Theres some interesting UK card processing stories in the news which could be of benefit to UK SME card accepting businesses so we thought we’d maybe start posting a regular round up and our thoughts. Includes Global Payments EU interchange forecasts, WorldPay’s new platform and WorldPay share sales.
Global Payments EU interchange forecast
Last week Global Payments announced their latest quarterly 2016 results. On the investor call, Jeff Sloan (CEO) gave their take as to how long Global Payments UK would benefit from the EU interchange reductions. By benefit what he is talking about is the cost reduction which will boost Global Payments’ profits rather than being passed onto its customers as the EU intended. Jeff talked about a period of 18 – 24 months before all the intended benefits would be passed on.
By “passing on” Jeff doesn’t mean that there will be a second round of portfolio wide rate reductions. What he means is that merchants will have to threaten to leave in order to get any of the benefit and they estimate the timescale for their entire portfolio to “wisen up” and go through that negotiation process will be up to 2 years. I personally reckon it will be longer, say 3 -4 years but the message is clear for all Global Payments customers – if you want the EU benefits then you’ll need to fight hard and look elsewhere!
Interestingly, in analysis issued last week, Baird Equity Research estimated the Global Payment 2016 profit contribution from not passing on EU interchange benefits ($8m) was greater than the profit contribution from their largest UK corporate acquisition – Realex Payments ($7m). And as the main element of the EU interchange benefit (credit card reduction) took place in December, only c.4 months worth of benefit are in the 2016 financial results – full year benefit would be closer to $24m, a 4% boost to their entire group cash EBIT. It is a very material sum.
WorldPay completes new processing platform
As expected, WorldPay have confirmed their new processing platform will be complete this summer and merchants will be “migrated” over the next 12 months. Expect new customers to be the first guinea-pigs then SME’s then the large corporates lest. The platform has taken over 5 years to complete.
What benefits will customers see – uncertain as yet. The current “Streamline” platform is antiquated and lags the market in reporting and automation but whether the new platform will merely catch up with the market or will set a new benchmark remains to be seen. WorldPay will certainly benefit from greater automation, ability to “mine” customer data and settle funds directly to merchants without routing through the RBS banking system.
Customer migration is not risk free and it will be a tense summer for WorldPay as those initial merchants go live. Heres hoping there isn’t any processing or settlement delays.
Advent and Bain to sell part of their stake in WorldPay
A not unexpected development. Now that WorldPay is a public company, one would expect the venture capital owners to gradually sell down their entire stake over the next 12 – 18 months. They are believed to be selling 25% of the WorldPay shares leaving them with a combined holding of 60%.