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Payoneer CEO Scott Galit: Conversation with Daniel Webber on Q1 2021 earnings

FXC Intelligence’s Daniel Webber spoke to Payoneer CEO Scott Galit about the company’s Q1 2021 earnings results and future plans.

Payoneer has released its first quarterly results after its merger with Betsy Cohen’s SPAC FTAC Olympus Acquisition Corp, providing an initial sense of how the company is doing compared to its growth projections for the next few years.

Set to launch its own ticker symbol in Q2, pending a few final hoops, Payoneer has been growing its already strong ecommerce play, with a deal with eBay that will see it help sellers in key marketplaces be paid, as well as an expansion of it partnership with Mastercard, providing virtual cards to small businesses.

With a strong and growing ecommerce market, how does Payoneer plan to build on its current position, and how is it leveraging networks within its customers to build on its offering?

FXC Intelligence CEO Daniel Webber has a detailed discussion with Payoneer CEO Scott Galit to find out more. 

Topics covered:

  • Drivers of flows and revenue: domestic vs cross-border
  • Take rate variations across cross-border, domestic and geographies
  • Card issuing and the partnership with mastercard
  • Developing Payoneer’s network effects  
  • Partnering with eBay
  • Prospects for Q2 and 2022

Strength in Revenue: Domestic vs Cross-Border

Daniel Webber: Let’s start at the top. You’ve been seeing continually good top line volumes and revenue, particularly during quarter one. What’s been driving that?

Scott Galit:

The good news is pretty much everything is working in the business with the exception that we have called out, and tried to adjust for, which is travel. We continue to see strength across pretty much everything digital, doesn’t matter whether it’s social commerce, whether it’s services, whether it’s B2B, whether it’s ecommerce marketplaces and whether it’s wholesale off-market places. 

We’re continuing to see businesses all over the world, big and small, lean in all that much more on their digital strategies, think even more aggressively about where they have opportunities to grow and look for ways to get support to get there. So in general across the board, we’ve seen strength and it continues to carry through.

Daniel Webber: 2020 had some strong domestic processing growth too. Have you still seen some of that domestic strength going into 2021, or is the domestic side changing? 

Scott Galit:

Something we talk about a fair amount with the analyst and investor community is the take rate, and actually it’s fairly misunderstood. One of the things that we saw in both ecommerce and in travel is that we had certain pockets of activity where domestic actually grew quite quickly. 

With travel, not surprisingly cross-border international travel has dropped dramatically, but there are some places, and we’re actually expecting to see this in the US, for example, which we don’t have a lot of exposure to, but domestic travel in the US is accelerating significantly at this point. 

Places like Australia, again, domestically we saw quite a bit of travel and we have a little bit more exposure to Australia travel than we do to the US. But places like Vietnam, which is all based on international tourists, really have been hurt dramatically.

What we’ve seen with ecommerce is a couple of places where we have both domestic and cross-border sellers, and with travel, in some cases where we have some both domestic and cross-border travel, we saw a little bit of a skew with some faster growth in domestic. As a result, the take rate on a blended basis from a correspondent perspective actually took a hit. So again, reinforcing how much of that is mixed as opposed to pricing changes. 

Figure 1

Payoneer’s plans for post-SPAC growth

Daniel Webber: Will you give guidance on the mix of domestic versus cross-border at some point? 

Scott Galit:

That’s still to be determined. We’re on a path where we, not surprisingly, are thinking about how we provide more information to the public investment communities, so folks have a better understanding of the business going forward. 

Last year was a bit of an anomaly, so we don’t really focus so much on domestic. We get into some of these dynamics where we do have a business that’s pretty complicated, there’s a number of pieces and parts, and we’re just trying to be careful to not end up sharing so much information that it’s also impossible to build a bigger picture.

Cross-Border Pricing and Geographical Variation

Daniel Webber: Let’s focus on cross-border. How do you see the price competition in the market on the cross border piece? 

Scott Galit:

In general, and there’s a way you can get a sense of this sequentially, we’re showing a year-over-year comparison, so Q1 ‘21 versus Q1 ‘20, but that’s the post-Covid versus pre-Covid period, and we try to normalize that out. Actually, if you look on a sequential basis, our blended take rate in Q1 was higher than in Q4 of last year.

They’re still blending, so that’s not a perfect proxy for pricing, but it does reinforce just how much again, mix shift has been more a driver in our business. Overall, I’d say we’re continuing to see the same kind of pricing trends that we’ve seen for a bit here, which is it’s obviously competitive in the market and in certain spots, in certain places, in certain segments. 

There certainly are plenty of good companies out there pursuing the market, but in general, we have quite a bit of unique value that we offer. And in general, we’ve seen that that pricing has been holding reasonably well from that perspective.

Pricing across pretty much all financial services, other than maybe the crypto trading platforms at the moment, seems to be something where in general, there’s quite a bit of competition, and we think it’ll continue to be a space where scale matters and the breadth and diversity of services offered matter. But pricing in general has been holding up reasonably well.

Daniel Webber: Is there any kind of geographic color you can add? For example in China: that’s where we’ve heard it’s the tightest [for pricing], but there’s a lot of other services that you can add in there.

Scott Galit:

We see quite a bit of consistency across geographies in the way our take rates have evolved. Again, it really is much more about the mix and the business. We actually are working on average with a bigger portion of larger customers versus the smaller customers, and we tier our pricing. A customer that uses us for $100,000 a month is going to get a different price than a customer that uses us for $500 a month.

We increasingly have a bigger and bigger portion of our business with larger customers. So we see similar trends, we see more and more customers that are using us for larger flows, more and more customers using us for the diversity of flows that they have, and then more and more customers using us for multiple services. About over two thirds of our volume is with customers that use us for more than one service.

So that notion that we’re not just about moving money from point A to point Z, we really are about being a financial partner for our customers and giving them the tools that they need to grow and succeed. As we see our customers doing more with us, and it doesn’t matter whether they’re a small customer in the Middle East or South Asia, or a large customer in China or the UK or whatever, we really continue to see great opportunities all the way around. So overall, we continue to see more stability than not as it relates to pricing. And what’s changing in our business is much more the mix and the range of services that we’re offering.

Daniel Webber: Do you find you have to offer different pricing and bundles of services by different geographies? What’s the big way you find that you really have to say, “Okay, this is how it is different across the markets,” versus, “this is where it’s the same?” 

Scott Galit:

I’ll give you a couple of examples, but absolutely there’s a lot of difference across geographies. Not surprisingly, the UK is a very sophisticated FX market. There probably are more boutique FX firms based in the UK than anywhere else in the world would be my guess, probably by quite a bit. As a result, when we approach the market in the UK, we’ll approach it very differently than we might approach the market in Japan. 

We’ve got teams on the ground and in a lot of markets, those teams really work to try to understand the markets, try to think about what are the best opportunities for businesses in those markets to grow; what are the best tools in our toolbox that we have to help them grow. And that then ties into the local positioning.

We’ve talked before about our bank partnership strategy, so even in markets like Pakistan, where we have a lot of smaller customers with smaller flows, we’ve actually added the ability for folks to do real-time withdrawals into their bank account with Faysal Bank, or into the local wallet with JazzCash. That’s at a lower take rate than some of the other services we offer for folks to get access to their money, but we’ve actually encouraged it. It’s a better customer experience: it’s actually a cheaper transaction for us. So with our transaction profit margin, the cost of services has been improving. So there we’re very much focused on choice. We’ve piloted some other services there, but that’s a place that really those banking partnerships are super important.

In a place like the US we’re seeing really interesting opportunities with the new commercial card offering. This is something where now we’re talking with customers about a whole different set of use cases where it expanded from helping them sell internationally, to helping them pay foreign suppliers. Because in the US, there’s a lot fewer exporters, but there’s a lot of importers. So the fact that we’re actually able to help them on their sourcing side has been really important. And then with the card, we’re seeing a lot of opportunities to help them actually create more value in the way they’re actually making purchases of advertising.

Card Issuing and the Partnership with Mastercard

Daniel Webber: This is the Mastercard deal? Can you tell me more about the opportunity there? 

Scott Galit:

That’s something we’re really excited about. We’ve got all of these customers all over the world using us to get paid, but a big part of where we’ve been going is it’s not just about money movement, it’s about how do we help you to manage your business better? The idea of the card is, “Okay, I received 50,000 this month in my sales from around the world, but I need to buy advertising. I need to pay suppliers, I need to do a variety of different things.”

We have an increasing portion of our customers and an increasing portion of their volume, that instead of simply settling out as a cross-border payment, is now being used to pay their suppliers both inside the Payoneer network and outside the Payoneer network, and then to make purchases using the Mastercard to help support their business needs. So as we wrap all those things together, we really are becoming a much broader financial service provider for them.

On top of that, things like working capital, then you start to get this sense of really being there as the best partner for a globally trading business, to give them the tools to succeed in a digital world and really make those services very, very relevant for them.

We basically rebuilt the relationship with Mastercard. The vast majority of our customers around the world now have a card product issued by Payoneer. Out of our Ireland entity in Europe is our primary issuer, but then we also launched a new virtual commercial card really tailored for digital commerce and digital businesses, and that’s the new product that we started to rollout in Q1. And we’re really excited about that.

Building Customer Networks

Scott Galit:

There are networks of activity that have always existed. Certain industry verticals; niches, there are buyers and suppliers and ecosystem participants and things like that. Part of what’s amazing about the digital world, and it’s been this way from the beginning of time, is all of a sudden there’s a way to essentially platform networks of activity. So those networks of activity could be organizing people based on interest as opposed to geography.

That’s a huge shift that’s happened in the world; like-minded people online. My daughter is on TikTok doing dances that are the same dances as kids in countries all over the world at the same time, where before she would have been figuring out what kids in New York were interested in, right? So everything is now changed. This whole notion of essentially being a global platform that’s natively digital, that allows networks of activity to exist on our platform, and then we’re trying to reduce the friction there.

What happens is literally hundreds of thousands of times a month we have Payoneer customers paying Payoneer customers. So by allowing them to both be on our platform and to be able to transact essentially in real time, anywhere in the world through our platform, we’ve essentially allowed ecosystems of activity to now reduce friction and co-exist regardless of where they are in the world through our platform. And so we literally have hundreds of millions of dollars a month of volume that’s simply between Payoneer customers that are using us to pay or get paid on our platform, and sometimes both.

We get thousands of new customers a month that sign up for Payoneer at Payoneer.com. Their first time they get paid is from another Payoneer customer. So it’s part of the viral nature of the way our platform and ecosystem works. We’re still relatively early in nurturing and cultivating that, but we have customers and partners that use us to get paid from our customers as well. So there’s tax providers, logistics companies, things like that, that accept Payoneer as a payment method.

So one of our customers is able to then go use their balance and simply use their Payoneer credentials to make a payment to source their logistics or goods or whatever. We have folks that are using Payoneer balances to source off of Alibaba’s China platform where we have a partnership. So there’s lots of really interesting things that we’re doing to actually continue to nurture and cultivate those network effects in the business. And we’re really just scratching the surface on that. It’s something that’s super interesting.

Figure 2

Payoneer’s first quarter as a public company

Partnering with eBay

Daniel Webber: Is there anything you want to share about the eBay deal, other than I’m sure it’s just a good thing to do because eBay’s a giant marketplace?

Scott Galit:

It really highlights the two-sided nature of the networks and the way we try to build them, so we’re actually doing a lot of special work with eBay to help them deal with compliance and risk, and the way they’re rolling out their platform. So it’s a very, very close partnership. And then we’re also working with the small businesses on the other side that are sellers.

We think it highlights and reinforces our pretty unique ability to cover the whole world, play on both sides of networks of activity, really be a trusted partner for scale enterprises and scale ecosystems, and leveraging – it’s not just about payments, it’s about compliance and risk and the way you nurture and cultivate trust, and really help accelerate commerce when you’re able to do that. 

So we think it highlights a lot of the unique attributes of the business, and something that we’re really excited about. They’re just a great company, and company that we’re proud to be collaborating with.

Prospects for Q2

Daniel Webber: We’re already halfway through Q2. Can you provide any color on the next quarter?

Scott Galit:

I think the only thing I would say is, as I think we indicated in the release, our strong Q1 certainly gives us quite a bit of confidence that the numbers that we’ve shared for the year are conservative. 

We’re excited that we are ahead of all of our internal metrics of the first quarter and we feel quite upbeat about our chances to exceed the forecasts that we’ve provided.

Daniel Webber: Great. Scott, a pleasure, thank you.

Scott Galit:

Thank you.

The information provided in this report is for informational purposes only, and does not constitute an offer or solicitation to sell shares or securities. None of the information presented is intended to form the basis for any investment decision, and no specific recommendations are intended. Accordingly, this work and its contents do not constitute investment advice or counsel or solicitation for investment in any security. This report and its contents should not form the basis of, or be relied on in any connection with, any contract or commitment whatsoever. FXC Group Ltd and subsidiaries including FXC Intelligence Ltd expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) reliance on any information contained in this report, (ii) any error, omission or inaccuracy in any such information or (iii) any action resulting there from. This report and the data included in this report may not be used for any commercial purpose, used for comparisons by any business in the money transfer or payments space or distributed or sold to any other third parties without the expressed written permission or license granted directly by FXC Intelligence Ltd.

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