Worldline reassured investors yesterday with its Q3 results and the stock, which has been under pressure for several years, jumped 18%.
The new management team is tidying up the business: disposing of non-core assets, simplifying the organisation (all go-to-market activities now report directly to the CEO) and, crucially, calming nerves around liquidity management. Analysts had been worried about the group’s cash-pooling structure and whether the holding company had access to liquidity trapped in subsidiaries.
Q3 revenue fell by 1% to €1.15 billion, but management could finally point to some stabilisation after several quarters of grim news. Merchant-service volume rose 7% to €145 billion – positive, if still below Visa and Mastercard’s 12–13% growth.
The sale of the Mobility division to Magellan remains on track, and Shift4 will acquire Worldline North America (the former Bambora USA business, originally Beanstream/IP Payments, acquired by Ingenico in 2017 and folded into Worldline in 2020) for €70 million.
Worldline USA is a gateway business generating around €60 million revenue from 140 000 merchants via 500 ISVs, delivering about €8 million EBITDA. Both sides will be happy: a price of roughly €500 per merchant is fair for a gateway business lacking a growth story but leaves plenty of upside for Shift4’s usual cross-sell playbook.
Elsewhere, Worldline’s Italian operations are gaining share through new bank partnerships; the Australian JV with ANZ Bank is back on track after price increases; while Germany remains more challenging. Bank partnerships there are performing, but third-party channels are lagging and in both Germany and the Benelux, SMB sales were hampered by a lack of Android terminals. That issue is now resolved, but it feels like an avoidable own-goal.
Overall, a quarter that finally gives investors reasons for cautious optimism.
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.
Last month’s poor results from Worldline and Adyen have not set a trend. Nexi’s Q3 numbers came ahead of market expectations. Management said there was no sign of the slowdown in Germany which has so rattled Worldline’s shareholders. Nexi’s stock price is recovering nicely while Worldine is still bumping along the bottom.
Adyen bounced back after its plain-speaking Dutch management presented analysts with a more realistic assessment of the company’s growth prospects and promised a slowdown in the breakneck pace of new hires. Adyen’s Q3 revenue was up 22% and with the processor now targeting 50% EBITDA margins by 2026, significant cash profits are on the horizon.
The dilemmas faced by European legacy acquirers are well described in Nightmare on Acquiring Street, a new paper from PSE Consulting. This lays out the speed at which the market is moving to “gateway acquirers” such as Stripe, Adyen and Checkout, which offer a tightly integrated bundle of services operating over a single platform.
Source: PSE Consulting
Processors operating with old technology and without modern checkout and boarding tools are struggling. Barclays and Credit Agricole are the only banks remaining in the list of top European acquirers and both now recognise the need for change. Credit Agricole has announced a JV with Worldline and Barclays is exploring options for Barclaycard which could involve a sale or joint-venture.
As well as the impact of technology trends, European acquirers also need to contend with a profound shift in channel buying behaviour by small businesses, the most profitable customer segment. A new report from Flagship Consulting demonstrates the extent of the risk.
Source: Flagship Consulting
Independent software vendors (ISVs) and other platforms are now taking between 40% and 65% of new merchants signed in the US. This trend is coming to Europe and threatens banks ability to sell direct to SMBs. ISVs are demanding increasingly high commissions from the acquirers. Bain estimates that 90% of payment revenue is at risk of changing hands.
The impact on the ISV’s themselves is less well documented but these businesses are now finding they can generate up to half their revenue from commissions on payment processing. This is incentivising bad behaviour and we’re seeing incidents of market abuse where ISVs impose penalties for merchants that use 3rd party payment products.
Shopify, the leading eCommerce retail platform, charges a 2% surcharge if merchants don’t process transactions through Shopify Payments. And Lightspeed, a restaurant POS software vendor with over 10,000 customers worldwide, insists that all new customers take its integrated payments product. Those who don’t will be hit with a 0.5% transaction surcharge.
This hasn’t gone down well in Canada where one restaurateur reported being charged $300 for using a competitor payment terminal. “It’s not illegal, but it’s unethical,” said the local business association. Lightspeed have now introduced a price pledge to match competitor pricing in any country. But it’s worrying that many ISVs are now treating their customers as hostages. This won’t end well.
Corporate activity
Advent, the US private equity giant has bought London-based MyPOS for $500m.MyPOS, which became a merchant acquirer last year, claims 170,000 mPOS merchants in 30 countries and generated €11m EBITDA in 2022 on revenues of €60m. Advent has bought MyPOS through a newly established “payment and technology platform” called Circle which will be chaired by Laurent Le Moal, ex CEO of PayU. Expect more deals to come.
Total Processing, a small but fast growing ISO based in Manchester, recruited Martin Gilbert of Revolut as a heavyweight chair just six months ago. He has wasted little time in arranging the sale of the business to Nomupay, the well-funded Dublin-HQ’d processor formed from the ashes of Wirecard. Nomupay is clearly one to watch.
Tencent, the Chinese technology platform, has paid $100m for an 8% stake in Global Blue, the market leader in Tax Free Shopping, at a valuation of $1.25bn. The Tencent relationship will cement Global Blue’s position with high-spending outbound Chinese travellers.
Silverflow, the Amsterdam based payment orchestrator has raised €15m at a valuation “significantly higher” than its previous raise in 2021. The money will be used to support the company’s expansion into Latin American and the Far East.
Shift4 has finally closed the $525m acquisition of Credorax Finaro. The eighteen-month delay, caused by the presence of a sanctioned Russian oligarch on the Finaro share register, has given management plenty of time to plan the integration. The combined business has scale (c.$200bn volume), international reach and the capability in eCommerce which Shift4 has been lacking.
AIB and Bank of Ireland have abandoned efforts to create a domestic money transfer app to compete with the runaway success of Revolut. The banks had spent a total of €17m on the project which was to be called Yippay (yes, really) but ran into regulatory obstacles. Nexi had been contracted to build the product.
The Irish banks may be better served joining the European Payment Initiative (EPI) which has completed its acquisitions of iDEAL and Payconiq. This gives the EPI a solid basis of technology and transaction flow on which to build a common digital wallet for all European markets.
New Shopping
We’re keeping a close eye on grocery. Shifts in supermarket payments can move the whole market. But not yet. The FT concludes that, twenty years after the debut of online groceries, shoppers still prefer buying food in real life. Despite the pandemic boost only 12% of UK groceries are bought online.
But in-store shopping is changing rapidly with the introduction of self-checkout, Smartcarts and autonomous stores.
Italy’s first autonomous store has opened in Verona. In contrast to many pilot implementations, this one is a large format Tuday supermarket. The technology, supplied by Sensei, a Portuguese start-up, can even detect variable weight items through an integration with the scales. Payments are from Nexi. Shoppers don’t need to use the app. They can pay at a standard POS if they choose.
Tesco is trialling a similar process at one UK store. Again, shoppers don’t need to use the retailer’s app. They just walk up to the checkout which will “magically present them with a list of the products they have picked up”. Shoppers can pay with a card in the normal way. The technology is from Trigo, an Israeli start-up already working with REWE, Aldi and Auchan and in which Tesco has a small stake.
A2Z, the Israeli start-up which is leading development of smart carts, announced the delivery of an initial order of 250 to Monoprix, the French supermarket. These carts contain sensors that automatically record your purchases. A2Z believes it will sell a total of 30,000 smart carts in France alone over the next three years through IR2S, its distribution partner.
There is a live debate about self-checkouts. It’s clear they can work well for small basket sizes but not for the weekly shop. Whether it’s using a handheld scanner or fixed self-checkout terminal, the process puts too much work on the shopper.
In biometric news, PayEye, a Polish start-up which allows people to pay with an iris scan has launched a new range of hardware. Called eyePOS, the terminals include a special camera but also take standard payment cards. PayEye offers them for an introductory price of €11.25 per month.
Despite overwhelming consumer demand to pay at POS by tapping their mobile phone on the terminal, there are still some circumstances when a physical card is needed. One is the M6 toll road in the English midlands. The operator has annoyed tens of thousands of motorists by removing the ability to use Apple or Google Pay. The rationale? A Government dictat that it was illegal have a mobile phone in your hand while in control of your vehicle.
After a predictable outcry, the Government has conceded an exemption for making a contactless payment and the toll road systems will be upgraded for Apple Pay.
In-car payments
The toll road problem would be avoided if all motoring-related payments – parking, charging and fuelling – were brought together in a single app accessed from the car dashboard.
Mercedes Benz has built its own payment service but Volkswagen is following a different approach of co-ordinating a set of partners. VW has launched “Pay to Fuel” for its Skoda brand working with Mastercard, Parkopedia and ryd, a German fintech that offers a pay-to-fuel app.
Meanwhile, VW has sold PaybyPhone to Fleetcor, a large US B2B payment company for $300m. PayByPhone, generates c.$40m annual revenues from its app which gives access to 4m parking spaces in 1,000 cities across Europe and North America. Payment volume was $900m in 2022, giving a very healthy take rate of 4.4%.
Fleetcor plans to expand the PayByPhone service to include EV charging and automatically buying fuel at service stations.
Product
Alcohol and cigarette vending machines are common in Germany, but age verification can be tricky. It’s good to see Girocard, the domestic debit scheme, working with Feig, a leading vending machine supplier, to restrict sales to those old enough to buy the products.
Also in Germany, Bluefin has gained Giro certification for the TECS platform it acquired earlier this year and launched a white-label POS service for ISVs. Newland is providing the Android terminals. In other hardware news, ITCARD, a Polish acquirer with 90,000 POS, has started deploying Ingenico’s Axium terminals. This is positive news for Ingenico which has been very slow to market with a workable Android product.
One reason why Stripe is so popular, despite its high prices, is that it makes life easy for its customers. For example, you can now manage Klarna disputes from within the Stripe dashboard. Previously, Stripe merchants needed to deal with Klarna customer services via email.
It’s no surprise that Stripe can get its merchants to write great testimonials. Here’s the CIO of La Redoute, the giant French catalogue retailer, explaining why he chose Stripe as its global PSP/processor. “It has been an incredible and enjoyable journey working with Stripe’s team,” he says.
Stripes’ platform strategy is sparking interesting innovation. Lopay is a UK mPOS provider built on top of Stripe’s APIs. Lopay (the clue is in the name) undercuts SumUp and iZettle by charging just 0.99% for debit/credit transactions. It says it has signed 20,000 merchants in 18 months. Lopay charges 0.8% extra for instant settlement and says this is a very popular option.
DeluPay is targeting a similar market in France with a solution based on QR codes linked to open banking transfers. 1,000 merchants have signed up to benefit from transactions free under €2 and 0.5% thereafter. If you understand French, watch the CEO get quite a grilling on this early morning business TV show. The presenters struggle with the consumer proposition and keep asking why they wouldn’t keep using Apple Pay or Paypal.
The Polish Post Office is looking to capitalise on the 10m users of its mobile app by adding InPost Pay as a checkout button for local web shops. Customers can then pay within the app using Blick, cards or cash on delivery.
Finally, take a look at Shop.app. This is a very impressive AI powered search engine that allows you to construct a basket across over 1m Shopify merchants. Payment through Shopify Payments of course.
SoftPOS
SoftPOS is a downloadable payment application that allows any Android device equipped with an NFC chip to take money on cards. This represents a clear threat to the terminal manufacturers who, together, ship over 100m units each year. Sunmi is the first to respond. It’s latest Android hardware range includes a low-cost terminal designed for SoftPOS and shipped without a PCI certificate.
I think SoftPOS will make a quicker impact in the enterprise market than for micro-merchants. For example, Alaska Airlines is working with Stripe to allow 7,000 crew members to accept contactless payments for food and drink using their airline issued iPhones. This should speed up in-flight service.
Dotykacka, the Czech retail and restaurant software provider with over 20,000 merchants, has launched SoftPOS in the Czech Republic and Slovakia. The solution is from Softpos.io, a Danish start-up with Nexi providing the processing.
MyPOS has launched SoftPOS in the UK with merchants paying 1.6% + 7p per transaction and no monthly fee. I think it’s a mistake for vendors to forgo a standing charge as there’s a high risk of attracting large numbers of merchants that never make any transactions.
The steady rollout of Apple’s Tap to Pay as an alternative to Android has reached France. Group BPCE, Adyen, myPOS, Revolut, SumUp, Viva Wallet and Wordline are offering the product at launch.
Open banking
The latest Open Banking Impact Report shows UK open banking payments doubled compared to 2022 and now running at £4.5bn a month, still small modest compared to c.£65bn on cards and c.£110bn on direct debits.
There are now 45 open banking payment providers in the UK. This is probably rather more than the market needs and many vendors must be wondering they can stay in business long enough to reach break-even.
Who is going to consolidate the overcrowded open banking market? The CEO of Go Cardless, a very well-funded UK direct debit specialist, said it would likely be making acquisitions. Go Cardless already bought Noridgen, a Latvian open banking provider earlier this year.
If open banking payments are going to become mass market, vendors need to provide a superior customer experience to cards. One good example is William Hill, provider of online gambling and sports betting, which will be offering open banking for both pay-ins and pay-outs. This is a sector where bank transfers offer clear advantages over cards, notably the ability to pay winnings instantly. Truelayer is providing the technology.
If the industry doesn’t move quickly, the tech giants will drive the market forward.
Apple has started using open banking to offer iPhone users the chance to view their bank balance and transaction history before confirming an Apple Pay transaction. Although it would be a small additional step for Apple to start directing Apple Pay transactions over open banking rails, it may be reluctant to lose the 0.15% commission it charges card issuers today.
Cash
We’ve covered the rip-off fees from many ATMs in tourist locations before. Honest Guide (1.3m subscribers) explains the scandal better than we can. Euronet doesn’t come out well.
With the debate raging about whether merchants should be obliged to accept cash, it’s good to see merchants playing an active role for or against. This sign was spotted by Chris Higham in Newcastle.
And which button would you press in this Las Vegas taxi? Photo from Booshan Rengachari.
CAB Payments has been one of the least successful IPO’s of 2023 with shares down 80%. The FT explains why.
French authorities have levied €414m fines on four Meal Voucher providers for anti-competitive practices in this €6bn market. This is very profitable business – the providers charge 2.5% to the employers and 2-5% for the restaurants.
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.
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.
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.
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.
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.
Product
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.
Checkout.com 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.
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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.
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).
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.
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.
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.
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 www.bankofapis.com, 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.
Munich-based Ivyhas raised €7m for “instant bank payments your customers love.” It sits on top of Tink, TrueLayer or Token.io 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.”
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.
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.
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.
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.
Shift4 remains optimistic about finalizing its acquisition of Finaro, the Israeli high-risk acquirer previously known as Credorax. The deal, initially announced on March 1, 2022, has faced delays due to regulatory concerns, reportedly related to the presence of a sanctioned Russian oligarch in Finaro’s shareholder list.
The acquisition, valued at $525 million in cash and stock, will enable Shift4, a domestic-focused US company, to establish itself as one of the few global acquirer/processors. Despite Finaro’s relatively low payment volume of $15 billion, the acquisition provides Shift4 with a comprehensive cross-border platform encompassing 170 alternative payment methods (APMs) and the ability to settle transactions in over 20 currencies. Apart from its European presence, Finaro holds licenses in Southeast Asia and Japan. It was anticipated that Finaro would contribute adjusted EBITDA of c. $30 million in 2023..
A key driver behind the acquisition lies in Shift4’s association with Starlink, which Shift4 says has the potential to generate $100 billion in annual subscription payment volume. Under the five-year agreement with Elon Musk’s satellite broadband start-up, Shift4 is required to facilitate payment acceptance on a global scale. Other synergies include leveraging Finaro’s 150-person research and development team, introducing Shift4’s SMB software in Europe, cross-selling US processing services to Finaro’s European gaming clients, and developing an integrated payment solution for European hotels and restaurants.
During discussions with analysts regarding Shift4’s Q1 2023 results, Jared Isaacman, the company’s founder and CEO, expressed confidence in closing the Finaro deal by the end of June, despite “unforeseen delays”. Isaacman also said his teams had not wasted the last twelve months, with both companies achieving technical integration. Finaro customers can now process and settle transactions in the US via Shift4’s systems and vice versa.
Shift4 seems particularly excited about its strategic plans to penetrate the European hospitality market with its US software products, including Skytab, a restaurant point-of-sale (POS) system. Isaacman believes that Europe will increasingly demand cloud-based restaurant POS solutions but may be surprised to find out how competitive the market is on this side of the Atlantic. To prepare for this expansion, Finaro, in collaboration with MultiPay (formerly Chip and PIN Solutions), has introduced POS capabilities in the UK and Nordic regions.
Management also gave a positive update on The Giving Block, a US cryptocurrency donation platform that Shift4 purchased for $107 million in February 2022. Despite the challenging crypto market conditions, Isaacman said there was significant opportunity to cross-sell card processing to the nonprofit sector.
Pennsylvania headquartered Shift4 announced that it remains on track for Q4 closure of its acquisition of Finaro (formally known as Credorax), the Israel/Malta based high-risk acquirer.
The $525m acquisition will give the domestic-focused Shift4 the capability it needs to position itself as one of the small number of global acquirer/processors. Although Finaro’s payment volume is just $15bn, it brings a full featured cross-border platform including 170 APMs and the ability to settle in over 20 currencies. Beyond Europe, Finaro also has licenses in South East Asia and Japan.
One key driver of the acquisition is Shift4’s relationship with Starlink which, it says, could net $100bn in subscription payment volume. The five-year deal with Elon Musk’s satellite broadband start-up requires Shift4 to provide payment acceptance worldwide. Other synergies include access to Finaro’s 150 person R&D team, launching Shift4’s SMB software in Europe, cross-selling US processing to Finaro’s European gaming clients and “building an integrated payment offering for European hotels and restaurants.”
Not all Finaro’s customers are welcome. Shift4 stated that “merchants representing a negligible amount of volume that are inconsistent with our values … will be phased out upon closing.”
