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Payoneer’s global expansion: CEO Scott Galit on Q1 2022 earnings

In our latest post-earnings call report, we speak to Payoneer CEO Scott Galit about how the company is continuing to grow revenues in a slowing market, the impact of the Russia/Ukraine conflict and plans for global expansion.

Against a payments market slump, Payoneer has performed better than expected this quarter, marking a revenue increase of 36% to $137m YoY. Adjusted EBITDA also grew more than expected to $10.4m, a 33% YoY increase.

While the payments services company is expecting a revenue hit from a lack of business in Russia and Belarus, it has seen YoY revenue growth of over 50% across its portfolio of developing markets, including Latin America, Southeast Asia, the Middle East and North Africa. Now it plans to expand even further globally through new partnerships, such as a recent agreement with mobile money platform bkash to streamline cross-border payments in Bangladesh. 

In total, Payoneer’s volume – the value of transactions successfully completed or enabled by Payoneer’s platform – increased by 10% YoY to $14.6bn. The company attributed this growth to the strength of its higher value services. In particular, its B2B AP/AR volumes grew approximately 58% YoY, representing 11% of total volume.

Buoyed by its Q1 results, Payoneer has now adjusted its guidance for FY2022. It now expects revenues to be in the range of $550m-$560m for the full year, while adjusted EBITDA will be somewhere between -$10m and -$20m.

I spoke to CEO Scott Galit about the company’s Q1 results and how it will keep up the momentum amidst market headwinds in 2022.

Topics covered:

Payoneer key growth drivers in Q1 22

Daniel Webber: Revenue is strongly up this quarter. What’s driving that growth? 

Scott Galit:

It’s been a consistent story for us for the last few quarters. We’re executing really well on our strategy to drive growth of our higher value services, which fall into two buckets. One is higher value accounts receivable services. These are areas such as our B2B AP/AR offering, where we’re enabling small businesses to get paid locally where their trading partners are around the world. That continues to be a highlight, growing 58% year-over-year in the quarter. 

The other is our Payoneer Checkout offering, which is still in its early phase and didn’t really drive revenues, but is an exciting part of the story. It’s another part of these higher value, more sophisticated, complex receivable services that are helping small businesses get paid.

There’s also our higher value account services. Our commercial card that we’ve rolled out with MasterCard continues to perform well. It’s a great value proposition, provides great utility for our customers, helps them better manage their expenses, saves them money, and generates a higher take rate for us. So our performance really continues to be driving incremental sales in markets around the world (in particular some of the higher growth markets) with higher value services that are creating compelling value for customers. 

Some of these higher value account services create more utility and higher value out of the same flows that our customers are driving. Those are all working well and we’re executing well across the board, and that’s why our revenue growth was so strong this quarter.

Figure 1
Payoneer expects higher FY22 revenues, lower EBITDA margin
Payoneer FY revenues and adjusted EBITDA margin, 2018-2022

Why customers are holding balances with Payoneer

Daniel Webber: You’re seeing customers hold significant balances with Payoneer. What do you take from this? 

Scott Galit:

That’s a significant trend, and in the short term that actually runs against revenues for us. We make more of our money as money leaves our platform than when it comes in. However, over the last 12 months, we’re up over a billion dollars in customer balances on the platform, and there’s a few reasons for that.

One is obviously just the growth of our business. Second would be the growth of some of the services within the network, as customers are able to pay each other within the network as we create more utility. But another thing is that the idea of putting your global currencies in the cloud – allowing you to manage it all with a trusted partner in one place that is abstracted from any specific local market, giving you flexibility – has really resonated very strongly.

In Ukraine for example, early on we saw a bunch of new signups and customers keeping more money with us as opposed to pulling it into their local bank because they trust the stability of Payoneer and the US dollar more than they do a local bank in Ukraine and the local currency. For them to be able to leverage that flexibility and keep balances in the cloud so that they can use it and manage it across banks is valuable. The more uncertainty there is in the world, the more trust our customers have in Payoneer continues to create more value and stickiness for us.

Figure 2
Payoneer sees YoY revenue growth worldwide
Payoneer quarterly revenues across geographies, 2020-2022

Impact of the Russia/Ukraine war

Daniel Webber: You changed your guidance on Russia and Ukraine specifically. Tell us more about that?

Scott Galit:

We’ve seen the incredible resourcefulness and resilience of Ukrainian people, and also the portability of the value that they bring to the world. Ukraine is a big services market, but we have more activity with customers in Ukraine that relates to other vertical markets (e.g. eCommerce or social platforms) than even the technology services, which is an important market segment for us. 

Unless you are a manufacturer in Ukraine, you are portable. If you’re a trader and you’re sourcing from one place, marketing in another place and managing your global business, you can do that from the Western part of Ukraine as long as you have an internet connection. If you’re someone who writes code, you can do that from somewhere else. So the value that you bring is mostly you, what you have in your mind and what you’re able to do with that through a computer.

More people than we had anticipated have been able to get to at least some relative safety and continue to be at least somewhat productive. It’s definitely at lower levels than what they were before in aggregate, and definitely not where we would hope things would be. But we’re seeing folks being very interested in generating income for themselves and their families, so people are continuing to work very hard. It’s a triumph of human spirit, but also a positive reminder of portability creating real, tangible value in a digital world. I mean, if these were people that were working in an old school business that was based in Kyiv, they’d have to stop.

We’re really proud to be able to try to support people, and we’re doing a lot of work with Ukrainian refugees. We’re really happy to be able to do our little part to help in such a terrible situation.

Figure 3
Payoneer sees increase in volume across verticals 
Payoneer quarterly volume, 2020-2022

Expanding Payoneer’s services in developing countries

Daniel Webber: Geographically, how is your mix changing, and what’s your strategy with that moving forward? 

Scott Galit:

We are committed to and excited about the opportunities in these big developing regions around the world, including the Middle East, North Africa, Latin America, South Asia and Southeast Asia.

These parts of the world are quite large geographically with large populations, and have an incredible population of young people that are technically savvy. There’s a real leapfrogging into the modern digital economy that’s happening, and you see it in all directions. Those are the places that still have the fastest growing internet adoption and the fastest growth of consumer ecommerce. We’re seeing the other side of that, which is the fast growth of people building and growing export-focused digital businesses across a wide range of vertical markets. 

Over the last few years, we’ve been building leadership teams on the ground in these markets, and we’ve now got great regional leads around the world. We’ve been building teams underneath them that are increasing our footprint within those regions and increasing our local activity. 

When we build out a team in a country, we tend to put in a country manager, sales people, and customer success people. They’re tending to focus on the larger end SMBs, but we also have local marketing and partnerships. We launched a partnership with bKash in the quarter that comes out of having put together local teams in South Asia. 

We are broadening and diversifying the growth of the business. Those regions are growing much faster. If you take out the US, Europe, and China, the whole rest of the world for us is growing greater than 50% a year. We really have terrific momentum worldwide, and we’re just scratching the surface of the opportunity. There’s a tremendous road ahead, with more and more digital businesses being formed and growing in those parts of the world.

Building trust with customers

Daniel Webber: What are some of the key trust points for Payoneer? 

Scott Galit:

The fact that we’ve worked with marketplaces and have a lot of great big brands that work with us has helped our brand over time. The fact that we’ve worked so closely with MasterCard over the years and our brand has been next to MasterCard on the cards has helped us. But then there’s just the spirit of who we are as a company. There is a caring person on the other end of your engagement with Payoneer.

I talk all the time about digital business and all this, but at our core we are a high-tech, high-touch company. With financial services, again, there’s a lot of risk. Something is going to go wrong at some point when you’re dealing with global commerce and global payments, so at Payoneer we’ve always invested to make sure that there is someone who cares, that’s on the other side of the technology to provide real life support and engagement for customers.

It doesn’t mean we provide it equally for everybody. We don’t do it the same way for an Airbnb as we do for a freelancer in Bangladesh that gets $200. But the spirit and approach of Payoneer is that we care about the success of our customers, and that really does translate into trust. People understand that we are here to help them succeed, and they reflect that back to us. We get hundreds of thousands of applications a month because people understand the value that Payoneer brings.

Providing more flexibility through wallets

Daniel Webber: Five years ago wallets were not on everybody’s mind, now they are. What do you think about wallets now?

Scott Galit:

There are segments of our customer base that [wallets are] important and valuable for. For us, a partnership goes beyond just paying into a wallet. For example, bKash uses our APIs and they integrate the Payoneer account into the wallet.

A bKash customer can either sign up for Payoneer through bKash or link their Payoneer account and access it through their bKash account. They can settle in real time from any of their Payoneer global currency balances into their bKash Taka balance in real time, 24 hours a day, seven days a week. bKash codes to our platform and our API suite, and they’re providing real-time settlement infrastructure for their customers, as well as access to Payoneer services through those platforms.

It’s great for the customer because they get easy integrated access. In some of these cases, especially with smaller freelancers, their wallet is almost like their ERP system. They get real-time access, it’s super convenient and it’s all integrated together. 

With bKash, we have a great new way to engage with an important segment of populations. We do this with JazzCash in Pakistan, and GCash and the Philippines, and we have other relationships around the world. It’s a super valuable service, and the freelancing community is an important segment of the population in those markets. 

It’s great for us because we provide great service, lower cost acquisition, lower cost of serving and delivering payments, and enabling more real-time activities. So it’s a great win, and partnerships for us are a big driver of all of these aspects of the business: more acquisition, better customer experience, and then lower costs for us as we’re managing our payment flows.

Daniel Webber: Is there much of a use case with wallets for small business, or is it really the single person as the freelancer?

Scott Galit:

The wallets have been more for smaller individuals. Not exclusively, but more. In the Philippines we’ve had more with GCash that have been a little bit bigger, but the wallets fit within our broad initiative that we call our banking partnerships. So, they’re using the same infrastructure. 

In a number of markets around the world, we have partnerships with leading banks that have done the same thing. They’ve integrated the Payoneer suite, Payoneer account and real-time settlement offering into their online banking and mobile platform for their SMBs. In those cases, we’re often dealing with larger SMBs that are exporting services with lots of different customers in different places with larger flows. Meanwhile, the wallets skew much more towards individuals and smaller customers with smaller flows.

Converting market opportunities into profit

Daniel Webber: We know the market is increasingly now wanting to look for meaningful profitability. What’s your view on that? 

Scott Galit:

We’re on a multi-year journey to broaden the Payoneer platform, to be able to serve more customers in more places with a wider range of services, and we’re still in the early days of very large addressable market opportunities. With things like Payoneer Checkout, there’s an opportunity to provide high-quality tech and high-quality support for small and medium-sized businesses that are selling to consumers around the world. We think we are in the right place, at the right time with the right capability.

We’ve been EBITDA-positive since 2012 and we’re going to continue to invest. We’ve repeatedly shown our ability to navigate challenging market cycles and environments, and make smart decisions about where to put our capital to work. We’re excited to have the balance sheet to continue to make investments with a focus on the fundamentals, to help more customers and take a long term view. Frankly, the current market environment in some ways makes it even easier.

Payoneer’s future outlook

Daniel Webber: Anything else you’d like to discuss?  

Scott Galit:

We’ve got a lot of really interesting things that we’re working on across a number of dimensions, including crypto. We’re not ready to announce anything, but there’s a lot of really good things happening. 

We’re executing well on everything we can control. With the market conditions, inflation, supply chain issues and war, there obviously is quite a bit of uncertainty that’s creating some crosswinds.

We look forward to hopefully getting some tailwinds from a market that stabilises as we get through the year. If not, we’re still optimistic that we’re going to be able to exceed the guidance, but we’ve tried to stay conservative in our market approach. As always, we’re trying to set something up that we’re really confident we can meet, with an expectation that we’re going to do everything we can to be what we have to be. We’re happy with where we are and very optimistic about where we’re going.

Daniel Webber: Brilliant. Scott, thank you very much.  

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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