Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:04:16} What initially took to you the world of payments? What attracted you, or did you fall into it by coincidence?

{audio:0:04:32} It was a bit of coincidence. I was working with one of the startups back in 2011, 2012. They were incubators, so they had started some of their shops in this part of the world, in APAC. I was employed as a business strategy person and I was reporting to the CFO and then, one day, our payment setup wasn't working and – given that it is a startup, you have to wear multiple hats – the boss asked me to have a look at it. I fixed that problem but after that I thought that it was pretty cool. Then the person who was looking at it was leaving the company, so it fell on me and so that’s how it started. Then onto the acquiring side and the scheme side.

{audio:0:05:34} How did you make the jump for working for them? I ask because they make a big deal of carefully choosing their candidates. They say that every single hire is vetted by one member of the board, so can you run through the recruitment process in your case? It would be interesting to see how it illustrates their practice.

{audio:0:06:05} In my case specifically, I already knew Adyen from before, because like I said, the company where I was working were using Adyen, hence I knew a bit about their systems. At that time, Adyen was not yet in APAC; we had to switch to other payment options. But once they entered APAC again, they reached out and then we met a couple of events. There were a lot of common things because they had also worked with that same startup that was no longer a startup anymore, so that's how we connected. Then there was this role on partnerships and building the new partnerships in this part of world. 

{audio:0:07:01} In terms of hiring, for everyone there is a board member that vets it at the end and that was the same in my case. It's not like some of the other companies’ interviewing process. They look at it more from a cultural fit standpoint. Of course, it’s also about payments, but that’s not the most important thing. If it’s a culture fit and the board member likes you, then you have a good chance. 

{audio:0:07:40} Who did you get in your case? Did you get the CFO or CEO?

{audio:0:07:55} Arnout is the CTO. My guy, Sam, also left. They were early board members.

{audio:0:08:10} It’s amazing how it’s a recurring theme when you read their annual report and when you listen to the Capital Markets Day there’s a big onus on it. I didn’t realize when they recruit that they focus as much, if not more, on the culture as the experience.

{audio:0:08:32} What they look at is whether you're able to be on a flight with that person for 10 hours and you still are not bored; that's the kind of culture they look at. It’s an inside joke which is quite true. 

{audio:0:08:49} They did mention this at one of their Capital Markets Days. How is the culture internally? They put a lot of responsibility on people to do what is right for the business and try not to intervene? Is it that type of culture?

{audio:0:09:15} In Adyen versus all the other startups that I've worked with, there is a clear direction where the business wants to move and wants to grow, so that is what is defined versus some of the other startups where everything is being tried and tested. There is a direction, but after the direction, how you go about it, what kind of pipes to build, what kind of merchants you get, if that is within the boundaries of what Adyen’s values and principles are, then it's pretty much on you how you want to drive it. Basically, you don’t have to present a business case for everything that you want to do.

{audio:0:10:05} If you have a business development idea, as long as it fits the general direction and everybody’s aware of that generation direction, you don’t have to constantly ask for permission?

{audio:0:10:21} Yes, you don't have to constantly ask for permission. It depends really on what you think that idea is. If it's related to developing a new feature, a new product, then there are a lot of other considerations; many merchants are asking for the same thing or is this a viable product etc. But if you want to do something in one geography which is more suitable for that one area, the kind of partners that you want to choose or the merchants that you want to choose, then that's pretty much on you what you want to drive. So yes, you can go ahead and do whatever you can to get them on board, if it is eventually beneficial for Adyen.

{audio:0:11:12} Interesting. When you said that you were more focused on partnership, is that getting new merchants on the platform?

{audio:0:11:24} That's sales. Partnership is if you have to work with the schemes; Visa, Mastercard, local schemes, so all the financial partners plus all the alternate payment methods – whether it’s someone in Vietnam or Malaysia – the pipes that we are building and all the partnerships and what the connections should be like.

{audio:0:12:05} Can you go through the different stages that are required to establish the business in a new country? Adyen said they have to integrate with the relevant bank systems and I guess that’s your focus; then there’s the regulatory aspect and license applications. 

{audio:0:12:55} If we have already chosen a country then one of the first things Adyen would look at is to get a legal opinion. Very quickly, they get in touch with some of the local lawyers or their own lawyers on the regulatory part about what is required to set up domestic entities. They will give the different options of establishing entities there and how, if at all, you can get the currency there or move the settlements out of the country. 

{audio:0:13:32} A lot of these Adyen merchants are global merchants, so they might not want to have all the settlements within that third country but would rather want to get them back to their own home country. Some of these considerations have been taken into account. After that, you set up an entity, if that country is where would like to get the scheme licenses from, such as Visa or Mastercard. Adyen believes in getting and having their own licenses rather than relying on someone else, however that's not the first step always because it takes time. You have to understand the market.

{audio:0:14:15} It would usually take you somewhere around one to one and a half years. In between, they would work with the bank acquirers or anyone who's available to give them entry to the market in terms of acquiring on their behalf. Adyen will connect to providers, they would work with them and at the same time, in parallel, they would also apply for a license. They wouldn’t go and apply for licenses in every country, but wherever it makes sense they would do that. 

{audio:0:14:56} Along the way, there may be local payment methods that the merchants are demanding. A lot of this actually comes from what merchants are asking and Adyen always follows what the merchant is asking. If any merchants have the same kind of local payments, same kind of card payments, then they would go and try to get that integration done as well. Then in between the setting up of bank accounts and all of that – the operational area – the regulatory part is one of the key things where a lot of time initially is spent. 

{audio:0:15:40} In the countries where they haven’t opened a subsidiary, what you’re saying is that they go through local bank acquirers?

{audio:0:16:02} Those guys would be the gateway? Is that the first step of the acquiring process?

{audio:0:16:10} Actually, it's the other way around. Adyen would use their own gateway and that would be the one facing the merchant. Let's take the example of a merchant from the US trying to expand to the Philippines. This merchant is already connected to Adyen, so they are well versed with Adyen’s gateway and their APIs that they've connected with. When they go to Philippines, Adyen would work with a bank acquirer to have that connection with Adyen, but then on the merchant side they're still connected to Adyen’s APIs. There are two ways of doing this in Adyen. One, with some of the acquirers that they connect with, the merchants need to have a direct commercial arrangement with the acquirer. But often, Adyen would simplify this process by maintaining the commercials. The merchant just needs to sign a piece of paper and Adyen would resell the acquiring on behalf of that acquirer. 

{audio:0:17:32} The acquirer on record is still the Philippines acquirer. Adyen is using its own gateway and it's using a reseller kind of model to sell the acquiring services in that market.

{audio:0:17:53} It means that if there is a place where Adyen does not have a local presence via subsidiary, they can still do business? They operate globally but the list of subsidiaries that you see on the annual report is obviously not the whole world. Basically, in the countries where they don’t have a presence, they go and establish relationships with local acquirers and they make their merchants benefit from those relationships. Is that how it works?

{audio:0:18:28} That's right. I'll simplify it for you with an example of the markets where they're not in the money flow. In the other use case which I mentioned in which Adyen is only the gateway and they would connect with an acquirer, they have the technical connection, but the merchant still needs to have a commercial arrangement. In that case, the money will flow directly from the acquirer to the client’s bank account; Adyen doesn't need to have an entity in that market. That is one good example where, in the Philippines, they can just do this without having an entity. 

{audio:0:19:11} The same thing applies in the case of local payment methods. If they want to be in the money flow, the acquirer will settle to Adyen and Adyen will settle to the merchant. In that case, they can do it by this bank part or they can get a direct license with Visa, Mastercard and in those situations, they would need that entity. There are different levels of merchant engagement or market level. Adyen have their own terminology level and Level C and full acquirer and all of these are symbolized as one of them. Full acquiring is the best one followed by Level M which is, basically, you are in the market, you have a local entity but you don't have an acquiring license and you're connected with someone else and you are in the money flow. Level C is where you just are a gateway.

{audio:0:20:26} Does it make a difference to the profitability for the transaction if they have the full acquiring level versus just a gateway? I guess, yes, because they’d be paying out fees to the other stages.

{audio:0:20:48} There are different ways to look at it on the profitability side. One, if you are the acquirer in a particular country then there is a fixed cost that's coming from the schemes and whatever interchange that you need to pay. On top of that, you can put your own margin. That margin is negotiable. There is a big, big range. If someone is already giving you a pricing in those cases where you are reselling for them, they are already telling you that this percentage is your cost, so the cost is kind of decided by that acquirer. Again, the same logic can be applied but you can place it anywhere in terms of the margin, but then there's less control over it. 

{audio:0:21:52} The profit might reduce, but in the last one, where you're not in the settlement, there's only the gateway piece because the commercial otherwise is directly between the merchant and the third-party acquirer. In that case, yes, it will reduce, but I won't say it's a profitability thing. It's more they're still giving the access to you worldwide, but not everywhere. One processor can be there or Adyen can be there but they're still giving you options to have the same interface and the same connection with Adyen but get their local acquiring there also. 

{audio:0:22:43} Basically, where Adyen is only acting as a gateway, that would be an option when the merchant already has an account or a way to settle it inside that country? 

{audio:0:23:04} That’s right. They would settle locally in that context and will directly get the settlement from the third-party acquirer. 

{audio:0:23:15} Let’s take the example of a global, large, established player like Netflix. I would assume those kinds of companies have accounts everywhere or is it not the case they would still be more comfortable with Adyen settling the transactions for them?

{audio:0:23:39} They wouldn’t necessarily need an account everywhere. They could still process the payments everywhere because they can do cross-border acquiring. A transaction could still be acquired by Adyen US or Adyen Singapore, even if it is Netflix in the Philippines, because if it satisfies some of the Visa and Mastercard rules – and especially if it’s digital – they are allowed to do it in that way. Of course, cross-border transactions are slightly more expensive compared to domestic transactions so then it's Netflix's own decision whether they want to go into that market? Would it help them to save costs or increase authorization rate or whatever? Netflix need to evaluate it versus all the operational things of setting up an entity there and regulatory challenges, the tax issues.

{audio:0:24:45} This is where Adyen can have quite a useful role of simplifying that aspect?

{audio:0:24:53} That's right, yes. There are countries where Netflix would want to have a local entity. Maybe Netflix already requires it because their business is in the media side and that requires local entity anyway; there are countries where you do need that. Netflix would already have people on the ground in the local entity and they might want to settle it in that country. Int that case, they might use a local settlement in versus in a country where they just want to expand. They don't want to have payments being settled in that country and they want to get to that home country, then they can just do cross border.

{audio:0:25:42} If I take an extreme example of a country where there’s a lot of currency risk and capital controls, who bears the responsibility for the settlement if there are mismatches or if it’s hard to get the money out of the country? Who takes that responsibility? Is it the acquirer Adyen or is it the merchant?

{audio:0:26:18} I'm guessing you are talking about the case in which, let's say, it's a local payment gateway and local payment method is first settled to Adyen and then the merchant still wants it in another currency.

{audio:0:26:40} There is always an FX buffer and, of course, the buffer is higher and the margin is higher in case of an exotic currency versus a standard currency. Adyen would cover itself on the FX part by having a slightly higher buffer on the exotic currencies, which fluctuate more. But Adyen would that risk, because that risk bracket is only two, three days between which Adyen would then settle to the merchant; Adyen would take that risk that for three days. They would say, I'll charge this much and then I'll settle to you in the currency you want and I will arrange that between me and that local payment provider.

{audio:0:27:30} In that particular piece, the flow of funds would be a local consumer buys something from an international merchant with his local card?

{audio:0:27:51} Yes. I can give you an example. Let's say there's a wallet in Vietnam and that wallet payment method is available on, let's say, Spotify and this is all being processed by Adyen. Adyen is connected to that wallet provider or the aggregator, whichever way it works, and we'll have not just the technical connection but also a settlement between the two. Adyen would collect for Spotify and all other merchants which they have on this payment method. That provider, the aggregator, will settle to Adyen in let's say Vietnamese đồng. Then Adyen would have said to this merchant, if you are settling, if your payment currency is Vietnamese đồng but you want it in another currency, then this is the tax that you need to pay on top of the overall settlement and my charges and everything. Then finally they can pay in USD from Adyen’s own account. It can be directly paid out from another location in Adyen. They will manage the FX part.

{audio:0:29:15} It can be a risk if there are sharp moves within a short period of time, basically?

{audio:0:29:20} That’s right, yes. It never makes FX its core business. FX is more of a hygiene but they try to make sure that the risk is reduced, that margins are high enough that the fluctuations are taken care of, unless something drastic happens in one or two days. 

{audio:0:29:49} Going back to local acquiring, Adyen announced in H1 2021 that they had established a local acquirer in Japan. What are the benefits? Is it to increase authorization rates so that when a local bank has to settle with a local acquirer, it feels more comfortable? What is the mechanism that makes it more attractive from a servicing point of view?

{audio:0:30:22} When Adyen is the acquirer – which means that they have gotten this license in that country – Adyen can really use the power of its full stack solution, which means that it is the gateway. Adyen is the one that has the acquiring license Adyen is the one which is the processor because it connects directly to the schemes, so everything in that transaction is happening on the Adyen platform. There is no way of switching the transaction to someone else and that's why yes, increase in authorization rate is one of the outcomes of that, amongst many others. 

{audio:0:31:09} If there is any technical issue, like the transaction failing, it's very easy for the Adyen tech guys to look into why is it happening and how to make it better. On top of that, all the new features will be firstly available – and most of the times only available – in places where they have direct acquiring licenses. For example, if there is a Mastercard or Visa product or feature that is built on Adyen’s acquiring a connection, so wherever the license is, it will work only in those cases. It may not work if Adyen is connected to someone and then that person is connected to Visa.

{audio:0:32:11} In terms of product capability, authorization rate and economics, getting a full transaction on their full stack solution where they control every bit of the transaction is where the local acquiring makes sense.

{audio:0:32:34} Typically, what would be those features that Mastercard will make available to Adyen and not others?

{audio:0:32:44} I won't say they won't make it available to anyone else. What I am saying is, let's talk about network tokenization. Let's talk click to pay and those kind of features. The schemes would work with the acquirer to enable it, and maybe enable with Adyen and maybe the acquirer that Adyen is connected to also; it is possible. A lot of times that is not possible because Adyen is usually the first one to build those features. 

{audio:0:33:21} Even in a case in which the other acquirer is also enabled with that feature, because Adyen won't build for every feature, then that feature may not be available on a non self-acquired kind of connection. Adyen would be connected to that third party acquirer for a normal card transaction. If they want to connect to them for a token transaction, that’s one more connection. If they want to connect click to pay, that's one more connection. The case becomes whether they should keep doing these connections. In a lot of cases the answer would be no. They would rather have it on their own acquiring and that's where it works then.

{audio:0:34:25} I’ve just got one last thing to ask on the local acquiring. I guess every year Adyen would have a business plan to develop local acquiring in a certain number of geographies so that every year they get more efficient. Is that right?

{audio:0:34:45} That is right. There's always a plan on which is the next country that they want to do local acquiring in. However, that is also decided by where the merchants want to go. What's the merchant demand? Where do they want to go next? What's the next big hub? Then, of course, the ease of getting a local license without putting, let's say, the data servers there and without having a lot of regulatory issues there.

{audio:0:35:20} For example, there could be a market like India where it's a big market, a lot of merchants want to go there but to get an acquiring license in India, we need to be a financial institution. Would Adyen become a financial institution in India? Maybe, but that takes longer. Yes, a lot of merchants do want to go to India but Adyen may not be able to think about local acquiring in that country, so it still works with someone else or works in some other way, such as sponsorship.

{audio:0:36:04} In all those big markets, such as Indonesia which is, potentially, a very big market, they will go via local acquirers because it’s going to be too onerous for them to have a local acquirer license.

{audio:0:36:17} Correct. These are already very regulated markets, very domestically focused markets, so yes. I won't say it will never happen but there might be lower hanging fruits that they would want to get first.

{audio:0:36:35} Which geographies in Asia do you think are more approachable where Adyen are currently not present?

{audio:0:36:45} I think Philippines would be one and I believe Stripe already have a license there, so it does mean that someone else can come from outside.

{audio:0:37:06} Are there others, such as Malaysia?

{audio:0:37:08} Adyen already announced that they have got a license in Malaysia. Malaysia and Japan are the two markets where they've got licenses in 2021. Singapore, Hong Kong, Australia, New Zealand are the markets where they already had licenses, so beyond these, Indonesia.

{audio:0:37:33z What about China? They have a sales office there, I see.

{audio:0:37:42} Yes. That is for taking the China merchants outside of China. For example, when DD Didi wants to go to South America and do business there, or Ali wants to expand their Alibaba business, then Adyen comes in. It's more of Chinese operations outside. Then also with Alipay, WeChat Pay, UnionPay, to also provide those kind of payment options for Chinese people. For Chinese people who are outside of China, then they would do those, yes. 

{audio:0:38:29} Talking about the schemes, presumably it’s easy for Adyen to connect with Mastercard or Visa in any country because they’re already familiar with the way they operate. Is that true or are there always going to be some local tweaks and long lead times to be able to connect? Even though you have a relationship with Adyen in any one country, it does not mean that it facilitates access to the scheme in another?

{audio:0:39:16} Once you have built the pipes, the same pipe can be used across any market where you want to connect with Visa and Mastercard or Amex or other schemes. There are certain nuances, but high level yes, the same connections can be used and reused. However, of course, the schemes would look at the business case and why you should give Adyen a license in those countries. That has to be a case-by-case thing. 

{audio:0:39:52} The way the licenses work, there's a principal license and then inside that principal license could be multiple, let’s say, child licenses and that definitely helps. As a bigger entity, Adyen could be the principle principal one, and then there could be multiple child licenses from there. Yes, definitely the lead time has been reduced because the technical work has been reduced. The first time you do the technical work and then all the things that you learn along the way, it all can be just copy-pasted. But the nuances of the market, the application in each market, that time cannot be replicated.

{audio:0:40:50} No. Because you’re dealing with the local regulator each time, basically.

{audio:0:40:55} The local regulator and local application with the schemes. In every market, there’s a new application to this. It doesn't matter if you have a license, but every market is a new application. A bit of a weight is given that you are already a Visa acquirer in some markets, so yes, we will try to make it work but only if it makes sense for everyone and given the local regulations.

{audio:0:41:43} It’s in the interests of the scheme to have people like Adyen connecting to them and any local market. What are the key requirements? What are the things that they look at?

{audio:0:41:57} They would look at what value Adyen, or for that matter any new acquirer, would bring? Why should they give a license to this acquirer? Are they just cannibalizing the market or are they bringing new volume? Are they into the segments that they want to go or are they just getting into one already crowded segment? Based on all of these factors, the schemes can decide whether they want to give the license.

{audio:0:42:35} Realistically, are there instances where Adyen is refused a license by one of the big schemes?

{audio:0:42:47} Not just Adyen, even another player? I assume if you’re a big player with an established name, you have to go through the hoops but, typically, you do get connected?

{audio:0:43:04} This would be beyond my knowledge from Adyen. But the things that the schemes would look into are, of course, the business case, but also they would check your emails, policies; they would check the risk and a lot of other checks would also happen. They would also check how much overall capital you have. If you qualify for all of that, only then will that discussion progress. 

{audio:0:43:39} Then on the local partnerships that you are developing, I guess Asia is quite fragmented and there’s different payment methods. How did you go about it and how easy or difficult was it?

{audio:0:44:01} In Asia, every market is very different from the other markets in terms of what consumers in that market prefer, in terms of the behavior and the kind of players that are already present there. For example, say people in Indonesia used to prefer a lot of bank transfers whereas in somewhere like the Philippines, GPAY was a big wallet player in the market and still is. With Adyen it's always following the merchants and understanding from them what kind of consumers they have in that market and what their behavior is? Are we targeting affluent customers? 

{audio:0:45:07} If there is a special payment method that addresses a group of merchants’ customers, then the use case would be definitely to look at that payment option and then see if it fits in all of the previous things I mentioned. Do they have the capability of connecting with someone like Adyen, providing the settlements that they want and all of those kind of L and N and C arrangements? It used to take a bit of time in terms of selecting the right partner because there are so many in Asia and in every market, but there would be eventually only one or two maximum that would fit with the values or the same style, similar style that they can work with like Adyen. 

{audio:0:46:12} Are there any big bags gaps, in your estimation, in terms of payment methods with which Adyen should have a relationship but that they don’t currently?

{audio:0:46:32} Over time, they have gotten more and more local payments on their platforms. One thing I would like to say is that local payment methods are not the most revenue generating thing. It’s more of a hygiene thing for Adyen but that's one of the reasons why the global merchants come to them. Adyen would make money mostly from the card type of business. Yes, Adyen makes money from the local systems, but that's not the key focus. That's not where they would do all their innovation. That's not where they would bring new features. This is to make sure okay, there is no customer in that part of the world using that payment method which is left off because a payment method is not available. 

{audio:0:47:27} They have already covered a lot of markets. In Asia, BNPL was something that they were missing and that got covered recently when they announced their Zip partnership in Australia. They have a pay later partnership in Singapore and some countries, but it's not there in every country. Whether they think it's one important payment method that they would want to expand into other markets also given the height of BNPL right now, that's something to see.

{audio:0:48:08} Can you talk about what you mentioned just now in terms of products? What are the main products that Adyen offers? How often do they add new products and is there a strategy to increase attachment rates with an established merchant, where you sell them one product one year and then aim for three more products the following year? How does it work from that point of view?

{audio:0:48:43} I’ll answer the second part of the question first. The answer is no, unless it fits the merchant’s need, Adyen would not just go about selling all the products and features to the merchant. Adyen has a very transparent way of working. They don't put any binding clause in their contracts. They won't say if you take this, then we will also give you this and they don't try to cross subsidize and all that. They would go about selling that product or feature, only if it makes sense for the merchant. That’s the second part.

{audio:0:49:23} The first part of the question was, what products do Adyen work with and how do they think about it? What's the strategy behind it? If you think about Adyen’s own product and features, there are very focused areas. For example, they decided to get into point-of-sale and almost 14% to 15% of the transactions are coming from there and are very high growth, but all of that has been going on for a very long time. All the tech behind it has been built for seven, eight years. 

{audio:0:50:01} Similarly, they decided to go into the mobile SDKs. That was one core feature of them that made it very easy when the mobile wave went up and then they were already ready with all kinds of mobile things and the SDKs which made it easier on a mobile kind of environment. They’re Adyen products which are well thought through. It also comes with a lot of what merchants want, but at the same time, does it align with Adyen’s own ideas and what they want to eventually become? Then there are features that are coming from the ecosystem. These are features that Visa, Mastercard, Alipay, anyone would enable, and then Adyen needs to decide whether they want this one and when. So both of these questions are important. 

{audio:0:50:57} For example, looking at something like a tokenization, Adyen is pretty positive about having tokenization as one of their key features because it increases authorization rate. They're one of the first ones to adapt to that because they see value in that and that helps them to be differentiated as compared to some of the other players and competition, so they would jump into that. But there are features that are not as attractive to them or to their kind of merchants so they may not jump on them immediately. They would rather wait and see if it's working in the market and what kind of merchants are taking it up, then coming back and asking them, then they would jump on that. 

{audio:0:51:44} In your mind, what are the key features that Adyen will have to think about for the next five years that are probably already on their roadmap?

{audio:0:51:58} I would think crypto would be one that they would have to think about. Right now, their answer is that crypto is not yet being used as a payment method. In today's scenario, it is true that it is very popular. Everything's happening, there’s a lot of buzz on crypto, but not on payments, but if that changed, would Adyen also change their direction and think about crypto differently, add that to their payment platform? 

{audio:0:52:29} Other than that, I think they are already into the omnichannel or what they call a unified thing. That is evolving every day, so the new features, new things on that one, I think that's the sweet spot of Adyen and something that they would want to grow into. They've got some issuing things started. How it will evolve, that’s something to look at, to see whether they could do it. They most likely won't do it on a B2C side, but more for on the B2B one where the merchant issues these cards.

{audio:0:53:21} Very interesting. I’m curious about what they will communicate on at their Capital Markets Day at the end of the month. A related question is that there’s been a strategic focus on large enterprises and a more recent focus on the mid-market. It seemed to me that, with their product, that is seemingly easy to use and streamlined and elegant, it seems quite adapted to this mid-market where the typical merchant will not have the expertise to go into full customization and be happy to get a product like Adyen. Why is it harder for them to address this market versus the large enterprise market where they have been impressively successful?

{audio:0:54:28} In the large merchant environment, initially they were focused on ecommerce and there are different types of ecommerce. For example, it could be a recurring business, they could be a marketplace type of business, and it’s a usual ecommerce retail business. They had slowly but gradually figured out the way how to work with each of these segments, because there are not that many. If you get the recurring thing right, it will work for Netflix, it will work for Spotify, it will work for a subscription model which collects money on a regular basis. It will work for all of those use cases. 

{audio:0:55:14} Going to mid-market, the kind of businesses are just so many that everyone has their own requirements and everyone has their own product needs. For them, payments are one thing. Their business is not payments. Their business is something else. For a lot of other large merchants, they have teams who fully understand what Adyen is saying, Adyen understands what they are saying. That's not the case in the mid-market. In mid-market you tell them you’re an acquirer and all that and they're like what do you mean? Is that a bank?

{audio:0:56:04} You have to start educating; it starts from there. For example, Stripe has done very well in that segment and even beyond when they go to very startup kind of merchants and very small merchants, then they just say we are a payment company, we can write these four lines of code and you can start accepting payments. This is the payment cost – some percentage plus fixed fee – that's all. You don't need to know who's an acquirer, you will get settled. I think that's not the way Adyen operates. Adyen is very transparent and that is because Adyen has worked with mostly large merchants. The same thing may not be applicable for mid-market merchants because they're not as interested and they may not have enough people who are payments people on their side to talk that language, so all they care about is get my payments done and settle me the money.

{audio:0:57:16} If you go after the mid-market and that kind of customer support and all that, it's slightly different, but I think Adyen is getting there and then they're making things more simplified by simplifying their APIs and how you can connect with Adyen. Still, I think I would say Stripe is much better in that way. Adyen is trying to do that also.

{audio:0:57:45} On pricing, they always make a big point of being a premium product. To what extent can this be justified and sustained into the future?

{audio:0:58:02} A lot of times I would say, especially when Adyen was entering a lot of markets, the alternate of Adyen was a bank acquirer which the merchants were connected to. At that time, merchants did not understand much in terms of what's the pricing that goes behind it. If merchants wanted to reduce costs, because they are banks, acquirers can cross subsidize using their issuing portfolios on transactions, as well as some of the other things that someone who's both issuer and acquirer can do, but just an acquirer cannot. 

{audio:0:58:42} At the same time, they would make money from another line of business by giving them loans or opening accounts. Adyen’s focus is payments, to get payments enabled for the merchants, and it has a lot of other products and features for which Adyen doesn't necessarily charge for every product and feature. They say, if you want to buy a Ferrari, then pay the price of a Ferrari. We are not Fiat in that way who comes with very cheap pricing. They are premium because if you compare it with a bank acquirer, then yes, you might be paying extra but in return, you're getting a lot of additional features and increased sales and reduced fraud.

{audio:0:59:44} That’s a demonstrable benefit?

Adyen: Entering New Markets

Adyen NV

Adyen is a B2B payments processor that is streamlining the payments function for merchants globally, predominantly in the online world. Instead of using multiple vendors, Adyen offers clients all the payment steps (Gateway, Risk management, Issuing, Acquiring, Processing and Settlement) on one single platform.

The company’s success was built on servicing global Enterprise merchants which still account for most of the annual volume growth and have a churn rate lower than 1%. It has more recently broadened its offering to platform businesses which in turn cater to a long tail of SMEs.

Adyen has also developed a physical point-of-sales offering on the same platform that allows its merchants to have a comprehensive view of their clients’ transactions across sales channels. This market, Unified Commerce, is specifically targeted by Adyen for growth.

Adyen: Entering New Markets

Former VP at Adyen

inpractise.com/articles/adyen-scaling-into-new-markets

Adyen NV

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Executive Bio

Former VP at Adyen

Interview Transcript

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