Open Banking, which is meant to enable new ways of managing money, whether this is in the shape of payment initiation or account information/aggregation services, has been around as a concept for several years now, and it is fair to say that it is getting traction now. As always, some markets are more advanced than others. From a purely statistical perspective (when measuring API calls and successful response rates), the UK and Portugal are leading in Europe, with Netherlands and Germany close behind. But there are also many hotspots in other regions, ranging from Mexico and Brazil in LatAm to Bahrain or Nigeria in MEA. What is equally relevant is the growing number of use cases that started appearing and are being used by end customers, private customers and SMEs alike.
Over the coming months, we will probably discuss developments in the Open Banking space in more detail via this newsletter. Still, last month saw the announcement of an M&A deal that has an interesting Open Banking component to it. Australia based EML Payments announced the proposed acquisition of Sentenial, a payment processing company originating from Ireland, with an upfront investment of €70m and an additional earn-out component of max €40m. Sentenial is primarily operational in Europe and is dually licensed and regulated – thanks to Brexit? – in the UK as well as France. Most recently, it processed €45bn worth of transactions per annum. Given that EML Payments acquired Prepaid Financial Services in 2020, it already has a presence in the European prepaid business so geographic expansion was arguably not the main driver behind this. In our view, it is far more interesting to look at the complementary product propositions that both companies have and what a combination will offer.
EML Payments is primarily playing in the prepaid and gift card space. It issues general-purpose prepaid cards for its corporate customers supporting multiple use cases such as gambling or commission pay-outs or salary cards. It also supports gift or incentive cards and has developed a proposition around virtual account numbers. EML acts as a processor and programme manager. Its latest annual report (October 2020) stated processed volumes of AU$14bn and yearly revenues of AU$121m with an EBITDA of AU$32m.
Sentenial, on the other hand, is not involved in (prepaid) issuing solutions at all. It is a payment company that offers a complete suite of payment processing solutions servicing all aspects from account-based payments to Open Banking. It has always been very strong in moving money between accounts (credit transfers, direct debits, etc.) and has connections to hundreds of banks to facilitate those transfers. In 2015, it launched NuaPay as a Payment Institution offering a Payment-as-a-Service (PaaS) platform, which is being recognised by the industry as feature-rich. NuaPay provides account-to-account based payment processing to acquirers, ISVs or other stakeholders. For example, Worldpay does card acquiring and Alternative Payment Methods in-house but would use NuaPay for all account-to-account transaction as part of their e-commerce offering.
Such bank transfers are already well established as a payment method in markets such as Netherlands or Germany. Still, as part of PSD2 and Open Banking, there is an industry expectation that account-to-account transfers will take an even larger share of e-commerce payments, connecting hundreds of different banks, and achieving low cost and high conversion / low decline ratios. These are critical capabilities going forward. The combination of (prepaid card) issuing processing capabilities from EML and payment processing from Sentenial will also enhance Sentenial’s PaaS proposition, particularly the ability to create and use virtual account numbers. Whilst this deal will open up a new region for Sentenial, EML Payments will have acquired an increasingly relevant set of product solutions supporting payment initiation capabilities. EML will be a leading global player and one of the largest independent fintech enablers in open banking and prepaid anywhere in the world. Easy integration of different services - a cornerstone of Open Banking – is the ultimate goal.
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