European Payments: A Marketplace with Strong Fundamentals

February 8, 2017
By: Joel Van Arsdale, Yuriy Kostenko, and Alexander Hirschhauser

First Annapolis Consulting tracks a database of approximately 110 European payment companies for which there is publicly available information. Based on our annual review of the 2015 P&L data, we observe that the European payments marketplace demonstrates strong growth (11% by weighted average), good margins (26% EBITDA margins by weighted average), and improving profitability as a function of scaling efficiencies. Performance is not uniform; however, certain business models outperform on growth and profitability relative to others (as described below). Additionally, our sample does not include payments divisions of banks, which generally underperform our sample of non-bank companies (i.e., the total EU revenue pool is significantly larger than shown by our sample, but the growth performance is lessened relative to our sample when you include banks).

Figure 1: Performance of Selected Payment Acceptance Providers
(bubble size = 2015 net revenue)

Sources: First Annapolis Consulting analysis of publicly available data.

Digital and Innovation Driving Growth

Companies focused on e-commerce, mobile payments, and payments innovation generally outperform the broader market on growth. As shown in Figure 2, among the top 10 growth companies, six are primarily e-commerce focused, and two others have a focus on mobile payments specifically (iZettle and Miura).

Figure 2: Top 10 Performers Revenue Growth and EBITDA Margins

Note: Chart(s) exclude companies with 2015 revenue below € 50 mln.
Sources: First Annapolis Consulting analysis of publicly available data.

Acquiring is Most Profitable

Acquirers produce the highest profitability among our sample, with market leaders generating EBITDA margins of 60% or greater. As shown in Figure 2, six of the top ten EBITDA margin performers in our sample are acquirers. Note that our sample does not include Visa and MasterCard, given that it is not possible to isolate their European revenues, growth, and margins. If the international card schemes were included, they would perform well on both growth and profitably measures. Our sample also does not include issuers, given that most issuers are divisions of banks for which public P&L data is unavailable. Issuers generally are struggling with growth in the current environment and profitability varies significantly based on the specific geographic market (those with a strong influence of interest revenue such as the U.K. continue to have good profitability characteristics).

Wholesale Processing is Most Mature and Lowest Growth

Wholesale processing, those processors providing pure technical processing services to end-service-providers, is the most mature line of business producing lower growth and profitability than other business models. Wholesale processing is effectively a no growth business with lower rates of profitability (c. 20% EBITDA margins). However, there are exceptions such as Omnipay (First Data) who achieved strong growth and margins. Wholesale processing businesses are also often divisions of bigger companies (e.g., Nets, Worldline), in which case these processing businesses help to increase operating scale that helps to boost profitability in related lines of business such as acquiring.

Figure 3: Business Model Performance Revenue and EBITDA

Sources: First Annapolis Consulting analysis of publicly available data.

Consolidation Will Help to Drive Ongoing Improvement in Fundamentals

As shown in per transaction economics illustrated in Figure 4, profitability fundamentals continue to improve. Given the frenetic pace of M&A activity within Europe, we expect consolidation to be a positive force for the continuation of this trend (i.e., improved per transaction economics via product expansion and opex efficiencies).

Figure 4: Business Model ‘per Transaction’ Analysis of Net Revenue and Operating Expenses

Sources: First Annapolis Consulting analysis of publicly available data.

Consolidation is just one of a number of key trends observable in the underlying economic fundamentals of the business. As shown in Figure 5, other trends include:

  1. Acquirers are diversifying their revenue base away from pure domestic, MSC revenue into international expansion, new products and fee revenue sources.
  2. PSPs expanding quickly into the acquiring revenue pool.
  3. Terminal OEMs, such as Ingenico, are expanding into payment services.

Figure 5: Observed Trends in European Payment Acceptance

Sources: First Annapolis Consulting analysis of publicly available data.

European payments is a fundamentally attractive marketplace for investment and we expect fundamentals to remain solid and improve in the medium term. Of course, these fundamentals are also clearly reflected in the high asset valuation level seen in the current market.

For more information on this study, please contact Joel Van Arsdale, Partner,; Yuriy Kostenko, Manager,; or Alexander Hirschhauser, Senior Analyst,

Share: Tweet about this on TwitterShare on LinkedIn