GoCardless considers takeover amid payment industry consolidation

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Hiroki Takeuchi, chief executive of GoCardless, on the MoneyConf Stage, attending Web Conference 2021 in Lisbon, Portugal.

Harry Murphy | Sports File | Getty Images

GoCardless, the British fintech company backed by Alphabet venture capital fund GV, is considering more mergers and acquisitions as it looks to grow market share in the highly competitive online payments space.

“We are constantly reviewing the market for opportunities that will accelerate our growth, add value to our core payment platform or strengthen our open banking proposition,” said Hiroki Takeuchi, CEO and co-founder of GoCardless , to CNBC in an exclusive interview.

Last year, GoCardless acquired Latvian open banking startup Nordigen in its first major acquisition. Financial information was not disclosed. The agreement aimed to expand access to bank account information for GoCardless’ 85,000 customers worldwide.

“Will we do more of that? We are very open, not just for us but in general,” said Takeuchi.

“In this space I expect there will be a lot of opportunities for consolidation and M&A [mergers and acquisitions]especially given the context that some companies in this area are going to be well positioned to survive these challenging conditions and grow stronger.”

GoCardless is one of the darlings of the UK fintech industry. Co-founded by Takeuchi, Monzo co-founder Tom Blomfield, Jason Bates, Paul Rippon, Gary Dolman, and Jonas Huckestein, in 2011, the business processes more than $30 billion of payments across more than 30 country in one year.

The UK fintech industry attracted $2.9 billion in the first six months of 2023. That was down 37% from last year, as investors turn their backs on start-up losses, with high growth in response to the situation a worsening macroeconomic situation.

Britain, however, is among the most resilient countries globally when it comes to the strength of its fintech industry. According to a CNBC analysis of data from Statista, the country is the second largest market for so-called fintech “unicorns”, or companies that command a valuation of $1 billion or more.

Changing market conditions

Takeuchi pointed to Visa’s $2.2 billion purchase of Swedish open banking fintech Tink in 2021 as an example of the types of deals to watch for in the coming months.

In August, London-based fintech Rapyd acquired PayU GPO, a large slice of the PayU payments business focused on emerging markets, from Dutch tech investment firm Prosus for $610 million.

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“We have seen market conditions change over the last 18 to 24 months,” he said. “What we’ve really focused on is making sure that the core offers we give to merchants are as good as they can be and that we’re keeping more focusing on a few key sets of things and getting them right to keep going. Open banking is one thing and certainly something we think is very important.”

GoCardless made revenues of £70.4 million ($85.9 million) in the 2022 fiscal year to end 2022, up 3.5% year over year. However, it recorded a loss of £62.7 million for the year, marking a 38% increase from its £46.8 million loss in 2021.

GoCardless technology allows companies to collect direct debit payments from consumers. These payments are usually for subscriptions – think of your gym memberships, news subscriptions, and monthly meal package orders.

Without naming takeover targets, Takeuchi suggested that the weakness of some players in the payments industry would leave them open to corporate moves.

“Some companies, they are not going to be established in the long term. The ability to raise money in this environment is much more difficult,” said Takeuchi. “One of the things that is important to achieve in this area is that you have to get to a significant level. I know how much it costs to get to that scale because we have invested for 10 years.”

He said, “There will be opportunities for us. We have an open mind. The important thing is that we are very disciplined in keeping with our strategy.”

Takeuchi said that the integration with Nordigen was “going well” and that the company had invested a lot of time in a smooth combination of the Nordigen teams with GoCardless.

What is open banking?

Open banking is a new set of technology standards that allow third-party technology companies to access account information from existing large banks and use that data to offer new services.

It has allowed fintech companies like Coinbase and Robinhood to seamlessly connect to customers’ bank accounts to allow them to expand their accounts and make payments.

That can include money management apps that give users more visibility over their spending, or loan products that determine a user’s credit based on their past spending decisions rather than going through the established credit reference agencies.

Takeuchi said GoCardless has also received interest from payment service providers (PSPs) about applying to its technology to add the option of direct debit capabilities. That’s as businesses are starting to become more selective about the providers they use for their payment needs due to tighter macroeconomic conditions.

Half of businesses use three or more PSPs for their payment needs, according to GoCardless’ own data, and one in 10 companies use at least five providers. Cost reduction is a priority for businesses with two thirds of companies surveyed by GoCardless looking to reduce the number of PSPs they use and 34% planning to do so in the next 12 months.

Takeuchi declined to comment on which payment service providers the company was in contact with, but cited Stripe and Adyen as examples of the types of companies that would be covered by PSPs.

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