie-up is undeniably further bad news for Planet, Advent’s unhappy experience shows that execution is as important as strategy.
This isn’t the only risk. TFS is volatile and critically dependent on rich people continuing to travel to buy luxury goods. Global Blue maintains that TFS held up well in the global financial crisis, but airline disruption and economic pressures can result in earnings more cyclical than payment processors are used to. Also the DCC revenue stream is dependent on relationships with more than 50 acquirer partners who may not be keen on putting business with a competitor. Some may move to Fexco which is now the largest independent DCC provider.
Finally, I need to discuss the thing nobody talked about. It’s increasingly impolite to introduce politics to any conversation with strangers in the USA. During the Investor Day nobody mentioned the current unstable geopolitical situation, either from the stage or the floor of the conference. This can’t be ignored; especially for a US business betting big on going global and welcoming two Chinese giants onto its share register.
Ant and Tencent are current shareholders in Global Blue and embed the TFS service in their WeChat and AliPay consumer apps. Following the closure of the GB deal, the duo will be investing directly into Shift4. From a purely business perspective, welcoming two such committed long-term investors can only be a positive for Shift4 but we’re living in uncharted geo-political waters. If US/China relations go bad, things could get tricky despite Jared Isaacman’s friendship with Elon Musk.
Significant write-downs at PagoNxt, Santander’s merchant payment business, masked a good underlying performance reported with the bank’s Q2 2024 financial results. Notably, economies of scale in payment processing helped double EBITDA to €69m.
PagoNxt was created when Santander consolidated its payment assets into a single unit containing Getnet, a multi-national merchant acquirer, Ebury, a London based trade finance specialist, Superdigital, a Latin American financial marketplace for the economic inclusion of the underbanked and PagoNxt Payments which offers wholesale A2A capability based around its Payments Hub.
The refocused Getnet is the second largest acquirer in Latin American and has good positions in Spain and Portugal where it sells through Santander’s large domestic banking networks. Santander also has a strong footprint in the UK where Elavon is the bank’s preferred payment partner today. It’s not clear if or when Getnet will replace Elavon in this relationship.
Returning to the Q2 2024 results, global merchant payment volume at Getnet rose by 9% to €54bn. This is the slowest increase in volume yet reported by PagoNxt and reflects the impact of the loss of its German merchants. ATV ticked up 6% to €20.85.
Payments Hub which offers a single API connection into a number of A2A platforms including SEPA, Faster Payments and SWIFT, is growing fast from a low base. Total transactions increased from 79m to 405m in the first half of 2024.
PagoNxt is successfully turning increased volume into sales revenue. Turnover was up 8% to €300m with the good performance attributed to Getnet in Europe, Chile and Mexico, where it deployed DCC for the first time, as well as higher sales at Ebury.
Management is keen to reduce its dependence on Santander and was pleased to report that 22% of total PagoNxt revenue is “open market”, that is sourced from its own distribution, compared with 14% last year.
Higher volumes have begun to deliver economies of scale. Unit transaction costs at Getnet fell 9% to 3.7 cents, allowing operating expenses to hold steady at €297m despite the growing size of the business.
PagoNxt is now consistently profitable on an underlying basis. EBITDA doubled to €69m in Q2 as the margin grew 8pp to 20.1%. Management believes that it is on course to reach the medium term target of 30% EBITDA margins.
Net operating profit before the write downs was €4m compared to a loss of €18m in the same quarter of 2023. After the write downs, PagoNxt lost €258m.
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.”
It’s obvious why Klarna is selling. KCO competed with key distribution partners such as Stripe and Adyen and the very generous sale proceeds will bolster Klarna’s balance sheet and help grow its lending business.
But it’s less clear how KCO’s new owners will make a return on their investment. Stand-alone gateways have been under considerable pricing pressure in recent years, and many have ended up vertically integrated into the larger merchant acquirers.
In banking news, BNP Paribas and BPCE, which together handle c.30% of card payments in France, will invest €100m each and pool their payment capabilities to create a joint-venture with the scale to compete with Worldline and Nexi. Technology will be “home grown” and most likely a continuation of Partecis, an in-house platform based on ACI products. While there’s plenty of scope for synergy in France, the JV will find its hoped for international expansion rather more challenging as PagoNxt, Santander’s payment unit, demonstrated when it recently closed its German operations.
IDC, a London-based research firm, has published vendor evaluations for online and omni-channel retail payments. The full reports cost $20,000 each but the top ranked firms have helpfully made their sections available free of charge. Stripe comes top for online payments although is marked down for being expensive. Adyen is first for omni-channel but customers are warned that its all-in-one solution may lack flexibility.
Viva Wallet’s lawsuit with JP Morgan ended in a London courtroom with both sides claiming victory. JPM paid an eye-popping $800m for 48.5% of Viva in 2022, primarily to gain access to SME customer onboarding tools for European markets. Haris Karonis, Viva’s founder, claimed that JPM then deliberately blocked his company’s launch in the US so that the giant American bank could buy the rest of Viva on the cheap. JPM counter-claimed that Karonis failed to understand how far Fintech valuations had fallen.
It’s taken four years and 14 of the original 31 banks have exited the consortium but the European Payment Initiative (EPI) has finally launched wero, the long-long-awaited domestic European payment champion. Wero, a combination of “we” and “euro”, is live for person-to-person money transfer, initially for customers of co-operative and savings banks in Germany and KBC in Belgium. French banks come on stream in the autumn.
Shoppers will be able to make eCommerce payments with wero from early 2025 and Computop, the German PSP, has already begun asking merchants to register to be part of a pilot. In-store payments will follow in 2026.
The consensus from payment experts is that for wero to succeed the EPI needs to focus ruthlessly on user experience and keep the member banks firmly in the background. And “I need a wero” is the only song that will do as you can hear in this short commercial.
Even though wero is at least six months away from being ready for eCommerce, its launch sparked the unexpectedly early closure of Paydirekt/Giropay, a domestic competitor to PayPal launched by the German banks in 2016.
Insiders tell me that the service termination was badly handled. Giropay switched off its old integration interface at the end of June even though many acquirers had not yet migrated to the new version.
Meanwhile, Klarna has announced the closure of Sofort, the German online bank transfer service which it bought for $150m in 2013. Merchants will be migrated to Pay Now, Klarna’s open banking product. This includes buyer protection which is great for shoppers but less exciting for Sofort’s many merchants in the gambling and adult sectors. These customers will be looking for alternatives.
Klarna’s new wrapper doesn’t come cheap. In Germany, Adyen is charging 1.35% + €0.20 for Klarna Pay Now transactions. For UK merchants, Mollie is asking a punchy 4.99% + £0.30.
Blik, the wildly successful Polish mobile payment standard, continues its stunning growth with payment volume up 53% in 2023 to €29bn. Blik is jointly owned by Mastercard and a number of local banks who have suddenly woken up to the importance of their investment. From now on, the banks will send their CEO’s to Blik’s board meetings.
Bancomat, the Italian domestic debit scheme, is finally getting its act together. Milan-based investment fund FIS has made a €100m investment, the board has been slimmed down to speed decision making and a new CEO appointed from Mastercard. Nexi runs the technology for Bancomat and has put the card scheme live on Apple Pay and as a payment option on Amazon.
We’re taking a keen interest in the convergence of software and payments. Flagship Consulting’s latest report shows quite how dependent many American ISV’s have become on payment and other financial services revenue.
In response, payment processors know they need to partner with ISVs and some have gone further, buying or building an in-house range of vertical software.
Intriguingly, the stock market value of payment processors that offer software is rather lower than software vendors that offer payments processing. Jevgenijs Kazanins looks at why Toast (an ISV that offers payments) is valued more highly than Shift4 (a processor that offers software) even though Toast makes much less money. His conclusion is that ISV’s are better at securing recurring revenues under contract.
European ISV’s have now realised they too can make money from processing. The opportunity is smaller than in North America because payment margins in Europe are much lower. Nevertheless, a savvy commerce software vendor can still double profit margins by embedding payments in its core merchant offer.
With so many acquirers and PSP’s pivoting towards ISV’s as their primary distribution channel, a number of start-ups have begun offering key parts of the technology stack as-a-service. Here are a few that have caught my eye.
Shape Technologies is offering payments-platform-as-a-service to payment facilitators with capabilities including onboarding, KYC and billing. Shape is founded by alumni from Cardstream and is helping put Taunton, Somerset on the Fintech map.
Fung, in Amsterdam, offers a similar product set to Shape but is also a payment institution and can handle the money flow too.
Dublin/Vilnius based Paynt, goes one step further with a full acquiring-as-a-service proposition.Subscribe
New shopping
We’re keeping a close eye on the progress of autonomous stores as one possible driver of a seismic shift in grocery transactions from POS to the shopper’s phone.
Although sceptics point out that frictionless checkout often involves more manual intervention than the vendors let on, the use cases are multiplying. For example, in a village store in Switzerland a shipping container is transformed into an unmanned convenience store (or walk-in vending machine) using technology from FastaXs.
In Europe, Mastercard is backing PayEye, a Polish start-up which is piloting its iris/facial recognition product at five locations of Empik, a large retailer of books, toys and games.
A number of start-ups are trying to make it easier for merchants and consumers to move to digital receipts. Habits are hard to shift. Despite a new legal requirement in France that paper receipts should be opt-in only, Auchan, the grocery chain, reports 60% of shoppers still ask for paper.
In the UK, Slipp, which boasts JD Sports as an early client has raised £750K. Slipp integrates with the ePOS software to send the shopper a text or email. JD Sports says using Slipp’s SMS receipts to promote its loyalty programme is increasing the number of customer sign-ups.
Anybill, from Regensberg in Germany, asks customers to scan a QR code presented by the ePOS. Pricing ranges from €4.49 to €35.99 per month per outlet.
Yocuda, a French start-up acquired by Global Blue, claims to have delivered over 2m electronic receipts to over 200,000 identified shoppers. Clients include Halfords and Decathlon.
Receipt Hero, based in Helsinki, has raised additional funds to supplement the $5.7m already invested. Receipt Hero offers cardlinking as well as QR scans. Partners include PayOne.
Pi-xcels from Singapore has an elegantly simple product that delivers an e-receipt automatically when the shopper taps their phone on the payment terminal. The product integrates with the terminal not the ePOS software and is available on Ingenico and PAX.
There’s an open question whether digital receipts can establish themselves as product category in their own right or whether merchants would prefer to buy the capability as a feature of existing POS or CRM software.
This technology, which allows any off the shelf consumer device to accept contactless card payments, was originally touted as a micro-merchant proposition but is proving most popular with large enterprises.
LVMH is leading the innovation. Liberated from the need to locate the nearest payment terminal, sales associates at Christian Dior, an LVHM brand, each have their own iPhone to serve customers wherever they are in the store. Dior has worked with Adyen, Global Blue and Vo2 Group, a Paris HQ’d tech consultancy, to add instant VAT tax refunds to the proposition.
In vendor news, Rubean, based in Munich, has raised an additional €2m capital to finance its strong growth. Sales are forecast to rise to €2.2-€2.5m this year from €1m in 2023 on the back of new distribution deals.
Rubean’s partnership with Global Payments may be threatened by the Atlanta processor’s unpublicised purchase of Yazara. The Global/Yazara tie up is likely also to be bad news for MyPinPad which local sources suggest may be replaced as supplier to eService, Poland’s largest acquirer, which Global bought last year.
In better news for MyPinPad, Ur&Penn, a leading chain of jewellers in Norway, is using its SoftPOS application to take store payments on the associate’s Android phones. 2izii is the integrator and Elavon the acquirer.
Phos, acquired by Ingenico in 2023, is making good progress building out its distribution network, announcing a key partnership with Shift4, a US processor with big ambitions in Europe. Phos is also the technology partner for BORICA, which provides SoftPOS to the three largest banks in Bulgaria. BORICA claims 1,500 “terminals” live today.
In Italy, Ultroneo has implemented MarketPay’s PayWish SoftPOS application for its Get Your Cash merchant proposition. Volumes are growing swiftly (see below) but it’s not been plain sailing. Writing on LinkedIn, one Ultroneo director explained “For nearly 12 months now we have been struggling with the teething problems of this new technology. Bug after bug, incident after incident, we have managed to stabilize the SoftPos to the delight of our customers.”
Openbanking
The UK’s incoming Labour government is making very positive noises about fintech. Quoting from its manifesto: “Financial services are one of Britain’s greatest success stories. Labour will create the conditions to support innovation and growth in the sector, through supporting new technology, including Open Banking and Open Finance and ensuring a pro-innovation regulatory framework.”
There is much that a new regulatory approach could deliver, including an open banking acceptance mark, “scheme” rules to ensure common standards for authorisation codes, refunds etc, the introduction of consumer protection and a recognition that all this cannot be provided free of charge.
Positively, the number of open banking payments made in the UK rose c.50% year-on-year to 17m in May 2024. Variable Recurring Payments (VRPs), the open banking equivalent of direct debits, now account for 11% of the total.
The increase is encouraging but compared with the 2bn debit card transactions made in the UK in a typical month, volumes remain very small.
The slow take up of open banking has implications for the large number of vendors operating in this sector. There are twenty listed on the UK government’s procurement framework alone. If revenues don’t arrive soon, only the best capitalised will be able to keep trading until the product goes mainstream.
Truelayer, hopes to be one of the survivors, having raised a remarkable total of $271m from its investors. Truelayer’s CEO has given an interview to explain that he is playing a long game, saying “We are an infrastructure business. That means we are likely going to spend a lot of time and a lot of years building and spending money before actually earning,”Subscribe
Cash
Germany is often cited as the last hold-out of the cash economy but the latest Bundesbank payment survey shows a further decline in the use of paper money. The cash share of transactions fell 7% points in 2023 to 51% and its share of volume by 4% points to 26%.
It’s no surprise that policy-makers in many countries are grappling with the implications of the world going cashless. For example, Ireland has passed an “Access to Cash” law which gives the government powers to set minimum numbers of ATMs for each area. The local banks, and their customers, will bear the cost. Revolut, wildly popular in Ireland, will likely get a free ride.
Crypto currencies are assets not money, yet vendors persist in bringing forward payment acceptance solutions at POS.
“Few have heard of SpacePay, but give it a year, and it will likely be a household name” is the bold claim from this London based start-up which graduated from Barclays’ fintech accelerator. SpacePay, which has raised $750K, says it will allow people to spend crypto at “most existing point of sale card machines.” It’s not clear how this would work in practice.
If there is a user base for crypto at POS anywhere, it’s going to be in a cross-border market such as Luxembourg where some shoppers may not want their home country authorities to know what they are buying.
Done4You, an ISO based just across the border in Namur, Belgium, has implemented crypto at POS for a petrol station in the Grand Duchy using GoCrypto’s technology. Crypto transaction are 1.25% compared to interchange + 0.5% for credit cards.
2023 was another year of investment for Ecommpay. The UK-regulated acquirer/gateway, reported lower sales and profits for the year to June 2023 as the business continues its pivot away from high risk merchants.
The company is part of a group of payment businesses controlled by Latvian Aleksejs Sjarki, from his base in Cyprus. Ecommpay has sharpened its focus to a group of “low to medium-risk” targeted verticals including digital services, travel/hospitality and the gig economy where it feels it can carve out a niche for itself. It’s a service-led proposition that promises a dedicated account manager and “no frustrating chat-bots.”
Turnover fell 20% to €37.6m with sales from acquiring services (by far the majority) down 18% to €34.8m while revenue from payouts was 35% lower at €2.9m. Sales to UK merchants were down 22% at €11.8m and to the rest of Europe by 17% to €25.9m.
Management blamed lower sales on macro conditions including rising inflation, reduced consumer spending, general lack of business confidence and the impact of Brexit on UK merchants trading cross-border.
Gross profit was down just 11% at €12.2m as the business continued to terminate “loss-making legacy contracts with merchants.”
Good cost control meant that administrative expenses rose just 2% at €12.8m, resulting in operating profit down just 8% at €1.87m. Operating margins grew from 4.3% to 5.0%.
Total staff numbers grew from 198 to 217 but employee costs held steady at €39k each.
Ecommpay has moved to a new, larger London office and doubled its UK headcount including hiring Chief Operating, Revenue and Compliance Officers. The beefed up marketing team might want to look at whether the company’s name is Ecommpay, ECOMMPAY or ecommpay. All are used on its website.
Ecommpay sensibly wants to offer a one-stop shop and has expanded its portfolio beyond card acquiring. New capabilities include APMs (for which it sees strong demand), open banking solutions leveraging connections to aggregators including Nuapay, Token and Neopay as well as UK/SEPA direct debits with Go Cardless. To support omni-channel customers, a POS solution is being tested.
Management says it successfully taken a more aggressive approach to new business development eg attending industry events/exhibitions and that hiring vertical expertise has delivered improved brand awareness and profitability. Ecommpay has launched an innovative approach to offering local acquiring in the US with chargeback insurance.
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.
Barclays has given more details on the future of its UK Barclaycard merchant acquiring business. Speaking during the bank’s 2023 full year results call, C.S. Venkatakrishnan, Group CEO, reiterated that merchant payments would remain an essential part of the product portfolio but that he was exploring different delivery models.
Barclaycard is the second largest acquirer in the UK and third largest in Europe. Most recent published numbers indicate 400,000 merchants and annual processing volume of around £300bn. To its credit, Barclays has always been effective at cross-selling acquiring to its business banking base, but Barclaycard’s core technology and processes are lagging further and further behind the new market entrants. The position hasn’t been helped by endemic overmanning and bureaucratic decision making which slows down new proposition development and customer onboarding.
Barclaycard has been late to offer new products, such as omni-channel, and has not managed to adapt its front end systems to take advantage of the shift in distribution of payment processing from bank branches to ISVs and platforms. The business is losing market share with both enterprise and SME customers. This gives competitor fintech’s such as Checkout and Dojo a foothold in Barclays accounts, posing a medium-term threat to Barclays core lending business.
Venkatakrishnan explained to analysts “We intend to remain in the full ecosystem of payments, which includes acquiring. It’s just we think that part can be delivered better in partnership with others, and that’s what we’re talking about…. we are exploring how best via partnerships to provide further benefits of scale, global scale and new technologies and innovation to our clients.”
Anna Cross, group finance director, underlined that merchant acquiring “in whatever form is critical to Barclays, the Barclays ecosystem, and in particular, to our corporate and SME clients. So either way, it’s a service that we would expect to have.”
As part of a wider restructure, merchant acquiring – outlined with the blue line in the chart – has been transferred to “head office” alongside other assets held for sale. Barclays has been working on plans for Barclaycard merchant acquiring since last June. It reportedly originally valued the business at £2.5bn based on £300m EBITDA but recent reports suggest it may settle for closer to £1bn.
Barclays management has two main options for a partnership. One would be to inject Barclaycard merchant acquiring into a joint venture with a payment specialist. With Nexi and Worldline distracted, candidates might include Fiserv or Global Payments. Either could bring a modern product set that would be more appealing to Barclays business banking customers.
If a trade buyer can’t be found, Barclays would most likely need to work with a private equity group. Bloomberg reports that Brookfield, CVC and Blackstone have been in discussions. There’s plenty of fat at Barclays. A PE buyer would be able to generate a fast financial return that could be reinvested into product but this would be a slower route to a market-leading set of propositions than a JV with a specialist.
Sabadell is believed to be insisting on a trade buyer for the unit. Having ruled out a sale to private equity, three international processors – Nexi, Worldline and Fiserv – are reportedly still in the running to buy Spain’s second largest merchant acquirer which accounts for 16% of the market. The EBITDA multiple is not available, but the suggested sale price of €400m suggests a very similar valuation to Bankia, another merchant acquirer, sold to a Global Payments JV in 2021.
Spain’s domestic payment industry has had a difficult couple of years. The merchant acquirers are more tourism dependent than most. Many were badly hit by the pandemic and associated travel bans but business has since bounced back as borders reopened. With total payment volume of c.€258bn and strong cash to card trends, Spain remains a very promising market for inward investment.
Sabadell’s payment volume was up 31% in the twelve months to June 2022 at €41.9bn with 14% of volume as eCommerce according to Nilson. Sabadell has 438K points of sale (physical and online) across 214K merchant outlets. Revenue for the whole cards business (issuing and acquiring) was up 14% in H1.
Sabadell is outsourcing merchant acquiring primarily because it needs to raise extra capital to support its transformation plans. Outside Spain, Sabadell partners with EVO Payments in Mexico and Square in the UK, through its TSB subsidiary.
In Spain, the successful bidder will likely also get a long-term partnership arrangement with Sabadell for lead referral. This will help the bank maintain its customer relationships and prevent a competitor bank using merchant acquiring to establish a bridgehead with Sabadell’s merchants.
None of the three suitors has much business in Spain today. For each, the deal would represent a springboard into one of Europe’s largest payment markets helped by a strong distribution partnership with this leading retail bank with over 1,500 branches. For Fiserv, Worldline or Nexi, the business case to buy Sabadell’s merchant acquiring unit is primarily about cutting costs through consolidating processing and product development with their other European businesses. There will also be opportunities to sharpen up local sales and marketing and introduce leading products from other markets such as Clover.
Nexi and Worldline are both highly acquisitive. Nexi has recently bought merchant service businesses from banks in Croatia and Greece. Worldline has made two purchases in Greece and set up a JV with ANZ in Australia.
According to Reuters, the Sabadell board has already reviewed offers and will move quickly to the final stages of the auction.
Euronet’s merchant payments and ATM business continues its strong rebound from the pandemic but management warned that the ongoing disruption to European travel would be a restraint on growth into H2.
Euronet is headquartered in Kansas but does most of its business outside the US. Overall revenue was up 18% in Q2 to $843m. The epay and Money Transfer divisions must be giving cause for concern with sales down 7% and up just 3% respectively but it’s the EFT Processing division which interests us at Business of Payments.
EFT Processing revenue rose 119% from $113.5m to $249.0m. 80% of this is made in Europe.
All metrics have moved strongly in the right direction. More transactions and more high margin transactions have been flowing through Euronet’s processing centres. Total transactions (POS + ATM) were up 59% at 1.573m while revenue per transaction grew 45% to $0.16. This reflects “the higher proportion of high value and high margin DCC transactions due to reduction of travel restrictions.”
Heading into the second half of the year, management called out several headwinds including strengthening USD, rising interest rates, inflation and staffing/operational issues in the travel industry. Michael Brown, CEO was particularly harsh on Heathrow.
“Let’s not forget, travellers from the U.K. are by far the largest producer of high-value international transactions on our ATMs because every card has a cross currency component. So, the limiting of passengers to and from the British airports has had a more significant impact on our forecast.”
Euronet manages a total of 51,062 ATMs, some directly and some on behalf of 3rd party operators including banks. ATM’s were particularly badly hit by the pandemic but, despite early forecasts of the death of cash, have bounced back strongly in the recovery. Total number of ATMs grew 10% boosted by deals in India, Spain (with the Post Office to provide access to cash in rural locations) and a new independent network in Iceland. Revenue per ATM grew from $934 to $1696.
Future deployments have been hit by operational problems. “We have been challenged with supply chain issues related to our ATM deployments. These issues range from manufacturers not delivering the machines on time to third-party resource issues installing them.”
In addition to the ATM’s, Euronet manages 570,000 POS terminals, mainly as an outsourced provider to banks. However, it took direct control of its estate in Greece during Q2 through the acquisition of the merchant services division of Piraeus Bank. This gives Euronet an estimated 40% share of the Greek POS merchant acquiring market and 20% of eCommerce. According to Euronet, new business is healthy – 5,000 merchants were signed in Q2 including some marquee names such as Ikea and TGI Fridays – and the transition to Euronet’s platform “has gone smoothly.”
EFT Processing is highly geared. Revenue more than doubled but operating expenses rose just 40% which helped operating income swing into $54.8m profit from a loss of $25.3m in the same quarter of 2021. Investors will be hoping this rebound has further to go. Even at the new profit level, operating income margin in this division is just 7% and return on assets 4.1%.
