More work for less money. Is this the future of the payments business?

With so much private money flowing into payments, it’s worth examining the public accounts of established businesses for clues about how the market is developing.

PayPoint, listed on the London Stock Exchange, was established to allow people to pay their utility bills at convenience stores. This side of the business is flourishing. However, PayPoint also moved into online payments in 2006/7. Despite booming volumes and an excellent client list including British Gas and MoneySupermarket, this division is struggling and will be sold.

What’s the problem? Despite strong growth in the number of transactions processed, unit pricing has fallen faster with average revenue per transaction now below 10p.

PayPoint Online and Mobile – transactions processed and average revenue per transaction

PayPoint Online and Mobile
Source: Barraclough & Co from PayPoint report and accounts.

With unit prices falling faster than volume is growing, overall revenue is in decline. It fell by 4% in 2015 despite a 10% increase in transaction volume. More work. Less money.

Although divisional profitability is not reported, PayPoint has indicated that the upward growth in transaction volumes is requiring supporting investment that it cannot justify financially. The division is losing money. Parking which accounts for 40% of the transactions, is particularly challenged by higher volumes/lower revenues paradox.

PayPont’s online offer is undifferentiated. Domesticly focused payment service providers (PSP’s) haven’t fundamentally changed their product offer in years. Competition is fierce, customers are demanding and it’s hard to make money as the above chart shows. PayPoint is right to sell but it’s not obvious who the buyer would be.

While domestic payment service providers are struggling, globally focused ones such as Adyen are attracting stellar valuations. International e-commerce can be complex and this gives these PSP’s the chance to build deep client relationships and innovate new propositions that can keep revenue per transaction steady or growing.

UPDATE: Paypoint has announced an updated range of features for its online payment gateway mainly concerning PCI. These will certainly help retain customers but the challenge will be to leverage them to arrest the decline in unit pricing.

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