Business of Payments - March 2024
How Paytech makes money
The Payment Business
Worldline’s share price took another battering as management blamed weak consumer spending for slowing revenue growth in the year ahead. The company also took a €1.15m impairment charge following its decision to terminate €130m annual revenues from online merchants after pressure from the German regulator.
Worldine now needs to cut costs, accelerate platform consolidation and secure investor support. 8% of employees will be fired, including 240 of its 1200 staff in Belgium, under a change programme devised by Boston Consulting Group. The unions are not happy, believing Worldline’s directors are the true villains of the piece.
A very public battle is brewing. Activist investors have arrived on Worldline’s share register, facing off against the European financial establishment represented by Credit Agricole and Six Group. I asked Bing Image Generator for an illustration.
In rare good news, Worldline is reported to be close to beating arch-rival Nexi to win the merchant business of Cassa Centrale Banca, a consortium of rural banks based in South Tyrol which manages an estate of 135,000 POS terminals. The sale price is estimated at €150-200m.
Also in Italy, keep an eye on Fabrik, an open banking vendor which has bought Judopay, a UK mobile-focused PSP, taken a stake in Banxware, a German embedded lending platform and swallowed Axerve, an Italian POS payment provider with over 100,000 merchants. Fabrik is controlled by Sella, a small bank based in Piedmont, grew revenue to €55m in 2023 and welcomed a minority investment from Mastercard.
ABM Amro has chosen Buckaroo to provide payment acceptance to its Dutch customers. This is a good win for Buckaroo, a PE backed consolidator formed from Sisnow, an online gateway and SEPAY, a POS-focused acquirer selling NEXGO terminals. ABN Amro was formerly in a JV with Fiserv called EMS but sold its stake to the US giant six months ago.
JPMorgan is no nearer to resolving its dispute with Viva. In an unusual agreement, the US bank can take full control of the mPOS specialist if its valuation falls below €5bn. JPM says Viva’s current value is less than €1bn but Haros Karonis, Viva’s Greek founder, is fighting back. He is taking legal action, arguing that JPM is trying to supress his company’s growth so that they can take control on the cheap. JPMorgan has pulled its former compliance chief out of retirement to join the board of Viva, to help sort out this mess.
PayPal’s Q4 results disappointed investors but its European merchant business was a rare bright spot, delivering 20% of worldwide revenue and growing at 11% year on year. Nevertheless, PayPal remains strategically challenged by its multiplicity of platforms. “We have not invested enough in creating a single platform. That again slows us down when it comes to innovation,” said the CEO.
Dojo, which took the UK market by storm with its rebranded PAX A920, has begun making layoffs in London. Explosive growth has been financed with sky-high debts. International expansion seems unchecked; Dojo is hiring for its new business in Spain.
From the Business of Payments blog:
Global Payments’ European revenues rose 42% as the EVO acquisition kicked in. Global is next rumoured to be buying Takepayments, a leading UK ISO for $250m.
Barclays says merchant acquiring is still “essential” but looks to offload Barclaycard Payments.
PagoNxt reported a second profitable quarter as economies of scale start to deliver.
Visa and Mastercard’s combined European volume was up 12% in Q4 2023. “Europe has been firing on all cylinders,” says Mastercard’s CEO.
One to watch. FlatPay, a POS based payment facilitator (PF) from Copenhagen working with Shift4 and Rapyd, has won 6,000 merchants in its home market and forecasts €3bn volume this year. FlatPay offers a free terminal and a 0.99% for all card transactions. Management says that 25% of customers also take its ePOS system. Flatpay raised €15m last year and has just launched in Germany and Finland.
Secure Retail has bought STS, a long-established software business which supplies payment applications for complex use cases such as airlines. UK based Secure Retail is ambitious to grow beyond its heritage in hardware distribution and related services.
In a busy month for corporate activity even the advisors are getting in on the act. Oliver Wyman has acquired Innopay, which groups 60 consultants in Amsterdam and Frankfurt. In Paris, Oaklen, which advises almost all French luxury brands on their payment strategies, has undertaken its second management buy out. This time all 30 consultants will become shareholders. Oaklen anticipates growing its turnover from €9m to €11m this year.
Large consulting practices have a mixed track record with buying specialist payment expertise. EY seems to have made a success of Innovalue, bought in 2016, but Accenture made a mess of First Annapolis whose management quit and formed Flagship Consulting.
Flagship produces great content and has helpfully counted the PFs in Europe and North America so we don’t have to. American software vendors have embraced this model of embedded payments. 43% of PFs in the US are ISVs compared to just 8% in Europe. It’s probably only a matter of time before Europeans catch on to the margin available by combining software and payment processing. The consultants also reveal that many PFs fail. Flagship count an annual attrition rate of 6% in North America and 16% in Europe.
The most successful ISV/PF is Shopify which reported that $45bn of volume passed through Shopify Payments in Q4 2023, up 32% year on year. Shopify surcharges merchants 0.6%-2.0% per transaction if they don’t use its in-house processing which now accounts for 60% of total platform volume. Shopify Payments is powered by Stripe.
This seems a winning strategy so why doesn’t Big Commerce, a key Shopify competitor, have a Big Pay? The CFO says he doesn’t want to add “excessive transaction fees to pressure customers into certain payments solutions.” Analysts explain that Shopify is now 2x-5x more expensive than its competitors, especially for larger merchants, but customers don’t seem to mind. Shopify is the highest rated brand in JD Power’s US merchant services study. Global Payments and Intuit came bottom.
Schemes
Europe’s domestic schemes, old and new, seem to be prospering. Girocard, the German debit card once thought to be in terminal decline, reported a buoyant 2023 with volume up 7% to €304bn. The card is now accepted at 1.132m terminals, up 8% on 2022. The payment ecosystem has noticed. Stripe has become an NSP, a gateway/processor for Giro.
Visa was delighted to report 2023 German market figures showing volume growing 25%, rather faster than its domestic rival, and that its cards are accepted at more terminals than Giro for the first time. Visa and Mastercard have been boosted by the success of SumUp which has steadfastly refused to offer Giro.
Twint, the Swiss QR mobile payment method backed by UBS and Credit Suisse saw transactions up 50% in 2023. The Swiss Payment Monitor, based on survey data, shows Twint’s share of POS transactions at 7.2%.
Twint is now accepted at three quarters of local merchants and is built into the payment flow. You can see from the photo how shoppers are automatically presented with the Twint QR code at checkout. It’s not cheap. Merchants pay 1.3% + 0.3CHF which is more expensive than debit.
Credit: Christoper Uriarte
Four Czech banks have together launched Cvak, Czech for “click”, which works by the shopper tapping their phone on an NFC card by the till. Cvak charges a flat rate of 0.8%.
And in Poland, Blik the mobile payment standard primarily used in eCommerce, stormed 2023 with payment volume up 48% to €56bn.
Cards remain the best option for payments when travelling abroad but inter-operability between domestic schemes could provide a more convenient option for consumers. Indian visitors to France can now pay with rupees using UPI which has linked up with Lyra, a local QR based payment wallet. The Eiffel Tower was the first merchant and merited a news item on Indian TV.
It would be wonderful if the European Payment Institution (EIP) could do the same with its “wero” product - linking domestic schemes in a unified customer experience. It’s worth reading this interview with one of the EPI’s directors which explains how “wero” will work.
New Shopping
Merchants are struggling to make money from online sales. Return rates are still very high and many are failing to adapt processes to turn product returns into sales opportunities. A functioning omni-channel payment platform that can match transactions and refunds across channels is essential. That’s why Hugo Boss has implemented Adyen’s omni-channel platform across its 450 stores and digital platforms. The German fashion brand seems very happy.
New research shows people still like shopping in stores, especially for groceries, but are increasingly demanding some of the benefits of eCommerce, such as instant, detailed product information and easy navigation. Retailers are struggling to deliver, saying store project pipelines are full and the technology changes too often.
Fully autonomous stores are very expensive. For large-format grocery, Smartcarts are a cheaper option and have the advantage of being able to display information tailored to whatever purchases the shopper has put in the trolley. Amazon calls them Dash Carts.
Instcart is pursuing the same strategy. “Ultimately, where we want to take it is Pokemon GO,” said one exec, talking about the potential of gamified supermarket shopping powered by its Caper Carts. “Complete nonsense,” snorted one retail commentator. “Are we to believe that the best Instacart can come up with to revolutionise grocery shopping is to offer carts with a touchscreen that displays ads and also plays games?”
Apple’s Vision Pro virtual reality headset is certainly more revolutionary but is it any good for shopping? Here’s a good round-up of what’s on offer from leading brands.
Apple regard Vision Pro as a standard computer and its built-in Safari web browser supports the usual payment methods including Apple Pay. Credit card entry and one-time-passwords are likely to be more of a struggle. Or you can just bang your head on the merchant’s payment terminal.
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Product
EV charging is also giving the payment industry a headache. 36% of drivers own four or more different cards or tokens to charge at competing networks according to new research from Payment Genes. When asked, drivers say they’d rather pay for charging with a card than download yet another app.
People waiting for a charge are a captive market for shopping. Gridserve, an EV charging company, has used Amazon’s Just Walkout Technology in its “all electric” service station at Gatwick Airport. Also including a café and driver lounge, the main benefit of the technology is the shopping insights it provides which, Gridserve says, help it decide which products to stock.
Elsewhere, Santander has cleverly repackaged its standard payment link product into a new proposition called “social selling.” Merchants can attach the links to posts on social media. Getnet (PagoNxt’s PSP) is providing the technology.
Tap. Pour. Go. Industrial-sized beer vending machines from Boxbar which pour two drinks in under 30 seconds. It’s very popular in Manchester. Adyen and Square are providing payment processing.
FreedomPay’s European expansion continues with a Redsys integration and a new office in Madrid. This will be an attractive option for international brands who want to consolidate their POS technology to a single platform but keep the low-cost card transaction routing offered by local banks via Redsys.
Revenir AI, a London based start-up, has raised £2.5m to support its automated VAT refund service, offered as a white-label to banks. Revenir says that £30bn of VAT reclaims are left unclaimed by cross-border shoppers in the EU. The service sits inside your banking app, automatically alerts when a qualifying purchase is made and links directly to the local tax office to process a refund.
SumUp, which announced new funding last month, has released a slew of new product features which widen its portfolio well beyond mPOS. These include a business “bank” account, a kiosk and eCommerce webshop. Provision of this full-service bundle will help SumUp compete with eCommerce players such as Shopify which are quickly extending their reach into the physical world.
New research in UK and France from Yocuda, a digital receipt vendor, shows the key to adoption is to highlight the environmental cost of paper and to better link digital receipts and loyalty programmes. Meanwhile, Singapore based Pi-xcels won Ingenico’s start-up competition at Paytech 2024 with a really clever way of sending a digital receipt to the shopper’s phone at POS without needing their phone number or email address.
SoftPOS
SoftPOS is wasted on micro-merchants when the technology can be transformational for large enterprises, cutting costs or enabling innovative customer experiences. Here’s a good example. Viva’s SoftPOS application turns Kate Media’s Android tablet into a payment device that restaurants can afford to put on every table.
Rubean, a German SoftPOS vendor, has won the deal to supply Commerz Global Pay, the new joint venture between the German bank and Global Payments. Rubean is thought to be charging €1.40-1.50 per merchant per month plus 2-3c per transaction. Anyone familiar with German banks will think forecast sales of 100,000 merchants by the end of 2025 are wildly optimistic.
In Poland, SoftPOS grew from 11,000 to 33,000 installations during 2023. This is a big increase but still small compared with the 660,000 terminals placed with SMEs by the Cashfree Poland programme. The early market leader is Polcard (Fiserv) which accounts for 50% of SoftPOS installations.
Open banking
Open banking is expected to take a large share of payment transactions in the long term but merchants have been slow to adopt the new technology, causing financial strain in this emerging market segment. It’s clear that there are too many open banking vendors. The Konsentus tracker shows 572 third party processors across Europe, of which two thirds can initiate payments. It’s time for a shake-out.
The first casualty is Kevin, a well-financed vendor based in Vilnius. Kevin has raised $65m and hired 300 staff across Europe but recently needed an additional $25m “bridging round” and is now reportedly making significant layoffs. One employee said “In December, we were actually given a Christmas package: a hoodie, some coffee cups and whatnot. But we didn't get paid.”
Many in the industry are pinning their hopes on commercial variable recurring payments (cVRPs) which are (roughly) the open banking equivalent of card on file. Yapily is first to announce a product although it only works for NatWest customers at launch, highlighting a key drawback of open banking payments. The merchant is a prisoner of the customer experience provided by the shopper’s bank.
Standard open banking payments will quickly become commoditised so it’s important for vendors to differentiate with related value-added services. Volume Payments, a London-based open banking start-up working with Modulr, has launched one click age verification. This could be very useful for gambling, gaming and other merchants that need to integrate KYC checks into their onboarding flow. Pricing is 0.4% + 15p per transaction.
Elsewhere, Trustly is making good progress in the nascent UK market. Its Ecospend subsidiary has now processed a total of £3.3bn from 1m taxpayers on behalf of the British tax authorities. Total volume was up almost 40% in 2023.
The British Government wants to support the industry and seems determined to move its own volume from debit cards to open banking payments, citing a possible 70%-80% reduction in fees as the main benefit. Open banking payments have been added to its central supplier framework. NatWest is the first vendor appointed.
Volt, the self-styled network of open banking networks, has been granted a UK e-Money licence which will allow it to stand in the money flow and move beyond offering a purely technical service. Volt believes it can rival Visa and Mastercard but the comments on this LinkedIn post suggest industry commentators are sceptical. One points out unkindly that Kevin was making similar claims until recently.
Crypto corner
The European Central Bank disapproves of the US decision to authorise crypto mutual funds (ETFs) saying. “Bitcoin has failed on the promise to be a global decentralised digital currency and is still hardly used for legitimate transfers. Bitcoin is not suitable as means of payment or as an investment.”
Visa and Mastercard have both stopped issuing crypto/fiat cards. This is very sensible. The regulatory fog is just too thick. In a clever workaround, Transak, which describes itself as a Web3 payments infrastructure provider, has linked to Visa Direct. This will allow people to cash out their crypto winnings to any Visa card.
Central Banks took fright at the crypto boom and began work on central bank digital currencies (CBDCs). Strategic autonomy is a key driver. The ECB has announced that only European suppliers will be involved in the digital Euro.
The British aren’t worried about such matters. India’s TCS is reportedly the front runner to manage the UK’s Faster Payments Network which processes 90% of salaries and 70% of household bills. Mastercard, through its Vocalink business, is the incumbent.
Other news
The Scottish Government has invested in ScotPayments which it hopes will be used by 200 public bodies to process 25m transactions each year. Scott Logic is the implementation and development partner.
Why has embedded finance taken so long? According to a new study from four Dutch banks, it’s partly about financial institutions not yet making the cultural changes needed in their organisation but mainly about compliance. Technology is not the issue.
Klarna has been an early adopter of AI, working with Microsoft. The company says its AI assistant is doing the work of 700 full time agents and getting similar satisfaction ratings to real people. Klarna says it will drive $40m profit improvement this year.
Why are so many Fintechs sponsoring Forumla One? TLDR it’s one of the few global sports and the hospitality opportunities are legendary.
McKinsey has published a helpful report on how the payments industry should manage risk to drive growth. Or put the other way around, businesses that don’t take compliance seriously won’t have a business. The consultants say that after a regulator is forced to intervene, staff turnover can reaches 30% and the business normally won’t survive five years.
This is the Lloyds Cardnet museum of payment tech. Does every payment company have one of these?
Photo credit: Hasnain Sheikh
Checkout has taken a robust approach to remote working. Its CEO has demanded that staff return to the office. “If you don’t like it, leave,” he says.
Rapyd, an Israeli business with 180 staff in Iceland, is fighting off calls for a boycott by local businesses. Some Icelanders have taped over the Rapyd logo printed on replica shirts of the national handball team. Another has set up a website listing Raypd’s merchants and suggesting alternatives. Not everyone is convinced. One local blogger describes the anti-Raypd campaign as “dishonourable and inglorious.”
eService remains the top POS acquirer in Poland with 324,000 terminals out of a total market of 1.28m according to Cashless.pl. Polskie ePłatnośc (Nexi) is second and Polcard (Fiserv) third.
Some payment companies have struggled with the leap year. Feb 29th brought chaos to a Swedish supermarket and a chain of gas stations in New Zealand.
Paysafe has a new brand identity underlining its commitment to the “experiential economy.” I rather like the new approach. It’s clear, consistent and concise.
Latest research from FT Partners, the Fintech advisor, outlines the themes it will be pitching to clients this year. Expect growing deal flow in real-time payments, restaurant technology, B2B payments, embedded fintech of various kinds and (boosted by the ETFs) crypto.
And finally
A typical DCC user experience.
Where to find me
I’ll be moderating panel discussions at MPE in Berlin on 12-14 March and ePay Europe in London on 21 May. In between, you can catch me at Retail Expo in London on 24/25 April.
Alternatively, if you liked this newsletter, you can hear me guesting on Worldline’s Navigating Digital Payments podcast.
How to get in touch
Geoffrey Barraclough
geoff@barracloughandco.com