Friday, 19 July 2024

A challenging time for Earthport as it tries to scale

5 min read

By Foo Boon Ping

Newly appointed chief commercial officer at Earthport Mike Steinharter discussed how the company aims to expand globally and into new segments to increase the scale of its operations

UK-based payment aggregator Earthport has been beset with troubles in 2018. It hasn’t quite delivered the growth that its board and shareholders have expected, in fact transaction volume in the financial year ending June 2018 (FY2018) had been lower than a year ago and the implementation of a number of client projects had also been delayed.

Revenue in FY2018 grew by a lower than expected 5.3%, with approximately 10.5 million transactions as compared to 11.0 million a year ago. Transactional value was lower at $16.9 billion as compared to $17.5 billion in (FY 2017: $17.5 billion). The adjusted gross margin decreased to 67.1% from FY 2017’s 68.3%, which management attributed to increased network delivery costs, geographical mix of transactions and the associated differences in transaction price per corridor. Adjusted loss for the year widened to £4.8 million ($6.14 million) from £2.9 million ($3.71 million) the year before.

The less than desired results have precipitated a number of management changes. Then CEO and executive chairman, Hank Oberoi, was replaced by Amanda Mesler, interim CEO Phil Hickman and former chairman was also recently replaced by Sunil Sabharwal as non-executive chairman and Mike Steinharter, a 22-year IBM veteran was recruited to the newly created role of chief commercial officer to drive global sales and marketing.

Despite this, the company’s cash balance as at 30 June 2018 was a healthy £28.3 million ($36.2million), enabling the company to continue investing strategically where needed. During the financial year, Earthport has continued to invest in its sales and relationship management teams to support its expanding network and clients, which now covers 88 countries, a 35% increase in international routes during the year.

Building scale

Steinharter sees the immediate priority for the company is to increase the scale of its operation as quickly as possible. “We’re a platform company and we need to scale a lot faster than we have been,” he said. We are going to be focusing on the interconnectivity of the faster payment schemes.

One of the biggest challenges has been to work along the more protracted and convoluted processes of more traditional clients.

He explained: “It is taking longer than we would like. That’s a function of the type of customers we have. Banks are slower. They’re slower to take decisions and once they take decision then you’ve got to go through the whole process of integration and dealing with their IT shop. Once you get them up and running then they’re good customers but they’re slow.”

In contrast, he finds that Ecommerce companies are quicker to take decisions and to move. However, the clients must also bring sufficient volume of transactions to make the relationship viable.

“We’ve lost two customers in the last two years and both of those were situations where they were only using us for one route. Other than that customers don’t leave us. They stay, then they add some corridors, they change the configuration,” he remarked.

Target segments

The company goes after banks, mainly tier 1 and 2 banks. Among global banks, it counts  Bank of America Merrill Lynch, HSBC and BNP Paribas as clients. It has also signed up the big regional and national banks in Asia such as Singapore based DBS Bank. It has also signed three banks in India and has a number of others in the pipeline said Steinharter.

It is also targeting the non-banks including ecommerce and gaming companies, as well as a number of money transfer organisations (MTOs) such as Western Union and Payoneer. In the UK, it has a good book of business with gaming companies. “The World Cup was an exciting time not just for the viewers. There were a lot of payouts and the volume went up,” said

The bulk of its business is still in Europe followed by the Americas, which is growing the fastest. It just opened an office in California in addition to its offices in New York and Florida.

In March, it announced that its wholly owned subsidiary, Earthport North America received a New York State money transmitter licence and is developing a plan for new commercial opportunities and expansion to foreign  exchange (FX) services. It is also working towards acquiring additional state licences enabling further expansion in the US.

Steinharter sees FX revenue as a good possible area of growth and wants the company to do more to package and integrate it with the payment services. However, it recently had to make fair value adjustments to its past year, FY2017, financials when errors were found  in the treatment of foreign exchange contracts.

Earthport currently has a small business in Asia, which is focused on Singapore, Japan, and India, and has ambitious plans to grow.

“We will be focusing on significantly in those three markets. There are a few other institutions talking to us but those are our priority markets and then we will have to grow over time, over the medium term,” he commented.

Working with faster payments

Steinharter shared that Earthport is also expanding to work with faster payment schemes around the world. “It is a key part of our strategy. There are 19 around the world. We are already in three or four of them and some more before the end of the year.”

It will be focusing on the interconnectivity of the faster payment schemes. It is advancing its capabilities for receivables, paying in as well as paying out as customers want to be able do both.

“We are going to be developing capabilities to deliver alternate channels like wallet and card schemes. And we’re looking at partners to help us with a lot of those things, technology companies,” he said.

This includes enabling bulk clearing through its APIs, allowing clients and partners to more easily and flexibly integrate with the company. He recognises that these technology upgrades are critical to capture new client opportunities and scale up its business.

Keywords: Transactional Value, Payment, Card, Wallet, Technology, API
Institution: Earthport, IBM, Bank Of America, Merrill Lynch, HSBC, BNP Paribas, DBS Bank, Western Union, Payoneer
People: Hank Oberoi, Amanda Mesler, Phil Hickman, Sunil Sabharwal, Mike Steinharter
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