August 2023 newsletter

Business of Payments

FIS has given an update on the rescue operation following its catastrophic $43bn acquisition of Worldpay in 2019. Worldpay will be spun off into a joint-venture with GTCR, a Chicago based private equity fund, at a valuation of $18bn. You may have noticed $25bn missing. This is a loss to FIS shareholders for which nobody has apologised.

One of the key reasons for the collapse in Worldpay’s valuation is that when FIS bought the business, it was growing sales at about .9%. However, starved of funds under FIS’s ownership, Worldpay hasn’t been able to keep up with high-spending competitors such as Adyen, Stripe, Checkout and JP Morgan. The result: revenue was up just 1% in Q2, JP Morgan has overtaken Worldpay to the global number one spot and $25bn has disappeared.. More details on the Business of Payments blog.

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In Europe, most attention is focused on battles for bank partnerships. In Italy, Banco BPM, advised by Bain Consulting, rejected its current partner, Nexi. Instead, in a surprise move, the Milan bank will merge its merchant services business with that of BCC Pay. The combined group, boasting 370,000 POS and €90bn volume, will claim number two spot in the Italian market and has the scale to compete with Nexi and Worldline.

Two other large European banks are in the process of finding partners for their merchant services arms. In France, Credit Agricole has now signed the agreement with Worldline to start a new JV. The revenue should start to flow in 2025. Again, there was less positive news for Nexi. The closure date for its acquisition of a majority stake in Sabadell’s merchant acquiring business (the second largest in Spain) has been put back six months to the first half of 2024.

Both Worldine and Nexi’s merchant services businesses themselves, seem in good underlying health. Reporting H1 results, Worldine revenue was up 13%. Management said it was still interested in acquiring merchant portfolios from banks. Nexi grew revenue 10% in H1 and is proving adept at realising synergies from the recent mergers with SIA, Nets and Concardis. It has decommissioned five of 25 processing platforms, says it’s on track to close another five in H2 and, longer term, to reduce the number to just four.

PagoNxt, Santander’s payment business, is also doing well. Volume was up 22% in Q2with increases recorded in all major markets in Europe and Latin America.

In contrast, Barclays, the UK’s second largest acquirer, reported disappointing acquiring volume growth at Barclaycard Merchant Services. Insiders suggest the bank is struggling to bring modern payment products to market and is rumoured to be considering divesting its acquiring division.

We’ve reported previously on the challenging market conditions for pure-play eCommerce gateways. It’s no surprise that privately owned Computop, which claims 30% of the German eCommerce market, has sold a 30% stake to Nexi. There is strategic logic for Nexi which already owns Concardis, Germany’s largest acquirer. Computop’s volume processed fell from €34bn in 2021 to €30bn in 2022. The decline is partly due the company’s decision to exit the gambling/adult sectors but also indicates competitive pressure from Adyen, Checkout and Stripe.

The decline in value of German payment assets was underlined by KKR’s decision to hand Unzer (formally HeidelPay) to its creditors, writing off most of its $668m investment. KKR acquired a majority stake in Heidelpay, a PSP with about 17% of the German eCommerce market, in 2019. Unzer was recently in trouble with BAFIN, the German financial regulator, due to “serious defects” in its risk processes. 

US based Shift4 still hasn’t concluded its acquisition of Credorax Finaro, a European processor. First announced in March 2022, the deal hit regulatory obstacles linked to a sanctioned Russian oligarch on the Finaro share register. Management says it is confident of closing the deal in Q4.

Ryan Reynolds is a much better proposition as shareholder. After taking an undisclosed stake in Nuvei, a Canadian processor with global ambitions, the actor is fronting a witty and self-deprecating brand advertising campaign. Reynolds’ investment is already under water. Nuvei’s stock fell 39% after disappointing Q2 results.

Rapyd, the London based global “fintech as a service” provider, has paid $610m for the slowest growing and least profitable parts of the sprawling PayU empire. The purchase price will be financed by a fresh capital injection into Rapyd in what the company claims could be the largest Fintech fundraise of 2023. Arik Shtilman, CEO, took to LinkedIn to explain the rationale. “If you don’t aim for a big outcome, you won’t get an outsized return,” he says. More details on the Business of Payments blog.

We reported last month that Toast, a leading US restaurant software vendor with integral payment processing, had shocked its merchants by adding a $0.99c service charge to each bill. The fee would have been paid by diners and provide Toast with free money at 100% gross margin. The company has now back tracked with its CEO recognising “we made the wrong decision.”  

Shift4, with time on its hands waiting for the Finaro deal to close, responded with a clever “Don’t get Toasted” campaign.

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Two small French payment companies reported good results. HiPay, an omni-channel PSP quoted on Euronext, grew volumes 14% to €4bn in H1 with revenues up 19%. Business picked up in southern Europe and in the iGaming segment. Lemonway, which provides specialist payment services to marketplaces, broke even in H1 as revenues surged 90% to €14m.

Synch Payments, an attempt by a consortium of Irish banks to produce a domestic mobile money transfer app to rival Revolut, has been delayed once more. Again, it’s Nexi supplying the technology.

Many domestic schemes co-brand with Discover to access a global acceptance network. Surprisingly, 3rd party volume over the Discover Global Network fell 10% in Q2. New management at DGN will be looking to reboot its proposition.

New shopping

While autonomous stores are gaining traction across Europe, Amazon, which invented the technology, is struggling. According to the RTHI blog, Amazon’s stores are in the wrong place, have the wrong products, cost too much to build and are confusing for customers. For example, you can now checkout by tapping your physical payment card but not with Apple/Google Pay. Or with Amex. The stores don’t even accept Amazon gift cards.

Customer satisfaction with traditional self-checkouts is falling. Shoppers resent the ongoing reduction in staffed checkout. With autonomous stores so expensive, smart carts may provide a cheaper and more flexible compromise. Here’s a good round up from Forbes on the state of play. Kroger, the US grocer, says smart cart shoppers spend less time in store but spend more money. Everyone’s a winner.

Shoppers are returning to local stores. As expected, once confronted with the true economic cost of rapid grocery deliveries, people are willing to walk to the shops just like it’s 2019.  The last mile delivery specialists are disappearing one by one. Getir is the latest to urgently need more cash to keep trading. Maybe robot deliveries are the answer.

Fans of biometric payments will be delighted that Amazon is rolling out Amazon One, its palm payment product, to 500 US Wholefood stores by the end of this year. Amazon says the technology has been used 1m times to date with zero false positives and is ideal for high volume locations such as stadiums. Shoppers first need to visit an Amazon One location where they can scan their palm and link it with their Amazon account.

Palm payments are no more convenient for shoppers than Apple/Google Pay. But there is  clear benefit to Amazon of capturing extra customer data and/or being able to steer transactions to lower cost payment methods.

While Amazon can probably be trusted to keep your data safe, other vendors may not be so reliable. For example Worldcoin, a San Francisco-based start-up, is creating a global identity database founded on iris scanning and secured $115m funding in May this year. Its focus has been mainly on developing countries such as Kenya, in which Worldcoin has been asking people to agree to having their eyeballs scanned in return for $50 in tokens on the blockchain. What could possibly go wrong? Bain Capital is one of the VCs which should know better than be mixed up in this madness.


Legacy acquirer like Worldpay and Barclaycard need to make rapid product investments to keep up with the new capabilities showcased by Adyen, Checkout and Stripe.

Optimised checkout is a great example. This uses AI to configure checkout pages with the best selection of payment brands, ensures that transactions contain the correct data and optimises routing to maximise acceptance or minimise cost. Stripe claims merchants moving to its optimised checkout grew sales revenue 10.5% more than a control group which stayed on the old product. Checkout says its Intelligent Acceptance product increased acceptance rates by up to 9.5ppts. Early customers include Klarna. has also launched Identity Verification which, it says, uses AI to identify individuals within 120 seconds as they video themselves holding up identity documents. Uber Eats is an early customer.  

Adyen announced Data Connect for Marketing which helps merchants identify their in-store customers. Retailers used to this themselves before PCI regulations banned them from storing customers’ card details in their own systems. Impressively, Adyen is also the first Fintech to join FedNow, the new US instant interbank payment network.   


Away from the global processors, Cashflows, a UK eCommerce acquirer, has added a range of Castles POS terminals as part of omni-channel proposition to its ISV and ISO distribution partners. This is a smart move. New UK regulation has outlawed lengthy POS terminal rental contracts but were connected to one of the 14 largest acquirers. Cashflows is not one of the 14 and so will be an attractive option for ISOs looking to continue business as usual.

In case you’re wondering what counts as a POS terminal in UK law, the regulator says this is “an electronic device that a merchant uses to accept a card in a card-present transaction without the need to connect to a smartphone or tablet.” This excludes the typical mPOS propositions from SumUp and others although these devices are normally sold to merchants, not rented.

Far Eastern tourists are back in Paris to shop and the top retailers know they need to offer their favourite ways to pay. Printemps, a leading department store, has integrated Alipay+ into its POS checkout flow. Alipay+ also gives access to Kakao Pay (South Korea), GCash (Philippines), Touch ‘n Go (Malaysia) and TrueMoney (Thailand).

Visa appears to have built its own Blik competitor in Poland, called Visa Mobile. ING, Nest and SGB banks have enabled this within their mobile banking applications.Shoppers just enter their mobile phone number into a merchant checkout page and authorise the transaction in the mobile app.

Fuel cards are commonly issued to staff who drive company vehicles but there’s always a risk of fraud or misuse. A new idea from CarIQ uses vehicle data as a sort of biometric ID. Linked to a virtual card, the vehicle pays for its own fuel, without the driver needing to sign for the gas. CarlQ has just signed a global partnership with Visa.

Access to cash

As cash usage declines, a growing number of merchants are only accepting digital payment. This presents problems in societies where some citizens don’t have access to electronic money. But cash-free stores are also enraging many of the people already angry about vaccines, traffic restrictions, 5G masts and sundry other inevitable aspects of modern life.

Piers Corbyn, a notorious conspiracy theorist, posted a video of himself trying to pay cash at a cash-free Aldi store. It didn’t end well. Lobby for cash if you want, but be careful of the company you keep.


If cash is to be preserved, public policy needs to address the fact that the less cash is used, the more expensive it gets. For example UK convenience stores often host ATM machines with the retailer receiving a commission of 15p per withdrawal. One store reports  transactions down 70% at a “free” ATM. The result: the retailer is not making enough revenue and is switching to an ATM that charges customers a withdrawal fee. The likely outcome is that transactions will fall further.  

Meanwhile, in Germany where cash is still plentiful, 496 ATMs were blown up by criminals last year who got away with a total of €30m in bank notes.


SoftPOS has only been available on Android so news of the European launch of Apple’s “Tap to Pay” on iPhone made the headlines. Apple’s SoftPOS is based on the $100m acquisition of Montreal-based Mobeewave in 2020. Architected differently to Android SoftPOS, Apple offers an SDK to developers/PSPs allowing them to build payment acceptance capability into their own iPhone apps.

Commercial launches on Apple have quicky followed from Natwest TylDojoViva Wallet and Zettle.  

With Apple SoftPOS, there’s still a need for an acquirer (or payment facilitator) to process the transactions but no obvious role for the specialist payment app/gateway providers such as MyPinPad or Phos. Happily for the SoftPOS start-ups, the Android market is large enough to keep them all busy for some time.

In Android product news, Oona, a Finnish start-up, has some interesting enterprise SoftPOS ideas such as this kiosk, for which Rubean provided the payment application. Getnet (Santander) has launched SoftPOS in Spain although only for larger business customers. Finally, Worldine is now live with SoftPOS in Italy via its new Banco Desio partnership supported by a clever TV commercial.

Open banking

Natwest, which has modestly taken the URL, commissioned a report to identify the key obstacles holding back the wider adoption of Open Banking. It concludes the problems lie in “lack of commercial incentives” to develop or enhance the core APIs and “lack of alignment between.. .banks.” Or as Nick Dunse, former CMO of Pay with Bolt wrote on LinkedIn, “Nobody is leading it and there’s no money in it.

Some Fintech lobbyists are asking the regulator to lead by expanding the number of services available but Oliver Wyman, the management consultant, thinks its time for banks to introduce financial incentives for themselves by monetising the APIs. The consultants suggest that a typical bank could make $50-$75m per annum if it charged PSPs for value added services linked to the open banking APIs.

Variable recurring payments (VRP) – an open banking equivalent to direct debits – were meant kick start the sector in 2023 but have also been rather slow to take off. Here’s a good podcast from Edgar Dunn which explains how VRPs work and what the opportunities might be.

In corporate news, NuaPay, an early open banking leader may be for sale. Its parent company, Senteniel, was acquired by EML, the accident prone Australian fintech for €70m in 2021. Account to account payments are meant to be hard to spoof but Senteniel was then hit by A$8.5m merchant fraud in August 2022. Now the Irish regulator has raised anti-money laundering concerns and asset sales look likely.

Banked, a London based white label API aggregator which has raised £36m from investors including Bank of America and NAB, reported revenues of just £45K in 2022 as losses widened to £15m. Management says it will need to raise fresh capital this year  

Munich-based Ivy has raised €7m for “instant bank payments your customers love.” It sits on top of TinkTrueLayer or and looks like a very well thought-through proposition. Merchants need vendors to build compelling customer experiences on top of the raw capabilities provided by the API aggregators so this could be a winner.

Crypto corner

PayPal is hoping to legitimise crypto with its newly minted Paypal dollars but opinion is divided. Bank of America thinks PayPal is unlikely to win significant crypto market share but I suspect its analysts are missing the point. PayPal will focus on customer experience, global deployment, and ease of use in a sector notorious for operational complexity.  If PayPal can’t make this work, nobody can.

Meanwhile, the regulatory clampdown on unbacked crypto is bringing results. Sex workers are complaining that crypto exchanges have been terminating their accountsciting reputational risk. One adult star left with a pile of unsaleable crypto tokens said “the whole ‘crypto is permissionless and censorship-resistant’ thing is a bunch of bullshit.

With crypto exchanges now behaving (slightly) more like respectable institutions, the criminals are moving on. Bitcoin is no longer the currency of choice for laundering money.

No criminal could possibly need the new “No KYC Visa card” available to anyone with an Ethereum wallet. Jason Mikula explains that this wholly noncompliant boondoggle is most likely built on banking-as-a-service capabilities from Stripe.

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Other news

Edgar Dunn writes on payment orchestration platforms (POPs). The consulting company counts 27 multi-acquirer platforms available today plus eight acquirers marketing their eCommerce gateways as orchestration platforms. The sector has attracted over $650m investment in recent years.   

It’s helpful occasionally to remind ourselves of the difference in commerce between the US and Europe. Watch this report on the world’s largest gas station. It has 120 pumps and is in Tennessee. Where else?

Research from Justt shows UK consumers are “now as trigger happy toward chargebacks” as their American cousins.

Poland is a fintech hotbed. There are over 80 payment businesses referenced in the 2023 Map of Polish Fintech.  

If you want to become a wealthy payments sales person, here’s a handy guide from the US Electronic Transaction Association. Because independent sales agents are rewarded with small but long-lasting commission payments, the best advice is to be patient and love your customers.  

The British Government has launched (yet another) Future of Payments Reviewalthough without clearly stating the problem it is trying to solve. No matter. The UK Payment Association has a handy survey for you to give your views.

What if generative AI turned out to be a dud? A must read from Gary Marcus

Sifted lists nine payments start-ups to watch. Four are from the UK and two from the Netherlands.

The collapse of Railsr has caused havoc at Irish shopping centres, many of whom had sold open-loop gift cards issued by UAB Payrnet, a Ralisr subsidiary whose licence was revoked by the Lithuanian regulator.

Latest Wirecard news. Two ex-employees have been jailed in Singapore, the first criminal convictions anywhere in the world relating to the scandal. Meanwhile, Jan Marsalek, the fugitive COO, has claimed that Wirecard’s third party operations, whose existence or lack of existence, brought down the company, have continued to trade.

And finally

Worldline kindly invited me to join its Navigating Digital Payments podcast. If you’ve enjoyed this newsletter, give it a listen. Although I was certainly flattered to be asked to participate, my head isn’t normally this large.

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Acquisition synergies deliver 10% EBITDA growth at Nexi. No update on Sabadell.

Nexi, which is vying with Worldine for the title of European payment champion, posted revenue of €835m in Q2, up just 3% on an unadjusted basis. Good growth in Merchant Solutions, up 10% to €474m, and Issuing Solutions, up 7% to €270m was dragged down by declining sales in the Digital Solutions division, which has been hit by the impact of banking consolidation in Italy. 

Paolo Bertoluzzo, CEO, said revenue growth would have been 8% when adjusted for currency fluctuations, acquisitions, businesses held for sale etc and “confirms solid and profitable growth in all our businesses and in the different geographic areas in which we operate, despite the ongoing uncertain macroeconomic situation.”

The merchant division interests us most at Business of Payments. Like Worldline, Nexi is becoming increasingly dependent on sales to merchants as their traditional business model of process outsourcing for banks comes under pressure. Merchant Solutions accounted for 57% of total revenue, up from 53% in the same quarter of 2022.

Bertoluzzo was pleased with the “acceleration of revenues in Merchant Services in the DACH region, and acceleration in e-commerce, broadly across geographies.” However, Bernardo Mingrone, CFO, added that merchant services growth was “a touch lighter than what we might have expected” and blamed tough comparisons from 2022. For example, the growth in high-margin foreign card transactions in Italy, Nexi’s largest market, slowed to just 6% in June as you can see below. 

There was more positive news further down the P&L. Nexi is proving adept at realising synergies from the acquisitions of SIA, Nets and Concardis. It has closed five of 25 processing platforms, says it’s on track to decommission another five in H2 and, longer term, to reduce the number to just four. Similarly, it has closed 11 of 45 data centres and is on track to shut another two in H2. 

Total expenses fell 3% to €399m yielding a welcome 10% increase in EBITDA to €436m. 

Looking in more detail at Merchant Solutions, payment volume rose 8% to €209bn in Q2. Over half Nexi’s volume still comes from Italy but growth in its home market was just 6% compared to 11% elsewhere. The DACH region was particularly buoyant and recorded “strong double-digit” increases across the quarter. 

Two thirds of Nexi’s merchant volume is from SMEs with the remainder split between eCommerce and Large/Key accounts. Highlights include:

  • SME – volume up 14% in H1 driven by 145K extra POS terminals and 250,000 additional customers compared with a year earlier. Management called out significant growth in Italy and Poland. The SoftPOS roll out is progressing across geographies.
  • eCommerce – volume up 8% in H1 and revenue up double digits as client numbers rose 10% year on year. Sales accelerated in Italy and Nordics. There was good performance from A2A (the old P24 business) in Poland. Management is pleased with progress signing new ISV partnerships. A commercial agreement with Shopware, the German eCommerce platform, is now live in Italy and DACH. Nexi says it has been selected as Shopify’s preferred partner in Poland.
  • Large account/key account (LAKA) – volume up 10% with most new wins in omni-channel retail, hospitality/restaurants and mobility/petrol. 

Alongside the results, Nexi announced it had taken a 30% stake in Computop, the German eCommerce gateway. The purchase price was not disclosed. This partnership is highly complementary to the Concardis acquiring business and reinforces Nexi’s presence as market number two, behind Worldline/PayOne. Computop claims 30% of the German eCommerce payment market but processed volume fell 12% in 2022 to €30bn. The poor performance partially mirrors a general fall in eCommerce volumes in Germany but Computop also lost customers when it exited the adult and gambling segments. Nevertheless, Computop is also believed to be under pressure from international acquirers with integral gateways such as Adyen, Stripe and

Speaking about potential future corporate activity, Bertoluzzo said that Nexi was not interested in entering the UK market where Barclays is reportedly looking a strategic options for Barclaycard. “At the moment, we are not looking at the UK, we have other priorities and that’s not necessarily a market that we consider for us attractive.”

We would expect one of these other priorities to be the merchant acquiring business of Spain’s Banco Sabadell which announced a JV with Nexi in February this year. Surprisingly, Nexi gave no update during its results announcements, but Sabadell has suggested that the deal may now not close until H1 2024, six months later than scheduled. 

BancoBPM, is certainly no longer a Nexi priority. The Italian bank has chosen to ignore its long standing partnership with Nexi and opted for a joint-venture with BCC Pay, a local newcomer. Bertoluzzo said the revenue impact of losing the bank is expected to be zero this year and negligible next year. He felt that BPM customers were “used to Nexi products and propositions that are quite advanced for Italian standards, and quality of service” indicating confidence that Nexi can defend its existing customer base. 

Asked whether he felt that PE firms were inflating valuations for payment companies, Bertoluzzo explained that “the multiples that we see around these days are probably far too low, given the potential value generation of the sector.” He went on “we’re not particularly worried about private equities coming in and inflating price and so on and so forth, because honestly, buying additional assets is not our priority. So we are very selective on what we’re looking at and currently, we are looking at a very, very small number of potential small opportunities, where honestly, we don’t see private equities around.

Discussing progress divesting non-core businesses, management said that the sale of NetsDBS had been delayed by the unexpectedly early publication of EU draft directive on electronic ID wallets. However, they still hope to close the transaction “in the coming weeks.” There was less positive news about Ratepay, the German BNPL business inherited from the Concardis acquisition. Berltoluzzo said “It’s not the most ideal market to sell a consumer finance business.” 

Finally, commenting on the Italy’s progress towards electronic money, Bertoluzzo said “Personally, I’ve not been using cash for the last many, many, many weeks… but as soon as you go outside the metropolitan areas, there is still a lot of cash payments around. …the overall penetration of digital payments in Italy, is probably today in the low mid 30s, which is still very much behind what you see in the rest of Europe…There is a long, long run in front of us in terms of cash to digital payment conversion. It’s happening. It’s good it’s happening, but there is a long, long way to go.

Steady progress for Nexi in Q1, indicates more acquisitions ahead

Nexi’s revenue and profits picked up in Q1 after a quiet final quarter of 2022. 

Total revenue increased by 9% to €742m excluding two businesses now “held for sale” – Nets NBS and Ratepay, the troubled German buy now, pay later (BNPL) unit which Nexi inherited with its purchase of Nets.

All geographies contributed to growth in Q1 including Southeast Europe, where Nexi has now completed the acquisition of the Intesa Sanpaolo merchant book in Croatia. This deal brings an additional 13,000 merchants and €5bn in annual payment volume, at a cost of €180m and an implied EBITDA multiple of 10.5.

Extending its reach into Iberia for the first time, Nexi announced that the €350m purchase of 80% of Sabadell’s merchant services business will close in Q4.  Sabadell boasts 20% of POS market share and has been growing volume swiftly as Spain rebounds from the pandemic. 

Paolo Bertoluzzo, CEO, said “”Everywhere … banks continuously revisit their payments strategies” and he predicts more acquisitions in the next 12 months. This may include Nexi’s home market of Italy where two banks have announced possible divestments of their merchant services arms. 

Banco BPM will select a partner for its card business by the end of June. Nexi is said to be in the running although the bank is looking to stay “in the driving seat” by selling only a minority stake. This is not Nexi’s normal operational model which may leave the door open for a competitor to enter the Italian market in alliance with Banco BPM. 

Italy’s second largest bank, Unicredit, is also reviewing its payment operations across 13 markets. The bank expects the process to be complete by the end of September and Nexi, as the incumbent partner, is likely in pole position. 

Speaking about the Italian government’s plans to regulate and cap merchant service charges for small businesses, Bertoluzzo said the the process was “taking longer than we expected” but he didn’t anticipate material impact on Nexi’s financial results.

Turning to Nexi’s Q1 financial results, Merchant Solutions once again outperformed the two smaller divisions, showing an 11% increase in revenue to €413m, representing 45% of total sales.

Merchant Solutions volume grew by 11% to reach €181bn, with higher-margin international scheme volume growing at 17%, rather faster than domestic card volume. Nexi’s Italian revenues are still boosted by the rebound in foreign card transactions (see chart below). These grew over 50% in Q1 with the good performance persisting into April.

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Outside Italy, volume grew by 13% to €79bn. Average transaction value (ATV) declined across the board, down 7% to €58 in Italy and falling 2% to €34 elsewhere. Across all markets, Nexi expanded its total point-of-sale (POS) base by 170,000 compared to the previous year.

Turning to Nexi’s two other business units. Issuing solutions revenue increased by 8% to €246m, benefiting from the post-Covid rebound in international travel and commercial cards. Digital banking solutions revenue remained flat at €82m. Strong volume growth was offset by the ongoing impact of consolidation among Nexi’s Italian clients.

Total group costs rose by 6% to €406m, primarily driven by a 9% increase in personnel expenses as Nexi invested in “high-growth areas” and was hit by wage inflation. In contrast, operating costs only rose by 3%, benefiting from efficiencies and synergies resulting from Nexi’s recent acquisitions.

EBITDA rose by 14% to €336m.

Nexi – acquisition synergies kick in but growth slows

Italian pan-European acquirer/processor Nexi, reported slower growth but higher profits in Q4 2022 as it realised acquisition synergies quicker than expected. Despite a more challenging macro environment than anticipated, CEO Paolo Bertoluzzo declared 2022 a “year of strong progress for our company.”

Nexi’s total turnover grew 4% in Q4 to €879.5m.

Merchant solutions is the largest division and the one that interests us most at Business of Payments.

Payment volume grew 9% in Q4 to €204bn. Despite the fast pace of acquisitions, Italy still accounts for 57% of payment volume. 

Taking 2022 as a whole, Nexi’s SME merchants continue to outperform with volume up 25% and over 200,000 extra terminals placed. Large account volume rose 15% and management is looking forward to “a strong pipeline of commercial wins across markets with a specific focus omnichannel, grocery and retail and vertical solutions in petrol and EV charging.” 

2023 has started very well. Total volumes are reported up 17% to the end of February.

Merchant revenues grew 3.3% in Q4 22, although management points to an underlying increase of 7.9% excluding Ratepay and some phasing of scheme fees in Italy. Ratepay is a German BNPL business which Nexi inherited from Concardis. It takes risk on customer payments and doesn’t fit with Nexi’s business model. Ratepay has been up for sale for some months but no buyers have emerged, so the business has entered a “managed slowdown” that reduced revenue by €16m in Q4. 

The big news was the acquisition of Banco Sabadell’s merchant payment business which catapults Nexi into number two position in the Spanish market. Sabadell made clear that deal was not just about price. It wanted a partner. Bertoluzzo explained “We’ve been chosen especially for our capabilities and for our people and the work we’ve done with the bank over the last few months.”

Nexi is paying €280m for 80% of a portfolio which brings revenues of €48m and EBITDA of €30m from 380,000 merchants generating €48bn payment volume annually. Sabadell is injecting the merchant contracts into its Paycomet gateway unit which will be the entity purchased by Nexi. 

Sabadell will sign a long-term distribution agreement with 10 years exclusivity to send Nexi sales leads from its 1,200 bank branches. These arrangements can be gold dust but also can be less rock solid than they might appear. EVO Payments had a similar distribution agreement with Banco Popular. This bank was sold to Santander which started referring leads to its in-house product team instead. EVO went to court and lost.  

Nexi is paying an EBITDA multiple of 11.5 which is line with its recent deals in this sector as you can see from the table below. Management says that if the new business meets its earn-out targets, this multiple drops to 10.

Nexi acquisitions 2021-23

BPER & BdSISPAlphaSabadell
MarketItalyCroatiaGreece Spain
Payment volume (€b)135948
No of merchants           110,000         13,000  n/a        380,000 
Nof of POS           150,000  n/a        150,000 n/a
Rev (€m) n/a  n/a  €             93  €             48 
EBITDA (€m) €                 32  €            17  €             18  €             30 
Enterprise Value (€m) €               318  €          180  €           307  €           350 
EV/EBITDA                    10                11                 17                 12 
Source: company reports

Sabadell brings Nexi a strong position in a large payment market with “unique structural characteristics and significant growth potential.” Nexi is particularly attracted by Spain’s low card penetration and SME dominated merchant landscape. But most importantly, because the market is still dominated by banks, Spain lags “behind European markets in terms of product innovation, commercial innovation, channels and so on.” 

Nexi believes that most of the acquisition synergy will be on the revenue side. Pricing will be especially interesting. One analyst noted that the enterprise value was just 0.7% of payment volume. The take rate is just 10bps. Bertoluzzo explained that Spanish banks tend to cross-subsidise payment processing with other banking products. Nexi believes its presence in the market will enable “enable a more rational pricing approach.” 

Integration is expected to be “very simple and lean“, presumably because the merchants can continue to process on existing systems and that Paycomet will come with its own regulatory approvals.

Nexi’s issuer solutions division has been struggling for sales growth of late, in common with ACI and similar divisions of Worldline, FIS and Fiserv. It’s really not been a good time to be selling software and services to banks. Nexi issuer revenues grew 4% in Q4 22 helped by an extra 1.7m international debit cards supported in Italy. Management is very happy to have won Commerzbank in Germany. 

Nexi earns twice as much revenue per transaction in merchant solutions than issuer solutions.

Digital banking solutions is the smallest of the three divisions, accounting for 14% of total revenues. It grew sales 7% in Q4 and reports continued good performance in its Italian open banking access platform. 

Cost control was impressive with overall expenses falling 0.5% in Q4. A 3.3% increase in personnel expenses was offset by a similar fall in operating costs as Nexi overdelivered promised synergies from its recent string of large acquisitions. The technology teams have been busy. Bertoluzzo said that in 2022, “we did actually consolidate 5 data centres and a couple of processing platform. We expect in the new year to basically do it in reverse and therefore, consolidate another couple of data centres and about 5 to 7 processing platforms.“ 

Rising revenues and steady costs helped EBITDA grow 8.7% in Q4 to €451.6m with EBITDA margins ticking up 2% pts to 51%. Of recent acquisitions, BPER and ISP Croatia together contributed €52.5m revenues and €40.6m EBITDA in FY 22.

This positive financial leverage has allowed Nexi to continue to invest. Capex was 16% of FY 22 revenues although this is expected to fall to 7-9% longer term as a series of integration projects comes to an end.

Looking forward management is confident about 2023 and is guiding investors to 7% revenue growth and >10% EBITDA growth. 

Italian Summer Boosts Nexi

Nexi’s Q3 results showed a strong performance in Italy as tourists returned to the Mediterranean in droves although this travel-related boost was offset by weaker growth elsewhere in Europe. This financial update came hot on the heels of last month’s detailed strategy update. [See Ten Things We Learned from Nexi’s Capital Markets’ Day]

Even in September, Italian payment volume was running 50% ahead of 2019. This not only boosts turnover but also margins as merchants are often charged a premium for foreign card transactions.

Nexi payment volume, Italy vs 2019. Source: company report

Payment volumes continue to grow at double digits in all Nexi’s markets outside Italy although performance in the DACH region suffered from “discontinued clients due to optimised risk profile.” This is a polite way to say that some unwanted customers were fired. 

Across all European markets, Nexi reports SME merchants particularly buoyant. Volume was up 29% in the first nine months. Switzerland and Poland are reported notably strong. Total POS terminals were up by 200,000 in last twelve months with most of the extra estate deployed in Italy.

Large account volume was up 17% and management is particularly pleased with a landmark SoftPOS win at Danish Railways. Train guards can now sell tickets on their standard Android tablet instead of needing to carry a separate payment terminal. Paolo Bertoluzzo, CEO, also highlighted SoftPOS as a resilience tool: “We have been helping a Nordic customer that was under a cyber-attack that had nothing to do with us, but we have been able to bring them back into active sales mode, thanks to a superfast rollout in few hours of SoftPOS for their stores.” 

Nexi also claim SoftPOS is showing good commercial traction in Denmark, Greece and Hungary. 

eCommerce volume was up 16% including notable increases in account-to-account payments in Poland (where Nexi owns P24) and Finland. Bertoluzzo explained. “We are focusing more and more on the mid-market, which tends to be a very attractive local segment, faster-growing, where we have seen very nice wins also when competing with the specialized Neo PayTechs.”

Overall revenues were €853m in Q3, up 7.1% at what Nexi calls “constant scope.” This excludes the impact of acquisitions and FX.

Merchant solutions continue to outperform the other business units. Its revenue was up 9.6% at €483m. Issuing solutions recorded sales up 5.9% but digital banking turnover was flat. Management blamed banking consolidation in Italy.

Reflecting the good summer, Italy (Nexi’s largest market) outperformed, with sales revenue up 9.9% compared with considerably less impressive returns of 4.4% for SE Europe, 3.9% in DACH + Poland and 3.7% in Nordics.

Cost control was impressive, up just 1.9% with personnel costs flat asssisted by “our ability to extract further efficiencies and the synergies coming from the integrations,” according to CFO . Bernardon Mingrone. This sounds like code for significant job losses. Management also confirmed that integration synergies were track to deliver €105m this year. 

Nexi is benefiting from long term supply contracts which don’t adjust with inflation. This shifts the short term pain to vendors but cost pressures must ultimately flow through at some stage.  

The combination of 7% revenue growth and flat operating costs saw EBITDA up 12% to €463m. Margins grew 2ppt at constant scope to 54%.

Ten things we learned from Nexi’s Capital Markets Day

Nexi published a 171 slide deck for its Capital Markets Day. To save you the trouble of ploughing through the whole document, here’s ten things Business of Payments learned from the presentation.

  • Nexi says it is the number one Paytech in Europe. The numbers certainly do look impressive: 2.2m merchants, 3.1m terminals managed, €389bn payment volume, €3.0bn revenue and €1.4bn EBITDA in 2021. 
  • Market prospects continue to be excellent. Exiting Covid, Nexi forecasts an ongoing 2ppt shift from cash to cards in its core markets, underpinning payment volume growth of 10% CAGR over the next five years. Card penetration in Nexi’s core markets (which exclude Spain, France and UK) is still just 36%. If the trend to electronic money continues, this would give an incremental €600bn available to process over the next five years. 
  • Nexi’s financial prospects look good too. The top line is growing and strong operational leverage means the bottom line will look after itself. The company forecasts CAGR through 2025 of 9% for revenues, 14% for EBITDA and 20% for eps.  This takes net revenue from €2.9bn in 2021 to €4.2bn in 2025. The extra €1.3bn revenue is expected to deliver €0.9bn EBITDA. Illustrating the operational leverage, margins grow 900bps to 56%.
  • M&A synergies from NETS and SIA are running ahead of plan. €65m additional synergies have already achieved with €365m now expected by 2025. Synergies will run 10% ahead of plan to 2025 and 25% in the long term. The acquisition blitz is not over. Nexi is still looking at inorganic opportunities to consolidate in existing markets and to add extra capabilities in eCommerce and software.
  • Merchant solutions is the growth engine. €1.0bn of the €1.3bn total revenue increase will come from merchant solutions. Geographical growth is primarily from Italy €0.5bn and DACH/Poland €0.5bn.
  • Nexi claims to be market leader in Italy and Nordics for merchant solutions, number two in Switzerland and Poland, and number 3 in Germany and Sweden. Austria, Greece and Croatia are also key growth markets. 

Nexi market position, source: Nexi Capital Markets Day, October 2022

  • Practically, there is not yet a single market for merchant payments. This gives Nexi the space to compete with the global payment giants. In Europe today, there are 150 local payment methods and 10 national debit schemes (together accounting for 50% of payment volume), significant domestic regulations for payment/financial institutions as well as country-specific tax and administrative requirements. This all adds complexity and allows Nexi to differentiate based on local capabilities while benefiting from the scale economies of pan-European backends.
  • Nexi is targeting the mid-market for eCommerce which (it says) accounts for 50% of the payment volume but 59% of the revenue pool. Nexi isn’t much interested in large global merchants and market places. These are much less profitable, delivering 44% of market payment volume but just 27% of revenue. eCommerce product strategy is to run local front ends on a single back-office platform complemented by a pan-European integration layer. 
eCommerce transaction and revenue pools. Source: Nexi Capital Markets Day, October 2022
  • There is considerable value in owning the full product stack. Adding acquiring to a simple gateway proposition multiplies the take rate by 4 but adding an in-house APM (such Poland’s P24 which is now owned by Nexi) gives a 7x boost.
Take rates and product stack. Source: Nexi Capital Markets Day, October 2022
  • Nexi believes that 90% of revenue pool for POS-centric small business merchants is “local by nature.” These customers have a strong preference to buy from local brands recommended by their bank or software suppliers. Nexi is commercialising a flexible “one stop” solution tailored to segment and national needs, partnering with ISVs and investing in domestic distribution. Product strategy is focused on the new Android solution which is said to be performing well and accounts for 8% (but growing fast) of front book sales in Italy, 74% in Germany and 62% in Nordics. Fully digital onboarding is keeping cost per acquisition at under €200 in Italy, still by far Nexi’s largest market.  

Three way auction for Sabadell’s merchant acquiring business

Banco Sabadell has confirmed a Reuters report that it is running a process to sell its merchant acquiring business for around €400m.  

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.  

Tourists and SMBs boost Nexi

Nexi reported strong growth across all markets as Europe’s economies bounced back from last year’s Covid lockdowns. Payment volume was up 18% overall powered by resurgent spend in travel and tourism with a particularly strong transaction flow from foreign cards used in Italy.

The geographical performance was mixed. Payment volume was up 13% in DACH, 18% in Italy and an impressive 33% in the Nordics. Italy – Nexi’s home market – accounts for 57% of the total.

Merchant Services and Solutions is Nexi’s largest division – just over half of total revenue – and sales grew 16% to €431m. The detailed picture was far from uniform. For example, SME’s outperformed corporates and eCommerce growth was restrained by recent standards.

Within Merchant Services and Solutions, SME volume grew 38% with DACH and Poland notably strong. The terminal base grew an impressive 150K year on year and we can see the emerging outlines of a good, better, best product strategy featuring:

  • SoftPOS – recently launched in Hungary (in-house developed by Nexi, distributed by Unicredit)  and a Nordic version working with An Italian launch is in preparation
  • Smartpay – commercialised by Concardis in Germany, a simple SME proposition to accept Giro and international cards with a PAX A920, online sign up and nice digital portal 
  • SmartPOS – a more highly configured SME terminal with an associated app store provided by Poynt which will be attractive to larger merchants and ISVs

eCommerce volumes grew 19% with attention drawn to the launch of Nets Easy – a simple proposition of payment gateway, reconciliation and payouts under a single contract. Large and key account volumes grew 17%.  An interesting detail was that SoftPOS for retail and hospitality “showing good progress” which backs up the growing consensus that micromerchants will not be the primary target for this new technology. Significant partnerships were announced with Global Blue (hospitality and retail) and Zuora (subscriptions). 

Like its competitors, Nexi is expanding its footprint through acquisitions and seeking synergies through platform consolidation. Three acquisitions are expected to close in the second half of the year totalling an additional €22bn volume:

Like every other processor, Nexi is increasingly focused on ISVs as a distribution channel and showcased a new partnership with Microsoft in which it becomes preferred European digital payment partner of the American software giant. This looks like a quid pro quo for Nexi selecting Microsoft Azure to accelerate its platform consolidation. In other ISV news, Nexi has taken full control of Orderbird, a Berlin-based restaurant ISV in which it inherited a minority stake from Concardis in a deal estimated at c.$140m.