EML Payments Ventures Into Uncharted Waters
Within the fintech arena, Afterpay Limited isn’t the only player who presents great prospects. EML Payments, who primarily focuses on niche aspects of the payment market like digital gift cards for smartphone wallets, makes a promising player too. In 2019, the firm witnessed a 200 per cent spike in its stock price, allowing the Brisbane-based company to make it on the list of ASX 200 companies.
Specifically, its rise has been supported by an intensive acquisition strategy in a December 2019 deal to purchase Irish provider Prepaid Financial Services (PFS) for $423 million. The hefty price tag comprises of both a debt of $175 million while the remaining $249 million were to be raised at $3.55 per share. As a result, EML is, therefore, now a collection of niche payments businesses with its core products surrounding gift cards and salary packaging cards. Yet, there is a possible delay to the approval of the PFS deal by authorities in Ireland and the UK. While the firm suggested that the deal might not come true until March or April, Chief executive Tom Cregan resorted to reassure investors that the agreement is under control.
In its first-half results for the period ending 31 December 2019, the firm successfully met expectations, posting a 42 per cent increase in earnings before interest, tax, depreciation and amortisation (EBITDA) of $19.7 million. Moving forward, EML Payments is expected to achieve the full-year EBITDA of between $39.5 million and $42.5 million. This is on the backdrop of the slight increase in expenditure in the second half, comprising of travel costs as employees seek to seal the PFS deal.
In January, EML Payments has won a contract to supply payments services to the NSW Health Department. This forms part of its strategy to diversify revenue from gift cards and venture into banks in niche areas such as salary packaging. However, this is not the first time a financial player has ventured into this space. Westpac had previously provided payments cards for NSW Health staff’s salary packaging program, which entitles employees to spend pre-tax dollars on living expenditure under an Australia Taxation Office program. Yet, it is understood that Westpac decided not to continue providing such services.
Likewise, National Australia Bank and ANZ Banking Group have also pulled back from providing payments services for salary packaging, which therefore allowed new players such as EML Payments and AccessPay to dominate the area. EML has also implemented “virtual wallet” technology which allows re-loadable card programs to be provided digitally within smartphones.
More notably, consumers can choose between Google Pay or Apple Pay and gain access to loyalty programs – an additional benefit previously unavailable in banks’ product offerings. Yet, downside risks exist too. EML has raked in significant revenue from breakage fees in the consumer gift card space. Specially, between 2018-2019, breakage fees constituted 33 per cent of revenue. However, Australian regulators may one day decide that breakage ought to be returned to the owner of the gift card.
By Caroline Wong
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