Over the past three years, cash payments have halved according to the Reserve Bank’s latest data, a societal trend being capitalised on by fintech company Novatti Group (ASX: NOV) which is benefiting through a 46% increase in their digital payments processing.
Novatti has spent the last few years developing their digital payments ecosystem which allows businesses to be paid quickly and cheaply, and customers to make payments from their preferred device or digital wallet. Building such capabilities, Novatti serves both sides of all digital payments by enabling merchants to acquire the payment, and individuals to make the payment.
The development of the ecosystem returned Novatti’s highest revenue to date, with the Melbourne-based fintech reporting $39 million in revenue for FY23, a 20% increase on the previous year.
The revenue was driven by Novatti’s Gross Transaction Value (GTV) where they processed more than $4.2 billion in payments across the year, a 46% increase on FY22, a metric that newly appointed CEO Mark Healy says “underpinned substantial growth in the underlying business.”
“Operationally, we saw many significant milestones in Novatti’s development. Many development goals that we had been progressing over multiple years were delivered,” said Healy.
“In addition, we began to see substantial commercial traction in Novatti’s newer businesses, particularly Acquiring, Issuing and Cross Border. The substantial growth and traction these businesses achieved highlights the strategic rationale for their development and the strong contribution we expect they will make to Novatti’s overall performance in future.”
Shortly after being appointed in June 2023, Healy confirmed plans to streamline Novatti Group and its 12 payments businesses into four key pillars: Aus/NZ Payments, International Payments, Technology Solutions and Investments.
These four pillars will then be assisted by Novatti’s centralised head office, providing each operational pillar with marketing, HR, compliance, IT and finance support.
The streamlining has been strategically planned by Novatti to lift their gross margins on payment processing, a strategy that can only be executed now that Novatti’s ecosystem has scaled to the point it is processing more than $4 billion annually. The changes have seen a reduction in headcount at Novatti over the past few months without any loss of revenue.
Reduced headcount, however, was reflected in Novatti’s reporting an underlying EBITDA loss of $14.2m, a 7% increase on the previous year, which included one-off payments tied to staff entitlement payouts. It was also reflective of increased investment in their own payments technology with major upgrades to the Acquiring tech stack that is now a fully integrated product offering for customers, covering online, offline and in-app payments. Similar tech upgrades were also made to increase Novatti’s card issuing capabilities to expand and include debit card and multi-currency cards added to existing prepaid and gift card products
These capability upgrades were reflected in the Acquiring business, generating $2.6m in revenue from a standing start. Issuing business revenue jumped 81% to $3.4m too. Both fall within Novatti’s Aus/NZ Payments pillar and are viewed by Healy as Novatti’s biggest growth opportunity thanks to no comparable service being able to integrate all the different payment services available within the Novatti payments ecosystem.
Results of streamlining Novatti’s businesses have already resulted in a small uplift in gross margins which were 47% across FY23, a 5% increase on the previous year and just the start of things to come, according to Healy.
“We have now developed a clear portfolio view of the Group and initiated a strategy focussed on simplifying the business and driving continued improvements to gross margins on the way to achieving positive cashflow,” said Healy.
“We began to see the impact of this in Q4 FY23 as gross margins increased to 51% from 35% in Q4 FY22, highlighting our traction in this objective.
“We expect changes being made to our operations and processes will make it simpler for merchants and partners to engage multiple Novatti payment services, increasing opportunities for cross-selling and deeper customer engagement in FY24 and beyond.”