Tag: Santander

Lifting the gloom a little, PagoNxt, Santander’s payment business, reported sparkling Q3 results including a maiden operating profit. This performance highlights the success of Santander’s decision to in-source and consolidate its payment activities. PagoNxt comprises all of Santander’s payment assets, including Getnet, a leading multi-national merchant acquirer, trade finance expert Ebury, Payments Hub which brings together the bank’s account to account transactions, and Superdigital, a financial marketplace for the economic inclusion of the underbanked.

Q3 merchant payment volume was up 27% to €54bn “backed by good merchant performance” in Mexico, Brazil, and Europe and share gains in all core markets. Transactions grew 26%, leaving ATV steady at €22.46. 

Management gave few other updates but said that the Payments Hub is “already one of the largest processors of A2A” in Europe and is now processing transactions from Santander businesses in Spain and the UK.  

Overall revenue was up 16% in Q3 to €298m but expenses fell 11% to €251m. It’s not clear what has led to the decline in operating costs but the impact on operating profits was very positive. PagoNxt reported an operating profit of €48m for the quarter at a healthy 16% operating margin, compared with a loss of €24m in 2022. It will be interesting to see whether this is a blip or the first step towards steady growth in profitability.

Santander’s payment subsidiary, PagoNxt, posted another quarter of good results, with strong growth in payment volumes across all its major markets. This performance highlights the success of Santander’s strategy to in-source and consolidate its payment activities. PagoNxt comprises all of Santander’s payment assets, including Getnet, a leading multi-national merchant acquirer, Ebury (trade finance), Payments Hub, and Superdigital, a financial marketplace for the economic inclusion of the underbanked.

Getnet, PagoNxt’s merchant services unit grew total volume processed 22% in Q2 2023 to €49bn with ATV falling 9% to €21.78.

Volume grew in most major markets in the first half, with increases of 32% in Europe, 31% in Mexico and 15% in Brazil. The positive performance in Europe was driven by continued rebound in Spain as travel and tourism recover from the pandemic. The business opened Getnet Portugal with a range of Newland terminals nicely branded with Santander’s shade of red. It’s suprising how often banks miss the opportunity to use payment devices to raise brand awareness,

A core plank of the Getnet strategy is to expand the geographic footprint based on a standard set of global products. Management highlighted launches in H1 of a working capital solution, dynamic currency conversion, Android POS and vertical propositions for airlines and restaurants. The Android POS is called Get Smart and is available in Spain but only for customers with “a high volume of sales.”

In Latin America, where Getnet claims to be the third largest acquirer, the business has launched its services in Argentina and begun leveraging the global platforms in Mexico. Management expects to launch in Chile during the second half of this year.

Away from Getnet, PagoNxt says Payments Hub has made significant progress to become Santander’s wholesale payments processing provider. It claims that a “significant volume” of payments in Spain has already been migrated making the business “one of the largest A2A payment processors in the Eurozone.” Management also reports “making progress” in consolidating wholesale payments from operations in Brazil, Mexico and the UK to the Payments Hub global platform. 

Total PagoNxt revenue from all divisions was up 17% at €277m in Q2 and with operating expenses rising just 14%, there was a slight improvement in the operating loss to €18m. The higher expenses reflect the “ongoing investment plans to develop and implement global technology.”

Santander’s payment arm, PagoNxt, reported a very positive start to 2023 with Q1 revenues surging 50% to €243m. 

The division comprises several payment related units including Ebury for trade finance, Payments Hub for wholesale account-to-account payments and merchant services provider Getnet, which is of particular interest to Business of Payments.

Overall operating expenses at PagoNxt grew 46% to €278m resulting in an operating loss of €34m, slightly wider than the deficit of €28m recorded in the same quarter of 2022. 

Getnet payment volume rose 34% to €45.6bn. Total transactions grew 32% to 2.132bn exceeding managements’ long-term target of 15% compound annual growth. Getnet’s average transaction value was €21.39.

Getnet’s operations closely follow Santander’s global footprint, with a focus on Latin America and Iberia. The company experienced a significant increase in volume in Mexico, with a 39% rise as it completed the migration of customers from Elavon, Santander’s former partner. In other Latin American countries, Getnet has launched in Argentina with Santander and reports further progress in Uruguay and Chile, where it will face competition from Global Payments, which inherited a local bank partnership after its acquisition of EVO Payments.

In Europe, Getnet’s volume grew by 35%, driven by strong performances in Spain and Portugal, where it recently launched a new set of propositions with Santander. These include an Android terminal with local value add services. Management says that it will complement the in-house bank distribution channel with direct sales.

Unlike some competitors, notably Sabadell, Santander’s management has reiterated its commitment to managing merchant payments in-house. At the recent Capital Markets Day, Santander revealed the killer statistic that banking customers that also take POS acquiring generate between 1.6 and 2.9 times the margin of those that do not. This underlines the strong synergy between payments and business banking.

Santander’s strategy day revealed its thinking on payments. Here’s what we learned:

• Payments is one of a set of strategic “network” business lines which the bank believes diversifies its risk away from lending. 

• Payments – merchant services, cards and A2H – accounts for c.10% of group revenue today and will grow to 13% by 2025.

• Santander showed one killer statistic that substantiates the economic rationale for SMB acquiring. In Spain, Santander banking customers that also take POS acquiring generate 2.1x the margin of those that don’t. The multiplier is 1.6 in Mexico and 2.9 in Brazil.

• Global transaction volume is expected to rise and cost per transaction processed expected to fall. This virtuous circle results in significant projected profit increases. 

• Total payments transactions processed are forecast to grow 15% CAGR 2022-25. Growth is a little faster in Europe (+12%) than Latin America (+8%).  Platform cost per transaction is projected to fall c.20% each year.

• Within Santander’s payments portfolio, PagoNxt, the merchant facing division, should exceed 30% EBITDA margin by 2025 as volume grows and unit costs decline. On 2022 revenues of €953m this implies achievable EBITDA for PagoNxt of well over €300m, given current growth rates. If realised, this would show that Santander has created substantial value with the establishment of PagoNxt. 

PagoNxt reported very positive sales in H1 2022 as its core markets of Spain and Latin America continued to recover strongly from the pandemic.

Unlike some banks, Santander regards payments as strategic and formed PagoNxt to consolidate all its merchant payment assets in one ring-fenced organisation. The merchant facing brand is GetNet.

Rather than build the technology to link its national assets and attract cross-border merchants, PagoNxt bought Wirecard’s platform from the administrators in 2020. It’s too early to know whether this bet has paid off – platform migration is a notoriously tricky business – but the purchase does allow PagoNxt to win at buzzord bingo. Who could resist its new “global, cloud-native, data-driven… connected, retail-time, flexible and highly scalable technology platform that is fully cloud and API-based…”

Back to the H1 results and global payment volume was up 35% to €74.6bn. European volume was up 53%, Mexico by 38% and Brazil by 23%. The strong European performance was driven by “exposure to high growth verticals in Spain” which very probably means the rebounding tourist market. PagoNxt is now present in nine European markets (including the UK where Santander’s payment presence has always been weak) and is investing in “targeting specialised industries including airlines and mobility.”

Total merchant count grew 5% year on year to 1.27m including 20,000 selling cross-border. Payment volume per merchant grew 29% in the half year to an annualised €118,000. European merchant count increased 15%.

Revenue was up a very healthy 87% to €398m with the take rate rising 16bps to 0.53%. Expense grew just 43% to €447m which resulted in narrowing losses to €50m from €108 in H1 2021.