Paysafe Limited (PSFE) Earnings Call Transcript & Summary

Okay. I think we can get started. All right. Welcome, everyone. My name is Tim Chiodo. I'm the lead payments, processors and fintech analyst here at Credit Suisse. We're very fortunate to have with us today the team from Paysafe. We have Bruce Lowthers, the CEO. We also have Kirsten who joined us, Head of Investor Relations. So I just want to thank them both for making the trip here to Arizona. Thank you for being with us today.

No, thank you. We appreciate the invite, and look forward to the discussion.

All right. Great. Well, we certainly have some aspects that we want to dig into the business around the Merchant Solutions segment and the digital wallets. But before we even do that, let's just start with for those that are maybe newer to the story, let's give the generic overview or the basic overview of the business.

Yes. So for Paysafe, we have really -- we're a payments processing company. We have 2 businesses. We have a direct-to-consumer business, which is really our digital wallet, which is predominantly based in Europe, and we have a merchant acquiring business, which is predominantly based in the U.S. And it's a relatively simply -- a simple business for us and with those 2 main segments.

All right. Excellent. Thank you, Bruce. Okay. When you think about the strengths of those businesses and how they're differentiated, what are like the -- maybe the 2 or 3 things that really just jump out like this is different than a different merchant acquiring business or this is different than other digital wallets that are out there?

Yes. I think what's great about the business, now having been here 6, 7 months and getting the opportunity to kind of think through what really makes them stand out. There's a couple of things. One, the business has been around for a while, 25 years. So they've learned a lot around things such as regulation -- we are in over 100 different markets. So we've really created a lot of expertise around how to deal with regulatory issues across the world. I think the other things that make us stand out is, we have a who's who of clients, right? We have all the marquee clients in our verticals. We're in great verticals. I generally umbrella it under the entertainment vertical. There's 5 sub-verticals that we really play in, the iGaming vertical, social gaming, Travel and Leisure, Retail and Hospitality and Digital Assets. And when you look at those, they're great sub-verticals for us, big TAMs, double-digit growth over the long term. So really feel very good about the verticals we're in and the expertise that we bring around large transactions being really the premier VIP provider of services in those categories.

Excellent. Thank you, Bruce. All right. I want to switch into a little bit of a deeper dive on the Merchant Solutions segment. So you've now moved the integrated and e-commerce solutions or IES back together with the U.S. Acquiring business. When we think about IES, we generally think about that, clearly as an e-commerce or card-not-present business that's serving more of an enterprise type of customer.

Correct.

When we think about the U.S. acquiring, it's more of an SMB, and I would suppose, more of an in-store or card-present type of business. Maybe just talk about the decision to put those back together and a little bit about the varying go-to-market for those 2 types of businesses/customers.

Yes. So when we came in, what I wanted to try and do is simplify the business and really break down that we had a lot of narrative out there on all the different pieces, parts. And as I said, I looked at the business as a very simple construct. We have an issuing business, which is really our digital wallet, eCash business and we had the Merchant Acquiring business. So bringing IES together with our U.S. North American acquiring, for me was very natural. When you're out talking to customers, they don't talk to you about card present and card not present. They just talk to you about how do I accept a payment. And that's really what we try to focus on. And so by bringing those 2 together, it really helps with a couple of things. One, it helps with our go-to-market strategy and how we're out selling and getting our own team to think about how do we present ourselves to our customers. And then two, there's some back-office efficiencies by bringing those 2 together. And when you start looking at certainly, our gateway and the payments orchestration that we do, I think there's a lot of opportunities for us as we move forward, having those groups together.

Bruce, I'm glad you brought this up because it's an important topic when we talk about the go-to-market. So you recently made some changes to the structure of the sales team. Maybe you could just review those changes and how that should benefit Paysafe in the future?

Yes. We really did as part of kind of the simplification and kind of going around and talking to our customers, we really came back with a lot of feedback on, we're making it difficult to do business with you. And so one of the reasons I think that came back was all the different silos that the organization had, all the different business lines. And so by bringing those together, it really allowed us to change the construct of how we go to market. Instead of having the businesses each have their own sales organization, with a variety of different incentive stream or packages for the sales teams, we can unify that. The other thing that was very important for us is not only getting them all aligned, but having them sell all the products we have instead of just going out and selling eCash. And that was happening a lot in the organization. We would have Microsoft as an example, as a client, and we would have our sales rep from eCash go sell Microsoft but they wouldn't talk to them about our wallet. They wouldn't talk to them about our gateway or -- and the other divisions will come in and sell as well, not talking about the other products. So we want to really streamline that and take advantage of that. And where it really became acute is when you started looking at what we were doing in different markets. So for example, we could be with MGM having our wallet in Europe, and we would have MGM using our gateway in the U.S. but not using a wallet in the U.S. And so you said, well, look, this doesn't make any sense. We've got to get more aligned and have a more unified view for our customers to make it easier for them to get the best value proposition they can from us. And that really was what triggered the thought there. And so now what we've done is lined up not so much by product but by market. And so we have a gaming team. We're just going after those 5 verticals. We've really narrowed it into those. Our Digital Asset team is focused on everything, not just our wallet or gateway.

Okay. Bruce, I think this is really important because that enterprise combined sales strategy. So in other words, there would be one representative that is representing all of the products and services that Paysafe offers to that enterprise client. Is there a degree of maybe bundled pricing that you could provide to them now that it's more of a single sale of multiple products and maybe that starts to resonate and becomes a win-win for both the client and for Paysafe.

Yes. I think there's a lot of things we can do. And as we line up, we'll talk a lot more in depth as we get to our Investor Day in Q1. But what you'll see is our strategy really coming together. What we had was really a kind of a bifurcated strategy. We had kind of a merchant acquiring strategy, and we had a digital wallet strategy. And now what we're trying to do is bring those together. A great example of that is what we've been able to do here in the last couple of months with SafetyPay and connecting our Latin American acquisition to our wallet in Europe. And so now we already have customers that are moving money from Europe to Latin America, Latin America to Europe. And so we're already starting to see some of those synergies come together and bringing those 2 strategies together.

All right. Great. I'm really glad we spent some time on that. I think it's an important topic. Sticking with merchant for a little bit. So we talked a little bit about the IES or the enterprise-focused e-commerce business. Could you talk a little bit about the background there in terms of the portion of that business that is more of a gateway type of solution versus full merchant acquiring, why that is and how that could evolve over time?

Yes. I think with our company -- as I said, the company is 25 years old. So we came together through a series of acquisitions. When you look at the business itself, the majority of what we sell in our IES business is really gateway. We are a merchant of record and an acquirer ourselves. That predominantly is done more on global accounts than anything else. But most of what we sell is gateway and really kind of the orchestration of payments. So some of the nice things that we do is we provide a lot of access to different payment rails out of 1 single integration. And so that really provides a great value proposition for our consumers through that -- through our merchants for that service.

Okay. Excellent. Is there an opportunity, though, for that -- so that orchestration and gateway component? Is there an opportunity to then cross-sell those clients for a full stack merchant acquiring, in other words, to take more of the unit economics rather than sharing them off with someone else?

Yes. So again, I absolutely believe that we can. I think we just hadn't. And so this is where I talked a little bit about us lining up and executing better and thinking through what the long-term opportunity is with each of the accounts and how do we really service those. And so we had that silo, which we've now eliminated for IES. IES had its own sales team, and they were really kind of driving their own methodology going forward. We're bringing that all together, I think, will kind of round out the offerings and really improve the value proposition. I mean the nice thing that we're seeing early is we're seeing a nice surge in our pipeline. We're seeing the opportunities really start to build for us. And what's really important on the wins that we've had in the last 30, 45 days, what we're seeing is we're taking deals from our main competitors. So we like that. It's early. So it's showing that we can compete. Now we just have some more things to do around our sales organization build out, more things to do around our product, as you mentioned, pricing, building out the product proposition for our customers a little bit more, but we definitely can compete and the early signs are very positive.

Bruce, that's a really encouraging comment. I'm glad you said that. So when you're mentioning some competitive wins and maybe some winning some share from some of your biggest competitors. Was that a broader comment? Or was that specific to merchant? And was that more specific to digital wallets?

It's a broader comment. But I would say on the merchant side, when you look at the card present, our team, Afshin and his team are doing a really good job. I mean they're standing up there with anybody else in the SMB space, really solid growth rates. What we really needed to do is bring to life a little bit more of our IES business or our e-com business. And that's really what I'm talking about is you're starting to see the teams buy in on, okay, we can go compete here. And there's things that we do very well. We really have a great VIP service. Our service is something that really stands out for people. And that's where you get wins like the Virgin Voyager, right? They're looking for that top-of-the-line experience, that's something we can provide for them.

All right. Great. Since you mentioned the success in SMB, let's just touch a little bit on that in terms of -- maybe you could just talk about, I guess, 2 things. The first would be the distribution approach for the U.S. acquiring SMB business and the mix there. And the second one is, you've noted in the past that you are one of the largest distributors for Clover, which clearly is a product that's resonating well in the market. Maybe just talk about that relationship in terms of the mechanics and how you work with Fiserv/clover on that.

Sure. So look, I think for us, the SMB business, as I said, has performed very well over the last year. We expect it to continue to perform well. The team is really starting to find a rhythm of driving that business forward. I think the value proposition that we bring to market is a little bit different. One, we provide the opportunity for people to choose what they want to do. So if they do want to use Clover or they want to use Ingenico or they want to use somebody else, we provide that option to choose whatever platform you want and people seem to like that opportunity to choose. We also do -- half of our book -- approximately half of our book is really the ISO market. So we really service the ISO market, again, kind of in that VIP context. And so that's really allowed us to accelerate and grow our ISO book. So whether we go direct or we go to ISO, one of the big value proposition is just the breadth of our offering and the ability for us to really have a white glove kind of service model for them.

And be a good partner to those ISOs.

Yes.

Okay. All right. Excellent. One more here on Merchant and then we'll switch over to Digital Wallets. So the last one on Merchant is the Worldpay relationship. So this comes up in discussions around Paysafe and of course, on FIS or Worldpay as well. Maybe just give us the background for that relationship, how it came about when it was last re-upped, if you will, and how the mechanics work, how you guys go to market together?

Yes. Look, I'm obviously biased, but Worldpay is a great company, and it's been a long term -- Paysafe has been a long-term partner with Worldpay. I was trying to figure out earlier today, how far it goes back. I think it goes back probably even to the Vantiv kind of days. So it's a long-standing relationship there with them. It's a great relationship with everything from what I hear, it goes very well. We have a great opportunity to come to market in emerging market in the U.S. gaming market in particular, and that's where the Worldpay relationship really resides. And so for us, what we were trying to accomplish was providing this gateway of payments orchestration and Worldpay being the acquirer for that particular market. So it's a smaller relationship really in the U.S. for U.S. gaming. Now our U.S. gaming business is doing very well. It's still an emerging business. But as we said in the earnings call, we've got strong 40% growth in our regulated gaming business in North America. So we feel very good about that on a long term. It will continue to grow, and we expect to be very competitive and lead that market.

Excellent. It sounds like a great partnership. And of course, your relationship with them is probably an important part as well. The last piece on that is just as we bring it back to the distribution. So is there a separate team that sells for the partnered business with Worldpay? Or is that just the standard approach for the IES segment and then it's sort of a -- Worldpay just kind of comes along with that? Or are there separate folks that are working on that [ GV ], if you will? .

So there used to be. So there was a team that was -- and I wouldn't say it was focused on Worldpay. The team was focused on U.S. Acquiring. That's really in gaming in particular. And that's really what the focus was. That -- now that team has just expanded where they have everything in gaming, not just gambling, but gaming as a whole. And so they sell all of our products not just IES or eCash or wallet. So that's been the biggest change is really getting them to take advantage of the market that they understand and bringing everything that we can bring to really create strong value propositions and differentiators for those merchants.

Okay. So it sounds like the vertical approach, which we talked about earlier, which seems to be working well and the Worldpay piece just kind of falls in line along with that.

We're simplifying across the board, being very precise about how we go to market and being very uniform about how we go to market across all of our channels.

All right. Great. Let's switch over to Digital Wallets. So in terms of those -- that business also combined a few products there. Maybe you could just give a brief overview of the offerings there and the types of clients and really the differentiation versus some of the other wallets that are out there.

So our wallet is, as you know, really originated around the iGaming space. Like that's where we cut our chops. We really learned how to drive a wallet. And today, I would still say it's if not the leading one of the leading wallets in the gambling vertical. It's expanded to gaming as well. We do very well. commonality between those really is a couple of things. One, is that VIP service. We take care of those people that like to make large wagers with our product. So we have a higher acceptance rate than using card. We have the ability to do transactions that others won't in that gambling vertical. That still holds true today. We still execute very well. The commonality between social gaming and gambling is those people -- those users, those consumers they don't just play one game. They don't just bet in one place. And so what the wallet does for them is it gives them portability of their funds. They have instant access to their funds to a variety of different games or to a variety of different operators to place their bet. And so that's really a unique differentiator for us in that space. But overall, it's been around for a long time. We've really got an expertise around risk management that others simply don't have.

I'm glad you brought that up, Bruce. I want to come back to that time permitting, if we have time at the end, but I want to make sure we get a quick update here on Skrill in the U.S. through the iGaming operator. So I mean it is alive and out there, and it is on some sites. And you've made some good progress with it. Maybe you could give an update on the status there?

Yes. I think Skrill, we're live in the U.S. in 10 states. I think the -- we've got -- our friends at Barstool are rolling out this month, I believe. And so excited about the opportunity there to have a Tier 1 operator and be driving that business. So yes, no, we're very excited about it. I think we've got some new things that we're looking at from a product perspective that will bring life to Skrill a little quicker in the U.S. as we move into '23. And I think our team is generally very, very optimistic about the opportunities of Skrill as we move into the U.S. and then continue like -- the each state is continuing to move forward. We're in 24 different states right now. We'll continue to build there. We're expanding Skrill into Canada as well. So there's a lot of good opportunities for us as we start building out. And I think our value proposition really still resides very well with consumers.

Excellent. Thank you for that update. I know That's made some good progress. And again, out there, you can see it. It's visible. It's on the site. We can play around there.

Yes. We're getting there.

Exactly. All right. Great. We have 7 minutes or so left here. I want to make sure we touch on macro and then I want to give some time for the audience if anyone would like to jump in. So macro, really 2 topics that come up, which is end market exposure and inflation. So for end market exposure, you recently did I thought a really nice job in your slide deck of giving the portions of the business that are more discretionary, right? So there's elements of discretionary spend across your -- both of your segments. The issue that investors have sometimes is that some of them, given your online nature of Paysafe overall, we don't really have a time series to see how they performed in a past recession because maybe they were more nascent in terms of the online businesses back in 2008, '09, '10. How does Paysafe think about or expect those underlying end markets to perform if we were to enter a more meaningful downturn?

So a couple of things and probably not an orthodox answer here. But what I would say is, one, we just came through a pandemic, which is a pretty sour economic time period, and we've been able to navigate that. So I think we've seen kind of what the worst is. Nobody in a recession is talking about stores closing where half of our revenue stream comes from is the SMB marketplace. The stores aren't closing. It's just getting a little tighter potentially with people. I would say that today, though, we don't see that. So we are not seeing volume decreases. We're not seeing anything really being impacted in -- through the end of October and what we see. So we have done our recession analysis. We have our levers of what we would do if things happen. And so we are prepared as we move forward. But the last thing on where the unorthodox question would -- or answer is to the question is we're at 0 growth, right? So our peer group is growing at 20-plus percent depending on who you want to pick. We have lots of opportunity to grow just by executing better regardless of what the macroeconomic environment does. And I fully believe that we can do that and we'll do that, and we're seeing signs of that already. So yes, there are macroeconomic impacts out there. We're not blind to those. We're prepared for those. But I would also say, we have just so much more opportunity than others, just getting our house organized, us being better every day and going out and executing. And then we can return to growth, as I've talked about in the past as we move into '23.

Perfect. I think that was a really helpful answer, Bruce. Thank you. The last part there was on inflation. Maybe we can make this one quick. So we have time for the audience. But just broadly speaking, when you think about -- we see the overall headline inflation numbers, right? And Visa talks about how you shouldn't necessarily take those and apply those to Visa volumes, right? There's different categories that maybe certain businesses Visa included or even less exposed to. And when we go to merchant acquirers like a Paysafe, that statement is even more true. How have you thought about the inflationary benefit to the business in this past year or so, maybe relative to the headline number?

So we -- from an inflation-only perspective, we're not seeing much of an impact that we can kind of carve out and say, we're -- 2% headwind or this or that. So as we look at it from both the top line and the expense side, sure, there probably is a little bit in there, but that's not our material driver for us. Not to say that it doesn't have an impact as we move forward. If it continues to accelerate. But right now, that -- it's up to this point, it hasn't been a material impact to our business.

Thank you, Bruce. I think we should go to the audience. If anyone wants to raise their hand, we can bring the microphone to you, and we can squeeze in one, maybe 2. All right. There we go. Thank you.

You dig in maybe a little bit -- sorry about that, a little bit deeper on the gaming side on the wallet and what separates it from your peers? And like why are we not seeing more people do what you are doing there?

So I think the question was on the gaming side, what is a differentiator for us that allows us to go to market versus our competitors in that space. And so look, I think we have 25 years of regulatory management capabilities and risk management capabilities. In our business, there's always going to be regulatory changes. We're in 100 different markets. And so there's always going to be those things. What I would say is, it's really actually created a barrier of entry for people coming in. What you're seeing people compete with is not necessarily the wallet aspect of that business. What you're seeing them come in and compete with is other payment types. And can other payment types impact of that business. And right now, we believe that our value proposition with the wallet is much stronger than RTP, for example, or ACH or others. And we can provide all those services through our wallet as well. So it's a much better solution for the consumer, it's a much better solution for the merchant.

Okay. Great. We probably have time to squeeze in one more. Okay. If not, I'll circle back and maybe we can just wrap it up with something you alluded to earlier in terms of the risk management. So important in with the digital wallets, you mentioned it as a differentiator. Maybe just talk about what is that risk? Who is that risk to? Who is it coming from? How do you mitigate it, just to define it for the audience?

Yes. So the risk is -- comes in a lot of different forms for us, right? So obviously, the AML side of things and what we're doing about onboarding new consumers, onboarding new customers. We have a very distinct skill set around that and risk management around that. When you look at the movement of money, how do we orchestrate the movement of money, how do we execute it safely and really drive safe transactions for our consumers and merchants. There's also the risk around the regulatory constructs, right? So each state here we don't have enough time, but we could talk about whether it really should be a federal regulation or state regulation. We've chosen to go down the state path, but that creates right now, 24 different sets of game rules that you have to be able to navigate to execute transactions. Each country has their own in Europe, a set of regulations that you have to be able to navigate on a daily basis, and they're changing. It's not like someone sets them and just let them stand still for the next 5 years. So there's constant movement in that and us being able to manage that managing the risk of the licensing construct and the licenses that are required to do business in each of those countries or states. So there's just a lot of components to it, which makes the risk management complex and really keeps people from entering the space, whereas we've just got a long lineage of doing that for the largest brands in the world in those verticals. And it's I believe, something that will be a differentiator for us as we move forward.

Bruce, point well taken, it sounds like what you're saying is that it's not just to want it done. There's a lot of maintenance and upkeep and it's constant. And because of that, it makes the number of players that are willing to take that on a smaller number unless your competitive set is smaller than it might be in more traditional verticals.

That's correct.

All right. I wish we had more time. But I think this is -- first of all, great. Thank you so much again for both Kirsten and to Bruce for making the trip here at Arizona. On behalf of everyone at Credit Suisse, I want to thank you for being a part of our 26th Annual Technology Conference. It's a pleasure hosting you.

Thank you very much. It's great to be here.