An Update on the Health and Complexion of the European Payments Processing Market

Navigator Edition: May 2012
By: Joel Van Arsdale

Despite the broader impact of the macro-economic downturn in Europe, the payments processing business remains healthy. First Annapolis recently completed a detailed review of the financial performance of 85 payments processors for which financial data was publicly available. The results of the study suggest that payments processing remains a healthy business which generates steady growth in revenue and profit for shareholders. During the period 2008 to 2010, our sample of payments processors generated, on average, 8% transaction volume growth, 7% revenue growth, and 5% growth in EBITDA. These European payments processors achieved 22% EBITDA margins in 2010, little changed from EBITDA margins of 23% in 2008.1

1 Summary statistics for all processors excludes OEMs

Some classes of processors performed much better than others during the 2008 to 2010 period and the profitability characteristics vary widely depending in which market segment a provider is playing. We bucketed each of the 85 processors in the sample into one of eight classes (defined by lines of business). As shown in Figure 1 below, the class of the processor has a significant impact on the relative financial position and performance.

Figure 1: Performance of Various Classes of European Payment Processors


Source: Nilson Report, Various domestic trade registries and other public filings, and First Annapolis Consulting analysis.

Direct-to-merchant providers (acquirers and PSPs for example) clearly earn more revenue per transaction for their service (€0.18 per transaction) than do wholesale processors (€0.06 per transaction). Similarly, newer businesses such as e-commerce PSPs earn more (€0.35 per transaction) than do legacy businesses such as NSP services (€0.07)2. Of course, these same iPSPs are also seeing the greatest pricing pressure (-13% annual decline in revenue per transaction) among the classes of providers as the e-commerce gateway market matures. Interestingly, some business lines also appear to scale better than others – the OEM business for example, experienced a 13% annual growth in EBITDA despite only achieving 3% annual top-line growth. Acquirers were also reasonably effective in both maintaining margins and driving efficiencies as they achieved an 8% growth in profit.

Note that class bucketing is not completely clean as Wirecard, classified as a PSP, also generates acquiring and issuing revenue and First Data International, classified as a processor, also generates significant revenue from acquiring. In general, however, we believe that our classifications are reasonable and draw the right conclusions.

It should be noted that while we can draw reasonable conclusions on the basis of class averages, financial performance varies widely within most of the classes. Among iPSPs for example, the highest revenue growth (Global Collect at 44%) dwarfed that of Optimal Payments (-5%). Among acquirers, credit card specialists who are not subject to interbank politics (i.e., EMS, PaySquare, Concardis) earn significantly more per transaction (€0.30-€0.63) than acquirers which are subject to political/regulatory pressures as a function of being interbank processors such as Unicre and Luottokunta (€0.06-€0.07 revenue per transaction).

These respective classes of providers were at one point relatively distinct. Today, however, the boundaries of competition are increasingly blurred. All of the trends shown in Figure 2 and listed below significantly accelerated from 2008 to 2011 as a function of an opening of the markets, a shift in shareholders and shareholder interests, and basic opportunistic expansion from one market to another.

Figure 2: Changing Complexion of European Payments Processing


Source: First Annapolis Consulting market observations.

Key Trends Reshaping Competitive Boundaries in European Payments Processing:

  1. OEMs are aggressively expanding into processing and services businesses. Both Ingenico and Verifone made significant investments in easycash and Point respectively.
  2. Processors continue a march into the more lucrative acquiring business (though not all). First Data, Global Payments, SixPay, and Equens each continued their market expansion into European acquiring via acquisitions or alliance formations from 2008 to 2011 (namely AIB, HSBC and La Caixa, Cetrel, and Montrada, respectively).
  3. Everyone piled into the e-commerce gateway product/market including acquirers which typically now offer a white-labeled e-commerce gateway product as well as processors and POS PSPs seeking out a more diverse, multi-channel product set.
  4. Acquirers continue to make selective decisions regarding building (Unicredit, Erste, Raiffeisen, Natixis, etc.), buying (Credit Mutuel), or outsourcing (Nordea, others) their processing operations. Note that we see the outsourcing trend as the most significant and lasting, given the market’s persistent fragmentation.

European payments processing remains an attractive market and one worthy of investment. Choosing the right investment is important; however, as growth and profitability fundamentals vary widely by business line as do competitive pressures. In general, we find those businesses which serve merchants directly with a diverse product set to be most attractive (such as iPSPs and acquirers). However, valuation levels also reflect this attractiveness and acquisitions must always strike the right balance between fundamentals and value.

For more information, please contact Joel Van Arsdale, Partner, specializing in Merchant Acquiring and European initiatives,

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