2023-10-06 07:52:06 ET
Summary
- Adyen's stock has fallen due to concerns about competition, slowing growth, and weaker margins.
- Channel checks show that Adyen's TPV growth is expected to decelerate in 2023 and then reaccelerate in 2024.
- The company's customers are increasing their TPV mix with the company due to factors such as quality of service, global reach, and ease of integration.
- Adyen's functionality and technology capabilities are also differentiated from the competition.
- The company has a high net promoter score and most customers do not see PayPal's Braintree as a real threat.
Adyen (ADYEY) has fallen off the cliff as a result of worries about competition in the US, slowing growth and weaker margins as the company continues to invest in its business.
I have talked to several other industry players, as well as some independent firms doing channel checks on Adyen.
Given that the market has treated the company as a fintech darling for many years now, I have been watching Adyen in Outperforming the Market for some time now and I think that the odds have finally turned favorable now that the market has sold off this quality name.
This article will summarize some of the key findings from the channel checks done, and shed some light on why I am optimistic about Adyen.
Background
This article will go into some of the key channel checks that I have found.
I looked into a channel check report by BWG Strategy, which is an independent channel check firm that conducts surveys and interviews of companies like Adyen, PayPal ( PYPL ) and Stripe, amongst others, and also the customers and partners of these companies.
When I mentioned respondents below, these are the respondents to BWG Strategy's survey and interviews, and the demographics of that can be found below. About 63% of the respondents are merchants and 29% of them are omnichannel retailers. About 70% of the respondents are from companies with more than 500 employees. In addition, 17% of the respondents are owner or C-suite level, while about 80% of them are directly exposed to Adyen through the e-commerce or finance, payments job function.
Interestingly these respondents saw that TPV growth is expected to decelerate in 2023 and then reaccelerate in 2024. This is consistent across all merchants, e-commerce only merchants and omnichannel merchants.
Take note that because this survey was based on a screen only for Adyen customers, there is an over-indexing of Adyen here. As can be seen below, 100% of respondents in the survey use Adyen. The reason for that is the survey can then tell us specific reasons why customers are intending to grow or detach from Adyen, which I will highlight below.
Adyen customer mix
Where is Adyen mostly used by its customers?
93% of Adyen customers utilize it in EMEA compared to 38% in North America, 21% in Latin America and 21% in APAC.
Braintree's customer base is more skewed towards North America, with 65% of its customers utilizing it in EMEA, 35% in Latin America, 76% in EMEA and 41% in APAC.
Likewise, Stripe's customer utilization was 75% in North America, 38% in Latin America, 75% in EMEA and 50% in APAC
TPV trends
When respondents were asked in terms of the percentage of their global total payment volumes that was routed through each player, Adyen was the clear winner here.
Adyen's percentage of global total payment volumes grew from 47% in 2021 to almost 59% in 2024. In contrast, Braintree remained stagnant while Stripe is expected to see decreasing share of the global total payment volumes.
How about the merchants that only have North America presence?
While Braintree and Stripe's share here is higher, Adyen is expected to continue to grow its TPV with merchants that only has a North American presence.
Why customers are increasing their TPV mix with Adyen?
Customer 1: Increasing TPV mix of Adyen from 72% in FY21 to 96% in FY24
In 2021, we were switching our e-commerce and POS sales to Adyen whilst having other providers. In 2022, the whole business was running on Adyen plus some share for Novuna credit, cash and voucher payments. In 2023 and 2024, we plan shift more of cash payments onto Adyen.
Generally, Adyen's roadmap and quality of products and services matches our business expectations. All under one platform simplifies reconciliation and finance reporting for us as well as minimizes the development resource. Adyen support is also quite robust and knowledgeable which secures our business continuity.
Source : E-commerce Director at Home Furnishing Company with TPV of $11 million in 2023.
Customer 2: Increasing TPV mix of Adyen from 0% in FY21 to 20% in FY24
Adyen has exclusivity in a new market in EMEA we are launching. It would be possible to extend that reach in the future.
Source: Head of Payments at Online Casino Company with TPV of $100 million in 2023.
Customer 3: Increasing TPV mix of Adyen from 0% in FY21 to 85% in FY24
Adyen's ability to collect. Their success rates are higher than the other processors we've tested so we're moving more business into those buckets as they have highest upside for us.
Source: Senior Director of Business Operations at Software Company with TPV of $10 million in 2023.
Customer 4: Increasing TPV mix of Adyen from 27% in FY21 to 35% in FY24
Growth in TPV mix driven by:
Quality of service.
Availability in many countries.
Additional/alternative payment methods.
Implementation and documentation.
Ability to adopt and develop new solutions.
Source: Treasury Manager at Beauty Retailer with TPV of $1.1 billion in 2023.
Customer 5: Increasing TPV mix of Adyen from 0% in FY21 to 10% in FY24
We are working on a new business vertical that relies on a new technical stack with Adyen as a recurring payment partner.
Source: Payment Manager at Online Marketplace with TPV of $146 million in 2023.
Customer 6: Increasing TPV mix of Adyen from 10% in FY21 to 70% in FY24
Technology, cost, acceptance rates, global reach, ease of integration, knowledgeable account management, and pilot access to new products.
Source: Senior Global Payments Specialist at Software Company with TPV of $10 billion in 2023.
Customer 7: Increasing TPV mix of Adyen from 25% in FY21 to 65% in FY24
The transaction fee and also a flexibility in the API is the reason why we want to commit more with Adyen.
Source: CEO at e-commerce agency with TPV of $3 million in 2023.
Customer 8: Increasing TPV mix of Adyen from 0% in FY21 to 5% in FY24
Available geographies and currencies supported in their Adyen for Platforms Product. This was the reason they were integrated. Adyen platform product functionalities are strong but the low share of TPV is due to expensive pricing of POS solutions.
Source: Payments Project Manager at Software Company with TPV of 3.7 billion in 2023.
Customer 9: Increasing TPV mix of Adyen from 60% in FY21 to 65% in FY24
Set up of new payment methods, especially when initiating business in new countries.
Source: CFO at Apparel Retailer with TPV of 144 million in 2023.
Customer 10: Increasing TPV mix of Adyen from 80% in FY21 to 100% in FY24
The adoption of Adyen as the company's single point of sale in a selected market has allowed us to slowly phase out other payment processors.
One of the main drivers is the benefit of using Adyen for reporting, settlement, native integration with our current software and consistency.
Additionally, it provides a reliable omnichannel support for both brick and mortar and ecommerce customers.
One of the key benefits is the inclusion (and support) of Chinese payment systems.
These methods represent almost 30% of total sales in Canada and West Coast.
Source: IT Manager at Apparel Company with TPV of 15 million in 2023.
Customer 11: Increasing TPV mix of Adyen from 82% in FY21 to 93% in FY24
Providing the possibility to pay with more and more payment methods in each country provided by Adyen, thus improving the overall customer experience and overall success.
The authorization rate also rises continuously.
Using Adyen's case management also helps with regards to fraud prevention, which naturally results in lower expenses occurred in connection with that.
Source: Payment Specialist at Lifestyle Retailer with TPV of $79 million in 2023.
Customer 12: Increasing TPV mix of Adyen from 0% in FY21 to 20% in FY24
We use multiple payment processors as part of the risk mitigation strategy.
We also operate a number of e-commerce channels in different territories, with Shopify we use Stripe as default.
On web shops outside Shopify we combine it with Adyen, both to mitigate risk and to offer better local payment options for customers.
Source: General Manager, Payments at Software Company with TPV of $3 million
Why customers are decreasing their TPV mix with Adyen?
Customer 1: Decreasing TPV mix of Adyen from 50% in FY21 to 20% in FY24
Our main volumes come from APAC market and Adyen's presence is losing footing in these markets from players like Checkout.com and CyberSource/MPGS.
Since we are seeking cost efficiency, we have to take local routes and partner up with local acquirers with CyberSource/MPGS connections which Adyen has stopped supporting.
Source : Senior Manager Global Payment Acceptance at Delivery Company with $4 billion in TPV in 2023.
Customer 2: Decreasing TPV mix of Adyen from 65% in FY21 to 60% in FY24
The change is partly because of geographical expansion and adding other webstores with a different fanbase.
The other part is caused by us for instance promoting Klarna (which runs via Adyen) instead of PayPal.
Next to Klarna, we also added other local payment methods which enables more customers to pay with that method and less customers choosing PayPal.
Source: Head of Ecommerce at Apparel Retailer with TPV of $158 million.
Customer 3: Decreasing TPV mix of Adyen from 85% in FY21 to 82% in FY24
Adyen is our main provider for core markets and that's not expected to change.
However, we are growing operations outside of Europe (our core market) and Adyen does not provide local processing.
This is a problem as processing fees (scheme & interchange fees) are higher from processing cross-border, acceptance is lower, in some markets operating cross-border is not compliant and in some markets, customers are charged DCC fees from their bank even if Adyen processes in local currency.
Because of this, Adyen's share is expected to slightly increase as they can't properly service these markets and some of the traffic we have now in these markets will switch to local providers.
Confidence in Adyen in our company is high , though, as this year we launched to new payment methods through Adyen (Blikin Poland and MBWay in Portugal, instead of going direct with those vendors) and we are exploring adopting BNPL, again through Adyen instead of going direct.
The other PSPs we use in Europe (Checkout) act mostly as resiliency, with some small traffic being routed directly for specific optimization purposes.
Source: Senior Payments Analyst at Delivery Company with TPV of $3.6 billion in 2023.
Customer 4: Decreasing TPV mix of Adyen from 100% in FY21 to 95% in FY24
We are happy using Adyen.
By using a single provider globally, we can track our customers (by creating tokens of their credit card) and that way understand their spend behavior much better.
We are currently opening stores in the Middle East and where Adyen is not available we have chosen HyperPay as partner.
Source: Global Head of Digital with TPV of $135 million in 2023.
Authentication and fraud rates relative to competitors
Authentication and fraud rates are differentiating factors for merchants and if Adyen is able to deliver better authentication and fraud rates, it would then be more competitive than peers.
As can be seen below, none of the respondents saw Adyen's fraud rates or authentication rates as worse or much worse than peers. Only 14% and 33% of respondents saw Adyen's fraud rates and authentication rates as the same as peers. The vast majority of respondents, 86% and 67% of respondents saw that Adyen's fraud rates and authentication rates are at least better than competitors.
Outlook for pricing in the US
While doing channel checks in the US, there are mixed opinions about whether Adyen needs to lower pricing to compete at scale in the US, or the extent to which it needs to do so if necessary.
Most respondents think that Adyen will likely be able to maintain a take rate premium when compared to competitors.
This premium in take rate is largely due to the enhanced functionality that they offer.
However, Braintree's aggressive pricing strategy will likely continue to drive wins with the more price sensitive mid-market merchants in order to continue to subsidize pricing on Braintree to convert these merchants to their higher margin PayPal branded checkout business.
Most respondents to the channel check think that Braintree's pricing strategy is unsustainable and question how long Braintree can keep prices this low.
If Adyen ever decided to compete on price, most respondents agree that Adyen will easily win the competition.
How big of a competitive threat is Braintree to Adyen's growth within the US?
Respondent 1:
I don't believe that Braintree is a threat to Adyen's growth in the US. Braintree is leaning more toward a legacy provider than a state-of-the-art fintech payment processor/acquirer. Braintree's only asset is being able to offer low processing fees.
Source : Payment Manager at Online Marketplace
Respondent 2:
I think it isn't a big one, as Adyen is a more complete tool.
Source: E-commerce Operations, Payments at Apparel Company.
Respondent 3:
On pricing, Braintree is a big threat. However, Braintree's pricing strategy does not seem sustainable, and it is questionable on how long they can keep these low prices. On the platforms and POS product, Adyen is still ahead of Braintree.
Source: Payments Project Manager at Software Company
Respondent 4:
I think the global appeal of Adyen will put them ahead when it comes to international enterprise level merchants.
Source: Senior Global Payments Specialist at Software Company
Respondent 5:
Braintree is a simple payment processor, without many added options. I believe they target different customer profiles.
Adyen offers a variety of add-ons and extra functionalities, while Braintree is simple if you do not need extras.
It depends on how Adyen positions themselves, but I do not think they necessarily need to compete as Adyen is a more logical choice for medium to large businesses, while Braintree is probably a better fit for small and micro businesses.
Source: General Manager, Payments at Software Company
Respondent 6:
I believe Braintree's success is a big threat to Adyen's success in the US. They have more focus on the US and already gained some big customers.
Source: CFO at Apparel Retailer
Respondent 7:
Braintree poses a moderate competitive threat to Adyen's growth within the US. While Braintree offers a strong suite of payment solutions and a good reputation, Adyen's global expertise platform gives it a competitive edge.
Source: Principal Program Manager, e-commerce at Electronics Company
Is Adyen's functionality or technology differentiated?
This is important because Adyen is competing based on product differentiation while peers like Braintree are competing on price.
95% of respondents said that Adyen's functionality and technology capabilities are somewhat differentiated from the competition.
For those that stated that Adyen is differentiated, they stated that Adyen is differentiated in these ways:
- Adyen is one of the most advanced payment processing stacks.
- Adyen is highly agile as they are very quick to adopt new features and regulations.
- Fully integrated and all features are built in-house, compared to other competitors that are not fully integrated or use an old system or subcontract certain features.
- Innovative from a technical standpoint, technological advances and product roadmap.
- Strong customer service and relationship management.
- Easy integration, streamlined reporting and settlement, easy to reconcile.
Adyen's net promoter score
Adyen has a very high net promoter score of 8.7 .
This means that its customers have a very high likelihood of recommending Adyen to other merchants evaluating payment service providers.
Adyen is viewed as a "best-in-class" and "one of the more advanced" payment service providers in the marketplace that is praised for its innovative payment solutions, acceptance rate optimizations, platform stability, merchant support, global payment coverage, seamless integrations, risk management & fraud prevention tools.
Conclusion
I think it is quite clear to me that Adyen does have a differentiation advantage.
While PayPal's Braintree's pricing may be more aggressive in the near-term, there are questions about its sustainability.
Adyen could very well play a pricing game in the US, but that's not the right strategy for the long-term of its business.
Adyen's net promoter score is 8.7 on average, meaning customers have a very high likelihood of recommending to other merchants when they are evaluating payment providers.
I think that its positive that those looking to decrease Adyen's share of their TPV mix still see Adyen as their key partner or are happy with Adyen, except for the respondent with main volumes in APAC.
For those looking to increase Adyen's share of their TPV mix, often cited reasons include better authorization rate, fraud prevention, availability in many countries and having many payment methods, quality of products and services, single platform and ease of reconciliation and financial reporting, amongst others.
For further details see:
Adyen: Here's Why I Am Highly Optimistic About The Company