Truelayer, the leading open banking payments provider, is finally beginning to grow its revenues but, despite cost-cutting, the business remains a long way from profitability.
Reporting results for 2023, Truelayer says that payment volume doubled to £21bn and had reached an annualised £25.5bn by the end of the year. Momentum is growing and the company’s website now claims annualised volume of £29bn from 120m transactions. Truelayer’s multiple partnerships and blue chip customer relationships are beginning to deliver.
Truelayer describes itself as “Europe’s leading open banking payments network” but has dropped a previous claim of market leadership in four European countries. Instead, it reports “significant market share” in UK, Ireland, Spain, France, Germany and Netherlands.
The London-based fintech is investing at pace to establish leadership in the crowded market for open banking payments. Along with its competitors – Tink, Token, Volt, Yapily etc – Truelayer aggregates connections to thousands of banks into a single API. This allows merchants to offer consumers the option to pay from almost any bank through a single connection with Truelayer. Capability now extends to pay-outs and customer onboarding too.
Customers include Coinbase, Revolut and William Hill. Truelayer has some good case studies. For example, lastminute.com found that offering openbanking payments grew average order value by 20% and was a helpful resilience tool during the Crowdstrike outage.
Revenue tripled to £12.43m in 2023 but Truelayer is having to work hard for the money. Open banking transactions, at least for high-ticket items, are much cheaper than cards. Truelayer’s take rate is just 5bps which compares to 30-90bps for a traditional merchant acquirer. However, most open banking deals are believed to be priced per transaction. By this measure, Truelayer’s average of c.12p is reasonable but you still need to sell a lot of transactions at this price to justify a unicorn’s valuation.
Simoneschi understands this. Speaking in June, he told journalists that “scale is everything…. We are an infrastructure business. That means we are likely going to spend a lot of time and a lot of years building and spending money before actually earning.”
Cost of sales rose fourfold to £4.64 with gross margins falling 7ppt to 63%.
With Fintech investors less generous than of late, management has kept an eye on costs. Total employee expenses were down 7% at £43m. One third of engineering and product staff were laid off and total staff numbers fell from 434 to 346. But Truelayer kept on selling. Client care and sales numbers rose slightly.
Overall, administrative expenses were 4% lower at £62m.
Despite the reduction in development resource, Truelayer has been busy launching new products.
Variable Recurring Payments (VRP) is widely expected to transform the openbanking payment market by offering a modern replacement for direct debits. Truelayer says it is now processing 1m VRPs each month.
Management is also very pleased with progress from Signup+ which combines account set-up with making the first payment in a single action. And Truelayer has launched Payment Links which allows merchants to send an openbanking payment request via a text or email.
The payout product is also growing quickly, notably in Belgium, France, Netherlands and Portugal.
With a fast growing number of transactions flowing over a steady cost base, the operating loss narrowed a little to £54m from £61m in 2022. Accumulated losses now stand at £198m. With £51m cash in the bank at the end of 2023, Truelayer has another 12 months to become cash positive or will need to take additional capital.
Management is pleased with the 2023 results, saying “overall this was a significant year for the company and has laid strong foundations for continued growth and success in 2024”.
If shoppers do shift quickly from cards to open banking, the prize for API aggregators such as Truelayer could be significant. Transaction volumes are finally beginning to grow but competition between the specialist open banking vendors is reported to be ferocious. Consolidation is inevitable. In the past few weeks, we’ve seen GoCardless buy Nuapay and Paypoint acquire OB Connect. And Kevin, a well-funded Lithuanian open banking competitor couldn’t find a buyer and is now in liquidation.
The future is likely to favour open banking vendors with wealthy and committed backers. Truelayer should be one of winners but there is a long road still ahead.
It’s obvious why Klarna is selling. KCO competed with key distribution partners such as Stripe and Adyen and the very generous sale proceeds will bolster Klarna’s balance sheet and help grow its lending business.
But it’s less clear how KCO’s new owners will make a return on their investment. Stand-alone gateways have been under considerable pricing pressure in recent years, and many have ended up vertically integrated into the larger merchant acquirers.
In banking news, BNP Paribas and BPCE, which together handle c.30% of card payments in France, will invest €100m each and pool their payment capabilities to create a joint-venture with the scale to compete with Worldline and Nexi. Technology will be “home grown” and most likely a continuation of Partecis, an in-house platform based on ACI products. While there’s plenty of scope for synergy in France, the JV will find its hoped for international expansion rather more challenging as PagoNxt, Santander’s payment unit, demonstrated when it recently closed its German operations.
IDC, a London-based research firm, has published vendor evaluations for online and omni-channel retail payments. The full reports cost $20,000 each but the top ranked firms have helpfully made their sections available free of charge. Stripe comes top for online payments although is marked down for being expensive. Adyen is first for omni-channel but customers are warned that its all-in-one solution may lack flexibility.
Viva Wallet’s lawsuit with JP Morgan ended in a London courtroom with both sides claiming victory. JPM paid an eye-popping $800m for 48.5% of Viva in 2022, primarily to gain access to SME customer onboarding tools for European markets. Haris Karonis, Viva’s founder, claimed that JPM then deliberately blocked his company’s launch in the US so that the giant American bank could buy the rest of Viva on the cheap. JPM counter-claimed that Karonis failed to understand how far Fintech valuations had fallen.
It’s taken four years and 14 of the original 31 banks have exited the consortium but the European Payment Initiative (EPI) has finally launched wero, the long-long-awaited domestic European payment champion. Wero, a combination of “we” and “euro”, is live for person-to-person money transfer, initially for customers of co-operative and savings banks in Germany and KBC in Belgium. French banks come on stream in the autumn.
Shoppers will be able to make eCommerce payments with wero from early 2025 and Computop, the German PSP, has already begun asking merchants to register to be part of a pilot. In-store payments will follow in 2026.
The consensus from payment experts is that for wero to succeed the EPI needs to focus ruthlessly on user experience and keep the member banks firmly in the background. And “I need a wero” is the only song that will do as you can hear in this short commercial.
Even though wero is at least six months away from being ready for eCommerce, its launch sparked the unexpectedly early closure of Paydirekt/Giropay, a domestic competitor to PayPal launched by the German banks in 2016.
Insiders tell me that the service termination was badly handled. Giropay switched off its old integration interface at the end of June even though many acquirers had not yet migrated to the new version.
Meanwhile, Klarna has announced the closure of Sofort, the German online bank transfer service which it bought for $150m in 2013. Merchants will be migrated to Pay Now, Klarna’s open banking product. This includes buyer protection which is great for shoppers but less exciting for Sofort’s many merchants in the gambling and adult sectors. These customers will be looking for alternatives.
Klarna’s new wrapper doesn’t come cheap. In Germany, Adyen is charging 1.35% + €0.20 for Klarna Pay Now transactions. For UK merchants, Mollie is asking a punchy 4.99% + £0.30.
Blik, the wildly successful Polish mobile payment standard, continues its stunning growth with payment volume up 53% in 2023 to €29bn. Blik is jointly owned by Mastercard and a number of local banks who have suddenly woken up to the importance of their investment. From now on, the banks will send their CEO’s to Blik’s board meetings.
Bancomat, the Italian domestic debit scheme, is finally getting its act together. Milan-based investment fund FIS has made a €100m investment, the board has been slimmed down to speed decision making and a new CEO appointed from Mastercard. Nexi runs the technology for Bancomat and has put the card scheme live on Apple Pay and as a payment option on Amazon.
We’re taking a keen interest in the convergence of software and payments. Flagship Consulting’s latest report shows quite how dependent many American ISV’s have become on payment and other financial services revenue.
In response, payment processors know they need to partner with ISVs and some have gone further, buying or building an in-house range of vertical software.
Intriguingly, the stock market value of payment processors that offer software is rather lower than software vendors that offer payments processing. Jevgenijs Kazanins looks at why Toast (an ISV that offers payments) is valued more highly than Shift4 (a processor that offers software) even though Toast makes much less money. His conclusion is that ISV’s are better at securing recurring revenues under contract.
European ISV’s have now realised they too can make money from processing. The opportunity is smaller than in North America because payment margins in Europe are much lower. Nevertheless, a savvy commerce software vendor can still double profit margins by embedding payments in its core merchant offer.
With so many acquirers and PSP’s pivoting towards ISV’s as their primary distribution channel, a number of start-ups have begun offering key parts of the technology stack as-a-service. Here are a few that have caught my eye.
Shape Technologies is offering payments-platform-as-a-service to payment facilitators with capabilities including onboarding, KYC and billing. Shape is founded by alumni from Cardstream and is helping put Taunton, Somerset on the Fintech map.
Fung, in Amsterdam, offers a similar product set to Shape but is also a payment institution and can handle the money flow too.
Dublin/Vilnius based Paynt, goes one step further with a full acquiring-as-a-service proposition.Subscribe
New shopping
We’re keeping a close eye on the progress of autonomous stores as one possible driver of a seismic shift in grocery transactions from POS to the shopper’s phone.
Although sceptics point out that frictionless checkout often involves more manual intervention than the vendors let on, the use cases are multiplying. For example, in a village store in Switzerland a shipping container is transformed into an unmanned convenience store (or walk-in vending machine) using technology from FastaXs.
In Europe, Mastercard is backing PayEye, a Polish start-up which is piloting its iris/facial recognition product at five locations of Empik, a large retailer of books, toys and games.
A number of start-ups are trying to make it easier for merchants and consumers to move to digital receipts. Habits are hard to shift. Despite a new legal requirement in France that paper receipts should be opt-in only, Auchan, the grocery chain, reports 60% of shoppers still ask for paper.
In the UK, Slipp, which boasts JD Sports as an early client has raised £750K. Slipp integrates with the ePOS software to send the shopper a text or email. JD Sports says using Slipp’s SMS receipts to promote its loyalty programme is increasing the number of customer sign-ups.
Anybill, from Regensberg in Germany, asks customers to scan a QR code presented by the ePOS. Pricing ranges from €4.49 to €35.99 per month per outlet.
Yocuda, a French start-up acquired by Global Blue, claims to have delivered over 2m electronic receipts to over 200,000 identified shoppers. Clients include Halfords and Decathlon.
Receipt Hero, based in Helsinki, has raised additional funds to supplement the $5.7m already invested. Receipt Hero offers cardlinking as well as QR scans. Partners include PayOne.
Pi-xcels from Singapore has an elegantly simple product that delivers an e-receipt automatically when the shopper taps their phone on the payment terminal. The product integrates with the terminal not the ePOS software and is available on Ingenico and PAX.
There’s an open question whether digital receipts can establish themselves as product category in their own right or whether merchants would prefer to buy the capability as a feature of existing POS or CRM software.
This technology, which allows any off the shelf consumer device to accept contactless card payments, was originally touted as a micro-merchant proposition but is proving most popular with large enterprises.
LVMH is leading the innovation. Liberated from the need to locate the nearest payment terminal, sales associates at Christian Dior, an LVHM brand, each have their own iPhone to serve customers wherever they are in the store. Dior has worked with Adyen, Global Blue and Vo2 Group, a Paris HQ’d tech consultancy, to add instant VAT tax refunds to the proposition.
In vendor news, Rubean, based in Munich, has raised an additional €2m capital to finance its strong growth. Sales are forecast to rise to €2.2-€2.5m this year from €1m in 2023 on the back of new distribution deals.
Rubean’s partnership with Global Payments may be threatened by the Atlanta processor’s unpublicised purchase of Yazara. The Global/Yazara tie up is likely also to be bad news for MyPinPad which local sources suggest may be replaced as supplier to eService, Poland’s largest acquirer, which Global bought last year.
In better news for MyPinPad, Ur&Penn, a leading chain of jewellers in Norway, is using its SoftPOS application to take store payments on the associate’s Android phones. 2izii is the integrator and Elavon the acquirer.
Phos, acquired by Ingenico in 2023, is making good progress building out its distribution network, announcing a key partnership with Shift4, a US processor with big ambitions in Europe. Phos is also the technology partner for BORICA, which provides SoftPOS to the three largest banks in Bulgaria. BORICA claims 1,500 “terminals” live today.
In Italy, Ultroneo has implemented MarketPay’s PayWish SoftPOS application for its Get Your Cash merchant proposition. Volumes are growing swiftly (see below) but it’s not been plain sailing. Writing on LinkedIn, one Ultroneo director explained “For nearly 12 months now we have been struggling with the teething problems of this new technology. Bug after bug, incident after incident, we have managed to stabilize the SoftPos to the delight of our customers.”
Openbanking
The UK’s incoming Labour government is making very positive noises about fintech. Quoting from its manifesto: “Financial services are one of Britain’s greatest success stories. Labour will create the conditions to support innovation and growth in the sector, through supporting new technology, including Open Banking and Open Finance and ensuring a pro-innovation regulatory framework.”
There is much that a new regulatory approach could deliver, including an open banking acceptance mark, “scheme” rules to ensure common standards for authorisation codes, refunds etc, the introduction of consumer protection and a recognition that all this cannot be provided free of charge.
Positively, the number of open banking payments made in the UK rose c.50% year-on-year to 17m in May 2024. Variable Recurring Payments (VRPs), the open banking equivalent of direct debits, now account for 11% of the total.
The increase is encouraging but compared with the 2bn debit card transactions made in the UK in a typical month, volumes remain very small.
The slow take up of open banking has implications for the large number of vendors operating in this sector. There are twenty listed on the UK government’s procurement framework alone. If revenues don’t arrive soon, only the best capitalised will be able to keep trading until the product goes mainstream.
Truelayer, hopes to be one of the survivors, having raised a remarkable total of $271m from its investors. Truelayer’s CEO has given an interview to explain that he is playing a long game, saying “We are an infrastructure business. That means we are likely going to spend a lot of time and a lot of years building and spending money before actually earning,”Subscribe
Cash
Germany is often cited as the last hold-out of the cash economy but the latest Bundesbank payment survey shows a further decline in the use of paper money. The cash share of transactions fell 7% points in 2023 to 51% and its share of volume by 4% points to 26%.
It’s no surprise that policy-makers in many countries are grappling with the implications of the world going cashless. For example, Ireland has passed an “Access to Cash” law which gives the government powers to set minimum numbers of ATMs for each area. The local banks, and their customers, will bear the cost. Revolut, wildly popular in Ireland, will likely get a free ride.
Crypto currencies are assets not money, yet vendors persist in bringing forward payment acceptance solutions at POS.
“Few have heard of SpacePay, but give it a year, and it will likely be a household name” is the bold claim from this London based start-up which graduated from Barclays’ fintech accelerator. SpacePay, which has raised $750K, says it will allow people to spend crypto at “most existing point of sale card machines.” It’s not clear how this would work in practice.
If there is a user base for crypto at POS anywhere, it’s going to be in a cross-border market such as Luxembourg where some shoppers may not want their home country authorities to know what they are buying.
Done4You, an ISO based just across the border in Namur, Belgium, has implemented crypto at POS for a petrol station in the Grand Duchy using GoCrypto’s technology. Crypto transaction are 1.25% compared to interchange + 0.5% for credit cards.
TrueLayer, the generously funded open banking unicorn, indicated just how costly its expansion plans have been. According to documents posted at UK Companies House, Truelayer Group reported group operating losses widening to £61m in 2022 on revenues of just £4m.
Founded by Franceso Simoneschi in 2016, TrueLayer is backed by a stellar rosta of investors including Stripe, Tiger Global and Anthemis. It has received funding of $272m in total (Crunchbase) with its $130m round in 2021 valuing the business at $1bn.
The London-based fintech is investing at pace to establish a large claim in the crowded market for open banking payments. Along with its competitors – Tink, Token, Volt, Yapily etc – the company aggregates connections to thousands of banks into a single API. This allows merchants to offer consumers the option to pay from almost any bank through a single connection with TrueLayer. Clients include Cazoo, Coinbase and Revolut.
Although TrueLayer is live 21 countries, it claims market leadership in four – UK, Ireland, Spain and France – and “significant share” in Germany and Netherlands. It has an EMI license in the UK and PI licence in in Dublin.
Management highlight two major product launches.
Variable Recurring Payments (VRP) – TrueLayer was first to market in the UK with recurring payment through its single open banking API as an alternative to direct debit and card on file. Merchants benefit from faster settlement.
Identity data – Signup+ widens TrueLayer’s proposition beyond payment initiation by making bank-sourced identity data available through its API. This simplifies customer onboarding by removing the need for additional verification checks. I used it to sign-up for Plum and can report the customer experience was indeed seamless.
TrueLayer is growing – revenues were up 56% in 2022 and payment volume was 2.8x higher than the previous year – but total sales of £4.14m are modest for a business boasting “annualised total payment volume” of $35bn. As context, a specialist eCommerce merchant acquirer with similar processing volume would be making net revenue of $75m-$150m depending on its risk appetite.
This modest growth has come at considerable financial cost. Administrative expenses were up 88% to £63.4m driven by higher spend on employees – up 99% to £46.4m. Staff numbers ballooned to 434 at an average cost per staff member is £106K. Management trimmed its employee base by 10% at the end of 2022 with the CEO saying “we are now operating in a very different context and more challenging market conditions.”
TrueLayer’s operating loss rose from £31m in 2021 to £61m in 2022. Fortunately, the business is well financed and had £96m net cash at year end.
If shoppers do shift quickly from cards to open banking, the prize for API providers such as Truelayer could be significant. But the market is growing more slowly than many hoped and competition between the specialist players is reported to be ferocious. Consolidation is inevitable and likely to favour businesses, like TrueLayer, with wealthy and committed backers.
Truelayer, the generously funded open banking start-up, indicated just how costly its expansion plans have been. It reported operating losses of £30.1m in 2021, according to documents deposited at UK Companies House.
The London-based fintech is investing at pace to establish a dominant position in the emerging market for open banking payments. Along with its competitors – Tink, Token, Yapily etc – the company aggregates connections to thousands of banks into a one API. Merchants can use this single connection to offer consumers the option to pay with bank transfers from most well known banks. Clients include Cazoo and Revolut.
If shoppers do shift quickly from cards to open banking, the prize for aggregators such as Truelayer could be significant. But costs may be higher and revenues lower than some commentators have suggested.
There are a great many banks. Each has a slightly different API and aggregators require a very large and expensive product team to keep on top of all the changes and updates. And many markets have not yet agreed standards for basic features, such as refunds. This adds to the complexity. Importantly, as long as the API aggregators remain outside the money flow or not taking merchant risk, they will normally be restricted to charging per click rather than ad valorem. This means that achieving margins comparable to the merchant acquirers is going to be challenging.
Whatever the future holds, Truelayer has made a fine start and claims to have 50% share of the emerging open banking payments market in UK, Ireland and Spain. The company claims 22% higher payment conversion than its competitors, saying that merchants report “on average one in three people choose to pay straight from their bank account through TrueLayer when presented with a choice.”
The product strategy is to widen geographical reach and deepen functionality to include the features merchants have come used to expect with other payment methods. In 2022, Truelayer has established connectivity to banks in Austria, Belgium, Denmark, Finland and Portugal alongside a European HQ (with a payment institution licence) in Dublin. The company has launched variable recurring payments (open banking’s equivalent of direct debits) and also developed an out of box integration with WooCommerce.
Revenue increased 86% to £2.6m in 2021 on the back of a 7-fold increase in total payment volume.
Cost of sales increased to £1.3m, roughly in line with revenue. Gross margins ticked up 3ppt to 52%.
Administration expenses ballooned to £33.7m “in line with the company’s commitment to growth… largely due to increased headcount.” During the course of 2021, staff numbers grew from 125 to 231 and are believed to have reached c.400 by August 2022. At this point, CEO Francesco Simoneschi announced a 10% cut in the workforce saying that his firm now operates “in a very different context and more challenging market conditions.” To his credit, the co-founder put the employee communication on the company blog.
Operating loss was £30.1m before £3.5m of tax credits. After a fair value adjustment to convertible loan notes issued in 2020, accumulated losses now stand at £103m.
Fortunately, Truelayer is very well funded. $70m series D investment was secured in April 2021 and a further $130m in September 2021 from Tiger Global Management and Stripe. Acquisition by Stripe would seem a plausible exit.
