How Adyen is Disrupting Payment Processing
Authors: Connor Childs, Stefan Shen, Judy Song, Nick Vukelic
As multinational companies embrace omni-channel sales strategies and enter global markets, they must ask themselves the following question: how will we accept payment? Take Nike — an omni-channel firm selling products around the world. They face two primary issues. First, Nike’s global Point-of-Sale (POS) system is fragmented among many intermediaries: different payment gateways, service providers, acquirers, and processors. This structure inherently increases costs as fees are paid to each intermediary in the process. Additionally, it is challenging to create a single view of their customer since they must consolidate payment data from brick-and-mortar, online, and mobile providers. Second, consumer payment preferences around the world differ, meaning Nike must work with a new set of intermediaries for every different geography and form of payment the customer would like to use (e.g., Visa, Alipay, Giropay). This complex, global distribution channel means more vendor contracts, more system and process integrations, and ultimately, higher costs.
In 2015, Nike chose Adyen as their payments processor to solve these problems. Adyen is a payment gateway, service provider, acquirer, and processor for online and brick-and-mortar commerce. Adyen requires only one system, one process integration, and one contract for a multinational enterprise to serve customers in 150+ countries and to accept 200+ methods of payment.
The global market for payment processing is massive, with US$1.6 trillion in total addressable market revenues. Payment revenue is expected to grow at a CAGR of 7% through to 2021. Adyen has plenty of room to grow, as growth of 1% in Adyen’s market share will lead to an additional US$1.6 billion dollars of revenue.
This massive payments industry has traditionally supported many intermediaries, which Adyen has disrupted.
Adyen’s primary competitors include the likes of PayPal, Worldpay, and Stripe. Adyen caters to big, international operations while Stripe targets the startup app developer community, making up for lower volume by charging a slightly higher margin. Adyen’s transaction volume last year in 2017 was $130 billion, while net revenue grew to $262 million. The company grosses less than 1% of every dollar processed, far below the 2% to 3% that Worldpay, PayPal and Stripe make.
One of Adyen’s propositions is transparent fees. They provide a full list of prices for supported payment methods on their website. Adyen charges a processing plus payment method fee per transaction. The processing fee is a fixed amount collected by Adyen, $0.12 in North America, Asia Pacific, Latin America and €0.10 in Europe. Depending on the payment method, an additional fee is charged specific to the interchange fee charged by the issuing bank, scheme fee charged by the card scheme, and applicable acquirer markup. These fees are clearly outlined on their website and can be predicted by merchants before the transaction is executed.
How is Adyen different?
Pieter van der Does, CEO, and Arnout Schuijff, CTO, founded Adyen in 2006 along with some other entrepreneurs. Believing that the current payments technology was outdated, they set out to create something that could better serve our rapidly globalizing world. They named the business Adyen, which means “start over again” in Surinamese, and decided to build a fintech that could connect businesses with international card networks and local payment methods alike.
Schuijff and van der Does funded Adyen after they sold their previous startup, Bibit, which was a billing platform for small amounts of content, to the Royal Bank of Scotland. The partners began bootstrapping Adyen where they focused on building the platform and closing deals. In June 2014, Adyen raised $16M to help fund its expansion into the US. Six months later, in December 2014, Adyen raised an additional $250M in Series B funding led by General Atlantic, which valued the company at $1.5B. In September 2015, it was reported that Iconiq Capital, a privately-held investment firm, agreed to add funds to Adyen which valued the company at $2.3B, but no numbers were ever released.
In June 2018, Adyen went public on the Euronext with an implied market capitalization of €7.1B based on the current capital structure and the private shares previously issued. As of November 2018, Adyen share price has more than doubled and has a market value of €16.7B.
Adyen has been extremely successful to-date. In the first half of 2018, they processed €70B worth of transactions which was up 43% from the same period in 2017.
Adyen has acquired B2B customers from top retail brands to tech giants: Tiffany & Co., Uber, Netflix, and easyJet. For retailers like Nike who process both physical and online sales, Adyen allows them to maximize the advantage of omnichannel retailing, by processing payments underneath one system.
One of Adyen’s biggest advantages is that it acts as a global platform with direct connections to international cards, enabling ‘plug and play’ expansion to new regions. Moreover, Adyen is equipped with local payment methods and expertise as preferred payment methods are different around the world, such as Alipay in China, which accounts for 65% of online payments. Adyen’s wide geographic reach and experience at scale extends to more than 150 currencies and over 200 methods of payment. Adyen delivers unified commerce across countries and channels — online, mobile and in-store. Merchants have access to centralized consumer data and are able to manage all payments across channels and countries with one integration, one backend, and one contract.
Additionally, Adyen aggregates payment data to offer consumer insights to merchants, which is crucial to CRM. Also, Adyen has a fully built in-house risk management system, meaning merchants can outsource all their security and regulatory compliance issues. Adyen provides fraud protection over all payment methods, not limited to cards. Furthermore, to bolster its efforts to reduce potential risks, Adyen uses data and machine learning in its payment routing, optimizing authorization rates. Its growing data set and initial investment in data science infrastructure allows for potential quick extensions into other data-driven products and services in the future. By integrating gateway, risk management and processing & acquiring processes all into one platform, Adyen presents these key benefits: global reach, unified commerce and centralized data.
All software development, administration, networking, database management, and security is done in-house. Their systems are designed for maximum uptime through a redundant and stateless service-oriented architecture (SOA) that accepts payments simultaneously on multiple hosting locations. Currently, Adyen manages all their own servers, and hosts its main system in data centres in Europe and the US. They do not outsource any operations as they want to ensure the highest standards of security, integrity, and stability by retaining full control of their components.
Adyen is a multi-sided platform that exclusively charges merchants. The value to merchants is derived from the partnerships they have formed with card schemes, as well as the technology platforms. Adyen has partnered with popular Ecommerce, Billing, and POS platforms to ensure their ‘plug-and-play’ solution will integrate seamlessly into the technology stack of their merchant customers.
How Will Adyen Continue to be Successful?
Adyen is focused on providing their merchants with the best payment experience by constantly innovating. Adyen continuously improves its products with regular software updates every four weeks to ensure that they stay competitive with the competition and extend their product offering. With their existing scalable business model, Adyen should focus on developing partnerships with merchants in countries like China and India where the growth of E-commerce is highest. While the outlook within the B2C payments space is positive, Adyen should consider adjacent industries moving forward. A key differentiator in the market is their relationships with card schemes around the world. Should Adyen enter the C2C payments market to leverage this capability, tap into a new revenue stream, and further develop consumer insights? Only time will tell.
