Global uncertainty and shifting interest rates led to high currency volatility in 2022 (especially compared to 2021). To highlight how the payments industry was affected, the graphic below shows how revenues for a cross-section of companies in the space grew on a constant currency basis (i.e., excluding the impact of exchange rate fluctuations).
Rising interest rates pushed the value of the dollar upwards last year, with many US based companies noting an impact. Euronet, which owns money transfer companies Ria and Xe, saw a 12% increase in revenue, but on a constant currency basis this rise was 22%. A number of other companies we track in the space reported unfavourable FX impacts in 2022, including PayPal; Paysafe; Ebix; Mastercard; Fiserv, Flywire and Western Union.
On the other hand, EU-based PagoNxt – Santander’s global payments arm – saw revenues rise 93% in 2022, but in constant currency terms this amounted to a 72% increase.
By contrast, 2021 saw much smaller gaps between revenue change and change on a constant currency basis. Many, including Ebix, PayPal, Mastercard and Western Union, saw gaps of just one percentage point, while PagoNxt saw the biggest gap of eight percentage points.
Aside from the markets they operate in, the products that companies offer also influence how they are affected by FX rate fluctuations. To give an example from our deep dive on 2022’s economic downturn, FX specialists benefitted from clients wanting to hedge more money for longer in periods of high volatility, while US-based businesses with huge amounts of activity in other countries (like Mastercard) felt the impact of a stronger dollar in those countries.
It should also be noted that companies calculate constant currency results in different ways. Some recalculate prior period results based on current reporting exchange rates, while others examine their latest results based on the prior period’s exchange rates.
These differences mean that it is usually best to track companies individually over time to get a sense of how volatility is having an impact. However, for investors in the payments space, this graphic shows why it is important to consider FX impacts and the share of overseas income as part of the wider picture of a company’s performance, particularly during periods of economic uncertainty.