According to Grand Review Research, the amount that people spend using credit cards in North America is over $3 trillion per year and that is growing by about 8% per year. Payment processing fees add up to around $85 billion per year. From mobile wallets to retail apps, the rise of Gen Z and Millennial consumers is forcing merchants to adopt mobile point-of-sale (mPOS) solutions that catch the eyes of these younger, tech-savvy generations. Moreover, the spread of COVID-19 promises an upsurge in e-commerce businesses. Customer expectations for fast, secure, and simple-to-use payment methods are bound to drive increased demand for mobile payment options.
However, traditional payment processing has been dominated by a few very large banks. Despite the rapid growth of fintech products, merchants are underserved by the disparate, fragmented payments processirng system. More than 15% of recurring payments worldwide are declined; for some industries, this figure can double due to platforms’ incapability of providing a seamless and secure processing journey. Therefore, those that offer customers, merchants and banks an uninterrupted and convenient payment experience will enjoy long-term growth.
Adyen (ADYEN: €2,597) is a global multichannel payment company offering a variety of technological solutions to simplify financial transactions. Adyen owns disruptive technology to handle global acquiring, payment methods, risk management, revenue optimization, authentication and customer insights. Its products allow these complicated operations to be managed effortlessly:
• Online payments: The traditional system involves too many parties such as gateways, acquirers, processors, etc. to manage different tasks before a transaction is made. Each node in the process incurs some fees, which substantially increases operational costs. Further, global companies based in different regions with different store formats have to deal with various intermediaries, which leads to more contracts, process integrations and higher expenses. Ayden deals with this by incorporating 200+ payments methods in 150+ countries into one single platform. Adyen’s full ownership of the payment flow allows businesses to avoid integration and operational expenditure like cross-border card networks and interchange fees. Payments can be accepted locally so surcharges can be avoided, while all processing data is gathered in one place.
Adyen’s online payments are PCI, SCA and PSD2-compliant, conducting multi-factor authentication for all transactions against cyber security challenges. It can easily integrate with customers’ preferred devices while adapting to various payments options of business-to-business (B2B), subscriptions and business-to-customer (B2C) firms. With Adyen, integrating a checkout experience is fast, easy and can be customized to a specific brand design on either website, in-app or mobile devices.
• Point-of-Sale: Adyen connects all POS systems with terminals from a range of devices and systems to a single platform, using only a simple web-based API. Not only can it accept global payments methods, but it can also create a personalized shopping experience for customers while matching with individual business’ architecture. Its modern and feature-rich Terminal API utilizes JSON messages, which expedites integration whether the communication is over a local network or the cloud.
The use of cross-channel shopper recognition helps businesses identify an online shopper when they visit an online or physical store. The terminals enable businesses to customize their branding with a simple UI and collect on-screen input from customers. Thereby, customers are tended to their individual needs as firms can automate loyalty points, email receipts and refund in-store purchases from call or fulfilment centres.
• Unified commerce: Most e-commerce businesses offer omnichannel services these days, yet they risk losing cross-channel insights if their backend systems aren’t connected. Adyen’s unified commerce merges all payments data into the same system that allows businesses to capture insights, generate lasting loyalty and deliver flexible shopping experiences. Ultimately, tokenization lets firms replace data with the encrypted token, refraining from data violation risks that many tech giants face.
• Issuing: In 2019, Adyen launched the first global, end-to-end card-issuing solution completely built in-house. Although Affirm and Marqeta have also ventured into this area, Adyen Issuing offers both physical and virtual cards with distinctive technology. While the physical ones are customizable and re-issuable when lost or expired, the virtual ones use advanced API technology, providing clients control over onboarding and customizable branding. With real-time APIs, clients can control the authorisation flow and cardholder experience, reducing card funding timelines and increasing cash flow transparency. Unlike traditional legacy issuers, Adyen Issuing leverages APIs, putting automation and scale at users’ fingertips.
Looking forward, tailwinds to the digital payments market, fueled by eCommerce and an appeal to Generation Y and Z should support long and robust growth. Adyen is well-positioned to capitalize on the secular growth opportunities of the eCommerce sector, which is expected to grow by about 9% in CAGR out to 2021, according to Goldman Sachs.
Adyen serves a wide range of customers who are high-growth disrupting companies in fast-growing areas. One of the reasons for Adyen’s leading growth rate with a consensus revenue CAGR of 34% from 2021-2023 is its exposure to market leaders requiring payment services scaling at a rapid rate, namely Uber, Twitter, Spotify, Facebook, Snap Inc., LinkedIn, Netflix and TransferWise.
Adyen’s revenue derives mostly from settling and processing payments, POS terminals, and other payment specific services. It boasts churn rates of less than 1%. Goldman Sachs considers the global market for payment processing massive, forecasting $1 trillion in total addressable market. Payment revenue is expected to grow at a 7% CAGR to reach $91 billion in 2030. Adyen has plenty of room to grow, as a 1% growth in Adyen’s market share will lead to an additional $1 billion of revenue.
According to Credit Suisse, between February 2019 and October 2021, Adyen raised FY19-24 revenues estimates by 47%, as all growth drivers, such as underlying customer growth, wallet share gains and new customer wins, have surpassed expectations. H12021’s processed volume was €216 billion, up 67% YoY. Net revenue in this period was €445 million, up 46% YoY from €304.8 million in H12020. EBITDA was €272.7 million in H1 2021, up 65% from €165.7 million in H1 2020. With the expansion into new areas such as Issuing and the growing traction of Omni-commerce, growth is likely to be durable over the long term.
Adyen’s competitors include Worldpay, Paytm and Stripe. Its big European rivals have seen less of a windfall. France-based payments company Worldline SA and Italian rival Nexi S.P.A both saw revenue drop in the first half of 2021, as they rely much more on in-person transactions at shops and restaurants. Adyen’s biggest rival is perhaps Stripe, another fast-growing payments processor. However, Strype sets itself on becoming a payment service provider, also called a merchant aggregator.
On the contratry, Adyen is a merchant-account provider that might take more time to get started with but overall generates much fewer account-stability issues. Adyen’s differentiated business model with multiple payment options, resilient internal operations and top-notch risk management system is the most optimal for a wide range of consumers. As a result, Adyen’s merchant acceptance rate is higher than its competitors.
Adyen is trading at 35.4x 2025 EV/EBIT, according to Sentieo. Adyen is expected to lead the new era of digital transactions, bolstering its position with 1) the venture into the mid-market, 2) the strength of platforms, 3) geographical expansion, 4) unified commerce and 5) increased global acquiring.
