Remitly provides digital money transfer services across over 700 corridors and allows users to select from a range of disbursement options, including cash pickup, instant bank and mobile wallet deposit, and others depending on the region. The Company is also in the early innings of building out a suite of other financial services, which so far includes Passbook, a digital bank account designed for migrants and underbanked.
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BlueSnap helps enable merchants with eComm, B2B, and increasingly omnichannel capabilities across multiple currencies/cross-border, including partnerships with a number of acquirers/banks (such as BAC and FISV). BlueSnap is focused on the middle market, and while it will often see Stripe, Braintree, Adyen and others in RFPs, BlueSnap competes on differentiation in cross-border abilities, auth rates, services, onboarding, partnerships, etc. See below and pages 2-3 for takeaway from BlueSnap as well as key (eComm related) points from recent comments from PYPL management.
As volume continues to shift from the physical POS to eCommerce/omnichannel at an accelerated pace, fraud has grown as well. eComm fraud continues to grow >20% per year (EMV caused card fraud to migrate from physical POS to online transactions), and datapoints suggest that fraud is ~80% more prevalent around card-not-present (CNP) transactions versus physical POS (per BlueSnap). While there are a number of FinTech and security companies that will provide services around this, we believe V/MA are among the most meaningful beneficiaries from the increased demand for fraud and security offerings given their products and differentiated data, which should continue to drive incremental revenues. Overall, we see this along with other services, contactless, incremental TAM opportunities (B2B, push payments, G2C), and more digital transactions, as enabling V/MA to more than offset cx-border headwinds over time.
Looking at vertical and service line exposures, we analyze how IT Services companies in our coverage are positioned to withstand recessionary pressures as companies across a broad range of industries tighten IT spending. IBIS World is calling for a 4.3% Y/Y decline in 2020 IT Consulting revenue growth, which compares to prior industry estimates of +MSD growth. Channel checks and industry reports indicate significant challenges within travel & transportation, consumer products, and retail, while healthcare, online media, communication, and eComm and digital banking have shown resilience. Unsurprisingly, management commentary has pointed to resilience among outsourcing and traditionally non-discretionary revenues, consistent with the last recession, however this cycle companies also note resilience among security, cloud, and certain digital offerings as clients aim to adapt to the virtual world. See pages 2-5 for company-specific positioning in the current economic environment.
Looking at a collection of industry volume datapoints, we note a trough in mid-April trends, improving into 2H April and into May. We continue to see strength in eComm (ex-travel) serving as an offset to subdued in-store volumes as areas like T&E and restaurants remain depressed due to lockdowns. While V/MA have often suggested that eComm/mobile based transactions and CP transactions drive similar economics, industry checks continue to suggest that the ecosystem (including the networks, acquirers, and issuers) see incremental revenue streams around CNP given services and other offerings like fraud and analytics. In addition, contactless transactions may incorporate in-person ‘tap-to-pay’ as well as buy-on-line and pick-up in store, which may be considered CNP.
In this Sunday Spotlight, we aggregate data points across earnings as well as private FinTech updates to drive insights on money transfer trends in the current environment. Looking to prints over the last week, EEFT and MGI results indicated sound pre-COVID-19 trends, however transactions decelerated meaningfully in the 2H of March with expectations for continued weakness going forward, and we expect retail-heavy players such as WU (reporting 5/5) to face significant challenges ahead. That said, digital money transfer has accelerated across the sector since the onset of COVID-19, which reads positively for PYPL’s Xoom business and other FinTech’s with outsized digital money transfer exposure. For reference, roughly 15% WU’s C2C transactions were digital as of 2019.
Two weeks ago, we published on PYPL and SQ as natural fits to assist in the SMB focused Paycheck Protection Program. In this week’s Spotlight, we focus on the consumer side, particularly the underbanked and related opportunity for PYPL and SQ. Over the last week millions of Americans have started to see $1,200+ in Economic Impact payments directly deposited into their bank accounts. However, many Americans who do not file taxes or without a bank account were unable to immediately receive these funds. As a reminder, under the existing plan, $301B in stimulus payments are expected to be allocated over an estimated 171mm payments, implying an average payment ~$1,700. While the vast majority of payments will be disbursed through direct deposit, (at most 90%, in-line with 2019 tax refunds), we see potentially $30B+ (conservatively given direct deposit is skewed to higher income and ineligible households) in payments without immediate access.
In this note we analyze recent earnings releases and management commentary from IBM (April 22), Infosys (April 22), and Tata Consultancy Services (April 16) for read-throughs to IT Services companies in our coverage. While delivery was a key concern for investors in late March and early April, companies have adapted to bring most of their employees back online, and management teams are now focused on weathering the difficult demand environment ahead.
Datapoints from the past week including volume trends by vertical, bank-card trends, and takeaways from proprietary research checks on omnichannel technology demand, and contactless, provide valuable inputs to both short and long-term implications of COVID-19. We think patterns around eComm, incremental acceleration in demand for omnichannel by merchants, contactless payments, among other themes continue to paint a picture on sub-sectors that may emerge in an incrementally strong position.
Marqeta offers a modern card issuing platform that enables businesses to make secure payments in a wide array of channels, securely. Through its open API platform and back-end infrastructure the Company powers card issuing and payment technologies for third parties including SQ, Affirm (private), DoorDash (not covered), Instacart (private), and many others. Over the last 4 years, Marqueta has consistently doubled annual revenue, and has issued over 140mm cards to date. Given the Company’s horizontal market positioning (delivery travel, POS financing, and more) Marqeta has visibility across multiple segments of the ecosystem. For reference, the Company has seen 75% month/month increase in contactless payments and 10x growth in on-demand delivery over the last month.
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