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.
Consumer behavior typically takes 2-3 years to change…unless there is a global pandemic. Our recent checks point to FinTech providers fielding an average of 5-6 times the typical call volume from the banks they service and their banks’ account holders regarding adoption or assistance with mobile and digital banking. Banks have cited moving digital transformation to the top of their priority lists relative to the number 2 or 3 item before, and many plan to allocate a greater portion of IT spend to digitization.
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.
Overall, 1Q results were better-than-expected especially when considering the 6% Y/Y internal revenue growth in Merchant (+4% Y/Y for total company) compared to recent growth seen across payment peers in the industry. We see FISV long-term growth potential intact and should continue to benefit from: 1) stabilizing trends in April, 2) incremental cross-sells and client wins (strong pipeline in 2Q with prelim sales up 20% in April), 3) execution of realizing cost and revenue synergies (reiterated its recently increased revenue synergies by $100mn to $600mn and cost synergies by $300 for a total of $1,200mn per its March release), and 4) further investments in technology to strengthen it structural positioning long-term. We believe the outperformance within Merchant and continued execution of synergies along with client wins to support our view of upside to valuation relative to the current 2x discount to the market multiple.
Overall, 1Q results were better than expected with the company’s +4% Y/Y internal revenue growth better than most peers. Along with results, FISV announced that CEO Jeffrey Yabuki will be succeeded by FISV COO (and previous First Data CEO) Frank Bisignano in July, 2020. We suspected the Frank was the eventual candidate to take on the role of CEO given his recognized efforts on a strong turnaround at First Data (although we had anticipated 2021). Overall, we see strength in 1Q results across the segments, discussion on stabilizing trends in April as a key positive, and commentary on incremental cross-sells and client wins and supportive of structural opportunities longer term.
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.
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.
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