FY 2023 revenue growth for payment processors; Fintech in Africa; What are the main applications of AI for payments companies?;
Hi Fintech Fans, our agenda for this edition of Fintech Wrap Up below:
Insights & Reports:
1️⃣ Corporate Payments margins remain under pressure and challenge the economic model
2️⃣ FY 2023 revenue growth for payment processors
3️⃣ What are the main applications of AI for payments companies?
4️⃣ Operating-model archetypes for gen AI in banking
Curated News:
1️⃣ Advent to buy Ryan Reynolds-backed fintech Nuvei in $6.3 bln deal
2️⃣ Bankman-Fried sentenced to 25 years for multi-billion dollar FTX fraud
3️⃣ Robinhood’s new credit card goes after Apple Card with ability to invest cash-back perks
TL;DR:
Insights & Reports Analysis:
The financial landscape is experiencing significant shifts, as highlighted by several key insights. Firstly, corporate payments margins are facing pressure due to increased investments by banks driven by changes in the social and economic environment and regulatory initiatives. Compliance requirements necessitate technological upgrades, straining margins and compelling banks to seek avenues for cost reduction while enhancing customer retention to offset compliance expenses.
In terms of revenue growth for payment processors in FY 2023, PayPal emerges as the leader, closely followed by Fiserv, while Square shows notable advancement, particularly against Global Payments. Additionally, Adyen surpasses Paysafe in revenue, with dLocal demonstrating substantial growth in emerging markets. However, growth rates have generally decreased compared to previous years for many players.
The application of AI in payments companies reveals a growing focus on future applications, particularly in fraud protection, customer service, and productivity gains. Different organizational archetypes for gen AI in banking, ranging from highly centralized to decentralized models, are emerging, each presenting unique benefits and challenges affecting the speed and integration of gen AI within institutions.
Lastly, the rise of FinTech in Africa is driven by demographic trends, limited bank infrastructure, increasing mobile and internet penetration, and the use of alternative data for digital banking, indicating a promising avenue for financial inclusion in the region.
News Highlights:
In recent news, Advent International has reached an agreement to acquire Canada’s Nuvei, a payments technology firm backed by Ryan Reynolds, in an all-cash deal valued at $6.3 billion. Meanwhile, Sam Bankman-Fried, the founder of the FTX cryptocurrency exchange, has been sentenced to 25 years in prison for defrauding customers of $8 billion, marking a significant downfall for the former billionaire. In a separate development, Robinhood has unveiled its new Gold Card, boasting features that rival the Apple Card, including the ability to invest cash-back perks, following its acquisition of credit card startup X1 for $95 million eight months ago.
Insights & Reports
Corporate Payments margins remain under pressure and challenge the economic model
Changes in the social and economic environment led to increased investments by banks, thereby increasing their technology and operations costs. In addition, mandatory regulatory initiatives are also driving the capex and opex requirements for banks, thus putting pressure on their margins. At the global level, several regulatory authorities have announced initiatives to achieve the following:
To modernise legacy payments rails and promote standardisation (e.g., migration to ISO 20022 for crossborder payments). The migration strategy to adopt ISO 2002221 by various payments network is shown in Figure 8.
• To ensure data privacy (e.g., PSD2 in Europe, EU’s General Data Protection Regulation (GDPR), data localisation norms in various countries).
Mandatory initiatives require investments in upgrading technology and infrastructure to comply with regulations. Non-compliance leads to operational disruptions and fines. Banks must invest to ensure compliance, however, passing the cost to customers may not be possible, as they may switch their banking relationships. This puts additional pressure on banks’ top-line and bottom-line.
FY 2023 revenue growth for payment processors
Looking at full-year revenue, PayPal is inevitably in the lead, with almost double the FY 2023 revenue of Fiserv, the next largest player on this metric. Beyond this, however, there are some interesting developments.
While on an extremely similar revenue line to Worldline and Worldpay, Square has pulled ahead for the last two years and is now moving closer to Global Payments, the third-largest player in terms of revenue.
Adyen, meanwhile, is for the first time slightly ahead of Paysafe, while emerging markets-focused dLocal is closing the gap on both players.
On growth rates, every player saw revenue growth in Q4 2023, although Worldline’s was minimal, at 0.1%; this was, however, in part due to one-off losses associated with termination of merchant contracts as a result of implementing a new risk management framework.
While PayPal, Paysafe and Global Payments all saw Q4 growth of between 8% and 9%, Square and Adyen reached double digits, although dLocal remains firmly in the lead at 52%.
Interestingly, while full year growth followed similar trends, most players saw lower growth rates than in 2022, even among those who are on very strong growth trajectories.
Curated News
Advent to buy Ryan Reynolds-backed fintech Nuvei in $6.3 bln deal
Private equity firm Advent International has agreed to buy Canada’s Nuvei in an all-cash deal that values the Ryan Reynolds-backed payments technology firm at $6.3 billion.
