Tyro Payments Limited (TYR) Earnings Call Transcript & Summary

Okay. Good morning, everyone. If we could just take our seats off in the next minute or so. Okay. Good morning, everyone. My name is John Davey, I'm the Managing Director and CEO of Tyro. Before we kick off our Investor Day today, I would like to ask our Chair, Fiona Pak-Poy, to come and say a few opening comments. Thank you.

Thank you, John. I'd like to begin by acknowledging the traditional owners of the land in which we meet today, the Gadigal people of the Eora nation, and pay my respects to elders, both past and present. Good morning, everyone. It's a pleasure to be here, and welcome all of those here in person and many of you online. Today is the first time that we have provided investors with a specific update on our strategy since the IPO in December 2019. And clearly, a lot has changed in the past 4 years. Last year's interest by a number of third parties in acquiring Tyro, which while confirming the attractiveness of Tyro as a compelling and unique business, it also raised various questions that investors had about aspects of our cost base and future growth opportunities, which we'll be addressing today. Our management has changed significantly since the IPO with John's appointment as CEO last year, along with several key changes to his management team, all of whom are sitting here to my left. The Board has also evolved with a number of nonexecutive directors retiring and being replaced, and me taking on the Chair role. Importantly, as sign of the maturity and the discipline of the business while still growing significantly, we've also transitioned to become profitable and cash flow positive. The competitive landscape has sharpened a lot in the last 4 years. Customer needs are becoming more complex. Market valuations for high-growth tech stocks has become more acute. And the broader macroeconomic environment is definitely more challenging. Given these changes, we feel it is therefore an opportune time to provide an update on our strategy, to introduce our executives, to discuss our plans for accelerating growth, which I know you all have a very keen interest. As you'll hear from John and his team, building upon our 20-year history of innovation and payments, and serving our growing customer base, we are really well positioned to continue as a leader in the broader Australian payments landscape. The Board of management team, and in fact, all Tyros, many of whom are sitting in our offices just down the road, are really excited by Tyro's future, and the opportunity for us to continue becoming loyal business partners with Australian small business. I'd like to hand back to John.

Great. Thank you, Fiona. And once again, thanks to everyone for joining us today. As per my introduction, I'm John Davey. I'm the Managing Director and CEO of Tyro, and I've been in this role now for just on 12 months -- just over 12 months. I'm [ joined ] today by our executive team and several other members of the Tyro team, some who those of you in the room may have met prior to today's meeting, talking no doubt with great passion about the wonderful products and services that Tyro has. I'm excited to present to you today. In the 12 months since my appointment, we have focused on refreshing our organization. That refresh has required a focus on 3 elements: our strategy, our culture and our people. Our strategy and a clear plan for how we will deliver is critical. However, unless we have the right culture and the right people, we will fail. The culture that Tyro aspires to is captured in our 5 values. To wow our customers, to win together, to do the right thing, to be good and to commit to greatness. We need a passionate and high-performing team. As leaders of the business, we must create an environment and provide training and support that allows our team to perform. We must provide clear objectives and we must manage performance against these objectives. Today's presentation is on our strategy. However, over the past 12 months, we've also had a significant focus on our culture and on our people. We will not discuss cultural people in the formal part of our presentation today, but we do welcome a discussion in the Q&A part of the session. Today's agenda will include approximately 90 minutes of formal presentations, and allow up to an hour for questions. For those of you that are in Sydney that would like to stay, 30 minutes of informal discussions at the end will be available for chats with our management team. On our agenda today, we will cover introductions to the management team. I will provide an outline of our strategy, including the market outlook and our strategic responses to changes that we're seeing. We will provide an overview of costs associated with 2 core capabilities, and our go-forward plans for our payment technology and our banking model in ADI. We will also provide an overview of our capital management plans and our transformation road map. We will finish with a deep dive into our Health business, including an overview of Health Payments in Australia, and a demonstration of the health product offering. Finally, we will have a question-and-answer session. I will lead the presentation. However, members of my team will present various sections, and all of the team will be available for questions following the session. The presentation will take approximately 1 hour, and will followed immediately by the Health deep dive, which will take another 25 to 30 minutes. Q&A will be held following both of these sessions, and I ask that you hold all questions until the end. I'd now like to just quickly introduce my management team. So on the far left, we have Steve Chapman, who is our Chief Risk Officer. Next to Steve, we have Paul Keen, our Chief Technology Officer. We have Prav Pala, sitting next to Paul, and maybe you all know Prav is our Chief Financial Officer. We have Monica Appleby, who leads our People and Communications function. Dominic White is our Chief Product Officer. Adriano Perillo is our CEO of Tyro Health. And we also have Deanne Bannatyne, who leads our Growth function. And as I said, all the management team will be available for the questions during today's session. I'd now like to talk to you about our strategy. At our heart, Tyro is and always has been a technology company. We were founded in 2003 by ex-Cisco engineers with an objective to use technology to build a cheaper, faster, more reliable, more secure scalable solution for card payments. Through Tyro's 20-year history, we've achieved many industry firsts. We were the first to use electronic file transfers to send the daily segment files to the RBA. We're the first launch integrated EFTPOS Medicare rebates. We were the first to launch an integrated EFTPOS mobile solution. We're the first payments business to launch least-cost routing. And more recently, we're equal first to partner with Apple and deploy Tap-to-Pay on iPhone. Today, we are Australia's 5th largest merchant acquirer, and we have a large loyal installed base of more than 69,000 customers, which since FY '20 has grown by 29% year-on-year. We serve a large and fast-growing market, turning over $836 billion of annual card payments. And yet we support just 3% of all Australian businesses and process less than 5% of total card payments. In a world that is complex to small businesses, Tyro helps remove complexity. We work with businesses every day, and we know that running a small business is hard. We know that business owners not only do the work and run the business, but they must find customers, they must pay suppliers, they must make sure that they get paid and they must manage cash flow and working capital. Tyro has a deep understanding of the needs of Australian businesses, and we support those businesses in managing the most critical function. Inherently, the commercial center of a business, authorizing and processing payments. In a recent Tyro market survey, 60% of respondents indicated that when looking at the services they need to run their business, they look for a payment solution first, compared to 25% who sought an accounting solution first, and 14% who sought a point-of-sale or practice management solution first. Businesses want integrated solutions. They are looking for simplicity. This is Tyro's sweet spot, highlighted by integration of payments into the point-of-sale and practice management systems, and our integration of payments into a daily settlement account, and our cash flow lending product. Tyro is well positioned to deliver continued growth. We won leadership in our verticals because we built payments from the ground up for Australian businesses. We recognized and understood their unique requirements. For hospitality merchants, the ability to pay at table, add tips and split bills. The health care practitioners, integration with Medicare and private health insurers for health claims processing. Tyro has made payments for Australian businesses our core focus, not an adjacent business. Our payment switch, banking license and integrated cash flow management products set us apart. We are frictionless and reliable because our solutions are designed to be effortlessly interoperable, encouraging merchants to assemble a suite of hardware and software that works best for their business. We are now cash flow positive, and we will continue to generate capital as we gain further operating leverage. As we hone our platform, we will deliver continued growth along with real cost and yield synergies. To summarize our strategy, we provide industry specialized payment and cash flow solutions for Australian businesses. We aim to provide customers the fastest, lowest friction and most reliable way to get paid and manage cash flow. We will continue growing in our installed base of customers in growing verticals and with the deepest understanding of their specialized needs. We draw on our efficient, scalable in-house processing and banking capabilities to allow us to innovate and respond quickly to changing customer needs and market dynamics. We are increasing value for and from each customer. For example, our cash flow solutions make customers' lives easier, increasing loyalty and Tyro revenue per customer, and allow us to attract new customers. In the future, we will commit capital and talent to invest in repeating our pattern of success for new verticals and new solutions. Building on our historical strengths, which have enabled our winning offer in the past. On the following pages, we'll step through this strategy in more detail. Our market continues to evolve, creating risks but also providing new opportunities for growth and innovation. Competition is increasing. Merchants are looking for simple solutions, and together with Tyro, local and cashed up global competitors are rising to meet this need. We are seeing a shift in merchant preference from hardware to software-based solutions. 4 out of 5 respondents in our recent market survey expect to start using a mobile point-of-sale device application within the next 2 years. Technology is driving changes to the way consumers pay. Cash-to-card transition has reached 76% of total payments. New payment methods have emerged, and we are seeing significant innovation in Australian payment rails through the new payments platform, which enables real-time funds transfer and bypasses traditional card rails. This will continue to gain momentum. We're also seeing an ongoing shift to eCommerce, particularly in retail where this makes up approximately 18% of all transactions. We expect to see increasing demand for more integrated omnichannel payment solutions. 1 in 3 purely in-person merchants today tells us they expect to introduce at least some eCommerce within the next 5 years. We also see merchants increasingly rely on the existing providers to solve a growing set of problems. In other markets, we're seeing our global payments competitors extending into business banking to cater to the growing demands of their merchant base. We expect these solutions to come to Australia. Finally, we know that macroeconomic conditions are uncertain. Household discretionary spend has slowed, and merchant costs arising due to inflationary pressures and macroeconomic volatility. This is putting pressure on the profitability of businesses and their ability to survive. The payments industry always has and will continue to change. While these changes are happening, change creates opportunity. We see lots of opportunity to serve our merchants in new and innovative ways. To manage the risk, and to capitalize on the changes that are taking place. Tyro exists to provide in-person payments and cash flow management solutions for Australians' maze. Getting paid, as I said, is the commercial center of a small business. And Tyro has the technology and the capability to make this seamless and reliable for our customers. This is and will remain our core focus. This means, firstly, we design and deliver industry-specific in-store payment solutions, often from the ground up, but also with partners, to solve problems and create value for Australian merchants. Secondly, we offer complementary eCommerce solutions for our in-person customers so that they can meet their omnichannel payment needs in 1 place. Thirdly, we help our customers improve their cash flow, not just with lending, but by providing quicker access to funds and flexible payment options. For example, a key feature of our transaction account is same-day settlement for card transactions made via our terminals. Our customers can also nominate a settlement time that suits them. These features help Tyro customers better manage and plan their cash flow. Finally, we designed and deliver our capabilities so that they seamlessly integrate with our solutions our merchants rely on, such as loyalty and ordering apps, enabling them to easily assemble the suite of hardware and software that works best for their business. We will not seek to compete outside Tyro's core competency and payments. These needs are met by a large number of specialist providers already competing in these spaces. I'm now going to ask Deanne Bannatyne to talk about the verticals we support and the opportunity for growth. Thanks, Deanne.

Thanks, John, and good morning, everyone. As noted earlier, we serve a large, fast-growing market, turning over $836 billion in card payments annually. We currently play in attractive verticals where there is still headroom for growth. We have a strong position in hospitality with a moderate market share as a result of investment in our innovative vertical-led payment solutions such as Pay@Table, simple bill splitting, discrete tipping and bar tabs. In retail, we've broken some ground with a lower but still material share of the market. We will defend these verticals by continuing to build on the strengths of our core payments offer, ensuring we will innovate to keep up with the changing merchant needs and preferences and continue to offer the fastest, most reliable and cost-competitive products in market. We will continue to grow penetration in the Health segment, where we have stronger market share with our GPs, but limited market share with other modalities. We will expand from our GP concentrated footprint into the still and largely -- our largely untapped dental, specialists and Allied Health sub verticals, leveraging our Tyro Health Online capabilities, to provide integrated omnichannel payments solutions to these merchants. We will actively pursue growth in the services vertical, where our market share is still relatively low, but particularly focusing on trades where we have launched our Tyro BYO solution or Tap-to-Pay on iPhone, and Tyro Go proposition that provide portability and convenience for these merchants. But we'll also focus on other trade services, such as hairdressers and beauty merchants, where we know that there is a demand for the provision of our surcharging and No Cost EFTPOS products. We will also selectively enter 1 or 2 new verticals over the next 2 years, but only where we see a number of key important factors. Firstly, there must be attractive economic fundamentals, including a large and growing market, strong merchant level growth, and an efficient path to market where consumer spending is largely resilient to market downturn. Secondly, there must be an attractive payment needs that match Tyro's strengths, predominantly in in-person payments, with an acceptable level of forward delivery risk that will help us to manage the costs and risks associated with chargebacks. And finally, we will focus on verticals that have payment-related pain points that Tyro has a right to solve. For example, complex payment needs or systems such as closed-loop payments and multiparty settlements. Localized requirements where our global competitors are unlikely to have the appetite or capability to invest in solving. And a low existing competitive presence such that we can be first to market with a strong proposition for these merchants. Thank.

Thanks, Deanne. I'd now like to talk about how Tyro differentiates through a unique combination of strengths. Firstly, we design and build specialist payment solutions, which are adapted to the needs of Australian SMEs in specific industry verticals. As we've touched on, beyond core hospitality features, such as splitting bills and tipping, which are widely offered by competitors, we also have Pay@Table functionality, which allows our hospitality merchants to take payments at a diner's table. More recently, we've launched our bar tabs feature, which allows patrons to preauthorize bar purchases on their card and up to a specified limit, no longer needing to leave their card at the bar. Our in-house infrastructure is fast, reliable and cost competitive. The transaction journey starts for 80% of transactions at the point-of-sale or practice management software. Our switch routes transactions through various card scheme links and responds back to the point-of-sale and terminal simultaneously. The full end-to-end payment journey takes just 1.5 seconds. We performed that function over 250 million times a quarter, with a reliability of 99.999%. That equates to less than 20 seconds downtime per month. We are independent of any bank, POS provider or terminal hardware manufacturer. And our payment solutions are interoperable with our merchants other hardware and software solutions. We build our direct integrations in-house. This gives us the flexibility to connect to any new partners our customers want to use. Whilst our competitors who rely on third-party middleware providers need to wait for them to build those integrations. We also help our customers connect their point-of-sale system to other software through our Tyro Connect offering, making it easier for them to use and manage their solution ecosystem. We provide convenient cash flow solutions, which is seamlessly integrated with our other core payments offering. We offer 3 business banking products to our payments customers, a Tyro bank accounts, business loan and term deposits. More than 28,000 of our customers have an activated Tyro bank account today. All of these products are fully connected to our full functionality in our Tyro app. We're also continuing to add value to our banking products, including our web banking functionality, and shortly by offering debit cards for our Tyro bank accounts. Finally, we have built out a broad, diversified distribution channel that includes banks and household corporates. We have a strong referral partnership with Australian banks. And we also had a retail alliance with Telstra and Australia Post. We expect to launch further retail partnerships in the coming months. These capabilities position us well to defend against local and global competitors who find it difficult to match our hard won capabilities. A mix of players are developing capabilities to serve specific SME needs. Big bank incumbents are partnering with or acquiring providers along the value chain to provide more fulsome solution ecosystems. Fast-growing local disruptors are targeting the SME market with low-cost terminals and strong retail distribution channels. Global payments companies arranging the Australian market with a scaled, competitive value proposition and providing low-cost wholesale acquiring to help point-of-sale partners and providers, breaking to the local payments market. Point-of-sale providers are consolidating acquiring into their revenue model, and offering convenient 2-in-1 solutions to small business merchants. However, no competitor can match our unique combination of capabilities. The big banks have less vertical specialization and treat payments as a means to grow lending. They continue to fall short on service and have not demonstrated extended interest in the SME market. To date, only 1 major bank has replicated our payments integration, really pay as you trade option on the business loans. Only 1, a different bank, offers interest-bearing business transaction accounts. Local PayFacs are dependent on third parties for acquiring and feature development, and must share margin. This limits their flexibility and speed to market with innovation and their ability to compete on cost. Global scaleups do not have an in-depth understanding of the local Australian context, and are unlikely to have the appetite to develop the specialized and localized features many of our merchants need. Global majors have entered the Australian payments, markets have done so with a core payments taking solution marketed to the broader Australian market without targeting any specific verticals. Traditional point-of-sale payments players and those who have only recently moved into the payment space have leveraged third-party acquirers to provide basic payments taking solutions as a convenient complement to their point-of-sale offering, and for revenue recognition purposes, rather than as a focal point for future innovation. Tyro will build on our traditional strengths to continue delivering market-leading merchant solutions. Our recent releases highlight our ability to deliver market-leading innovation. We established our online presence in the Health vertical through our Medipass acquisition, and we're growing this segment by claiming solutions with major health care funders through comprehensive integrations to core medical systems and through innovative functionality. Our first-to-market Tap-to-Pay on iPhone solution highlights how we can leverage our in-house payments technology to quickly deliver software-based differentiation. Tyro Go shows our commitment to complement our existing full feature terminal fleet with an option that works best for on-the-go merchants who need a smaller, portable and more convenient device. We will continue to build solutions to support growth in our existing verticals and allow us to enter new verticals and sub-verticals. We continue to prepare for a world where payments can be taken on any device. We're developing our integrated BYO offering with 2 of our point-of-sale partners. This will allow merchants to manage their point-of-sale and take payments on their phone through a single app. We will leverage our Android-based terminal applications to selectively offer wholesale, white label acquiring capabilities to select point-of-sale partners, both as a defensive play and a way of aggressively growing into new verticals. We will use our in-house switch to bring new payment rails to the market, such as QR and account-to-account enablement. We will also leverage our expertise and experience in delivering differentiated solutions in closed-loop payment systems to solve similar pain points for merchants and new verticals. We will build out our business banking products, first by closing remaining gaps through full-featured web banking and debit card offerings, but supported by focused go-to-market efforts that drive banking attach. We will bring all of this together in a single online portal for our merchants to view and manage their payments, their cash flow and value-adding services with data-driven insights to help them better manage cash flow. Lastly, we have one of the broadest distribution networks in the market, and we will continue to bolster this with new retail partnerships and by lifting our direct sales capabilities. To support this strategy, we're now going to showcase how Tyro has innovated and integrated our payments capabilities to remove friction and deliver better end customers -- customer outcomes, sorry. We have 2 examples that we will discuss. Online extras claiming in health, which Adriano will talk to; and secondly, cash flow lending that Dominic will talk to. You can view and discuss these features and products with our team in the entrance area after the session. So over to Adriano.

Thanks, John. For Australians with private health insurance who wear optical contact lenses, like myself, being able to receive your rebate and process that from your private health insurer is traditionally and typically being a complex process. Traditional -- typically, contact lenses are being purchased online, if you don't want to buy them in a practice. And so what that means is that you need to buy your contact lenses online and pay fully out of pocket for that fee. And then you take that invoice, and you need to submit it to private health insurer, and hope that you've got the provider number right, and hope that you got the item codes right, and then you'll see what your benefit is, which in many cases and in some cases, might be a full payment, or it might be no payment or no rebate. Tyro Health solves this problem, with digital private health insurance claiming. So now Australians with private health insurance can purchase their contact lenses online. And with 1 click, they can process the benefit amount that comes straight through from their private health insurer, as well as any gap component that they might have to pay. And those amounts are settled straight through to the provider next day. It's a brilliant consumer experience that enables those members to not have to be out-of-pocket, if they don't need to be. And Tyro Health is the only payments platform in Australia who offer this capability.

Thanks, AP. Let me talk a bit about cash flow. The -- one of our innovative solutions that can help small businesses with cash flow. We know cash flow is top of mind for SMEs. It has always been and continues to be the #1 item on the minds of small business owners. We took this pain point on and developed our Tyro business loan product. Firstly, our loans offer our merchants the unique option to repay based on their business takings every day. This gives them the flexibility to be able to repay loans when their cash flows at a healthy level, and to slow down when things go a bit slower. We also have a quick and simple loan application process where our merchants can take up a loan and access the funds through their Tyro bank account in as little as 5 minutes. Now, this is a big pain point with -- that businesses often quote when they're applying for lending with Australian lenders, in particular. So our solution enables quick, easy, stress-free access to funds when merchants need the most. And the offering is difficult to replicate. And we believe, only 1 other financial institution offers anything like this today, as John mentioned, in Australia anyway. We're able to do this for a couple of reasons. One is that we have visibility of the trading data and our deposit data through our payments processing. And we only offer this product payments customers. And our in-house banking build enables us to control our customer center innovations and do things in a simple way. And I'm going to come back shortly and just talk a little bit more about how we do that. Thanks, John.

Thanks, Dom. Okay. So moving on, what we'd like to do now is to provide an update on our future delivery model for our switch and our banking capabilities. Our in-house payments assets provide a platform that enables us to deliver innovation and competitive differentiation. It is low cost and fully scalable. We don't see a compelling case to divest this capability. Today, we will talk through how owning our switch is integral to our strategy and how it enables us to deliver sustainable differentiation. We'll also provide an overview of the economics of owning our own switch. Firstly, Paul is going to provide an overview of our in-house payments technology, including our proprietary in-house payments processing and our banking capabilities.

Thanks, John. So what we want to do is demystify a bit around the Tyro technology stack, and how it will sort of fit together. So in particular, the proprietary payments solution that John was talking about, and also the in-house banking capabilities. So to talk you through this diagram, the main components of the payments platform is the switch. So what the switch does is that it takes transactions, and that routes that through to the different card switch -- links. And then back office functions, as things like clearing and settlements. So to walk you through this diagram. As John was talking about before, about 80% of our transactions start at the POS or PMS partners. And we have 400 of those who have direct integration into the Tyro platform, and that's really important, having that direct integration. So that POS then tells the terminals to take a payment, you make a tap. And then that goes through the switch into the card schemes and back simultaneously to the terminals and to the POS. So as John was talking about, that's incredibly quick, at 1.5 seconds on average. The medium of that figure is actually 1.24 seconds. So it's incredibly fast, and we do that incredibly reliably. In the last quarter, we did 99.999% uptime. Last month, we did 99.99999% uptime. So wherever in any sort of benchmark, we are class-leading for our proprietary platform, payments platform in both speed, reliability and scale. The back office function that does the reporting, the clearing and settlements, and that's how we integrate into the RBA's [ risk ] system. And then the banking platform itself, because it's in-house built, we've highly integrated that with the payments platform. And so what that allows us to do, is allows us to build very much payment like cash flow solutions for both cash flow and banking type -- integrated solutions, which make it very unique in the market. And then what we do from a technology stack. We largely -- we are largely in-house built, but we do partner where we see efficiencies, where we aren't differentiating, and that's been a bit of a change. But we have really strong in-house capabilities to be able to innovate. And what we like to do is innovate very fast. So we released about 150 new capabilities every quarter. And we released a production of about 45 times a day, which is class leading. Thanks.

Thank you, Paul. So our in-house switch and end-to-end technology solutions does enable market-leading differentiated payments. We have delivered complex vertical-led solutions that could not easily be delivered through a third-party switch. For example, in Health, this includes the ability to process private health insurance and Medicare claims alongside out-of-pocket patient expenses. We've also allowed our switch to be able to allow multi-practitioner health practices to use 1 terminal but settle into individual GP bank accounts. Our payments technology has also allowed us to be fast to market on lease cost routing and acceptance of alternative payment methods, such as digital wallets. And with the launch of Tyro BYO, Tap-to-Pay on iPhone. It's also allowed us to deliver wide scale direct POS and PMS integrations. Our payments processing infrastructure is fully scalable. And the cost to run and maintain these capabilities represents less than 10% of Tyro's total operating costs. Scale is important and will continue to be an area of focus. There is a small cost included in the payments processing analysis that is required to handle an increase in the number of transactions being processed. But this is minimal and is not correlated to the actual growth in transaction numbers. Even if we were to reach peak capacity -- peak processing capacity, it is quick, low-cost and simple to scale our infrastructure. The savings would at best be minimal if we were to source these capabilities from third parties, and would come at the expense of flexibility and the speed of innovation. There would also be a significant cost and a major distraction to the business involved in transitioning 69,000 merchants to a new switch. As a result, we see a compelling case to maintain these capabilities in-house, and we'll realize the operating leverage that comes with additional scale. Now on to banking. Our banking model and the ADI license provide enhanced economics and enable innovation. Today, we'll explain how our integrated banking products complement and lift our core payments business. How our ADI license provides enhanced banking economics and ensures us from future changes in the regulatory environment. How our credit risk management processes and framework has originated a diversified loan book with minimal lending losses. And how our in-house banking model is capital efficient, enables innovation and is low cost. I'd like to now hand to Dominic to take over from here.

Wish you wouldn't call me Dominic. Makes me feel -- how are we going on there? It's dark. Hang in there. It's good. So let me talk a bit about our banking and what we're calling, more of the cash flow solutions set of offerings that we have. So we provide an everyday transaction account, a business loan product and term deposits. There are the 3 simple offering we have. Our transaction account enables merchants to settle funds 7 days a week. It was 1 of only 2 offerings that we're aware of in the market in Australia, paying interest on funds deposited, in fact, increasing interest, the longer the funds are deposited with us. Quite innovative. In terms of lending, we were focused on simplicity and ease of access to funds, which historically, has been a pain point for Australian small businesses. Our cash flow solutions are delivered through our in-house technology stack, integrated with our Tyro app and our payment systems to enable payments linked to cash flow solutions, which are difficult to replicate. We take and hold deposits through our own ADI license, as you're aware, and fund our lending activities with a mix of Tyro bank account deposits, term deposits, and wholesale money market funds. Our cash flow offering is designed to minimize risk. From an onboarding point of view, our cash flow lending offer is only available to our payments customers. And so we leverage our visibility of merchants payments and deposits data to drive our lending assessment. I'll come to our sort of risk profile in a minute on the next page. Our repayments are linked to business turnover. And we get repaid daily and thereby reducing the credit risk daily. We're seeing increasing returns from our cash flow solutions year-on-year. And as you can see, by the right-hand side of this chart. And this was data that you may be familiar with from our FY '23 results, and you may recognize that. So we found that our cash flow solutions increase revenue, our margin per merchant, and make merchants stickier. Specifically, our combined payments and lending customers have significantly higher NPS and 30% longer average tenure compared to their non-lending peers. Our in-house on balance sheet banking model is low cost. Our ADI license allows us to take and hold deposits. And as I mentioned, we use that to fund our loans, and activities enabling low cost of funds at around 1.5% in FY '23. That's per annum. Significantly lower than if we had to grow our funds from the wholesale. That more than offsets the fixed costs of the ADI, our lending solution minimizes the risk, as I mentioned, because of the knowledge we have of our payments customers and the data that we see through their trading. And this meant that we incurred a lending loss rate of only 1.9% of originations last year. An interesting byproduct of our ADI license that we're funding is that it requires us to enforce additional discipline in our systems, reporting and compliance across the organization as a whole. This has been a fascinating thing that I've learned since I've been at Tyro. Payments regulation and compliance requirements, as you know, continue to grow, and we think will only continue to grow. And the fact that we have this ADI actually helps us build a stronger and stronger risk culture within the organization as a whole. And finally, building our banking portfolio in-house from the ground up has allowed us to build simple, innovative payments integrated product features, which many of our competitors find difficult to replicate. This includes our innovative repay as you trade functionality, but also escalating interest accrual in our transaction accounts, as I mentioned, and flexible settlement times for Tyro merchants, which is also something that not many others offer. And overall, running and maintaining these capabilities makes up a fraction of Tyro's annual operating cost. So we -- when we analyze this, we don't see material cost savings from moving to an outsourced delivery model, especially given the strategic and operational benefits of controlling this in-house. John, back to you.

Well done. I think I can call you Dom now. Okay. What we're now going to do is we're going to outline our transformation road map and our capital management approach. So we will pursue opportunities to deliver value over 3 horizons. Over the next 12 months, we'll focus on how we maximize value from our existing capabilities and ensure we set ourselves up for continued growth. We'll improve our end-to-end go-to-market processes to ensure we are maximizing sales returns from the products we build and deliver, including strengthening our direct-to-merchant capability and continuing to diversify our distribution channels. We will introduce a wholesale or white label offering to support the payments needs of select third-party ISVs, and to simplify and reduce the migration costs to our switch of inorganic acquisitions. We will continue to focus on disciplined cost management and clearly understand the strategic and commercial benefit from all resources working on discretionary project investment. We will simplify and migrate our banking stack to the cloud to enable shorter time to market for new products and flexibility to plug into partners who are better placed to deliver certain value-added banking services and features. We will address merchant requirements in our core payments capabilities by completing our integrated BYO solution. We will enhance our eCommerce functionality to support features our in-person merchants most need. And we will launch a debit card and a fully featured web banking solution. Starting in approximately 6 months, we will focus on accelerating and derisking growth by moving into new verticals. We will selectively expand into those where we have a clear right to win. We will build innovative features to solve unique payments-related pain points for merchants in our current verticals. We will also build out a more fulsome payments and cash flow management offering. Lastly, we will transform what and how we serve our merchants over the next 2 years. We will design and build new innovative payment solutions to solve unique pain points of merchants and a priority new vertical. We will launch a single integrated online platform to merchants to manage their payments, their cash flow and value-adding solutions powered by data and insights to help them manage their business. We will launch new payment rails and payment types where there is clear demand from merchants and their customers. I'm now going to ask Prav to come and talk about operating leverage and capital management.

Thanks, John. And I'm glad you didn't try and pronounce my full name. Our EBITDA margin continues to improve. So we delivered an EBITDA margin of 22% in FY '23, which was up from a low of 7% in FY '22. And for FY '24, we are guiding to an EBITDA margin of 26%. We're not consistently over 20%. We are comparing ourselves to our global peers. So we've delivered margin optimization and cost savings within the last year. In terms of cost savings, we announced a cost management program in October 2022. From this preliminary operating model changes and efficiencies, we saved about $7 million in FY '23, which is an annualized $11 million into FY '24 and beyond. We've all largely delivered the automated onboarding processes. Some cost savings continue to be in progress. We're completing our investment in our modern terminals. We're investing in our customer self-serve, and we continue to maintain overall cost discipline. Excluding lending and non-lending losses, we are targeting a flat growth rate in operating expenses in FY '24. So with a focus on margin optimization and cost management, our transformation plan is to sustainably maximize our profitability. We have a targeted focus on generating profits across our payments and banking businesses. In our banking business, we will drive the attach rates of our products through targeted go-to-market efforts to maximize value from our installed base. In our core payments business, we will optimize our front and back book economics and renew our distribution strategy. We will do this by systematic and analytics-driven pricing models. Our new marketing and distribution strategy, including focusing on direct to merchant channels and helping SMEs understand how Tyro can solve their pain points. Mapping up the end-to-end customer journey redesign to reduce leakage across the value chain. We will proactively identify merchants who are at risk and have active retention efforts in place. And we will design and build differentiated new functionality to solve unique merchant needs in untapped segments. At the same time, we will remain laser-focused on maintaining our cost discipline across the business. We will work towards making our customer sales and support functions more efficient by introducing automated processes and self-service, and prioritizing customer-facing efforts towards touch points that create the most value for our customer. We will also streamline our product and technology delivery method with renewed focus on the customer and their needs throughout the end-to-end life cycle. This includes more flexible planning cycles and simplified ways of working to minimize time to market and improve returns on product investments. We have implemented a relentless discipline on costs -- a relentless discipline across our other costs, and we will continue working on these into the next year. All of these will generate capital. We are in the fortunate position of generating new capital since last year, adding to our already strong capital position. We were cash flow positive for the first time in FY '23, generating approximately $6 million in free cash flow. Under our current guidance, we are looking to accelerate free cash flow into FY '24. We have more than sufficient capital to continue to invest for growth and to cover our investments and commitments. We expect to build this capital position over time as we grow the business and further improve our EBITDA margin through achieving real cost synergies. We will deploy this capital towards maximizing our competitive advantage, other than growing both our banking and payments businesses. We will be building products and features that increase customer stickiness and therefore, lifetime value. We'll be investing to increase our delivery velocity and realize the scale benefits from our technology. We will consider forming partnerships and evaluating possible acquisitions that defend our customer base and lower our cost to acquire and cost to serve. We believe this strategy will provide attractive and sustainable returns to our shareholders. If there are no commercially viable investments to put this capital to work productively, we will consider how we return these to shareholders. At this point, we believe investing capital to increase customer lifetime value, in line with our strategy, will maximize total shareholder return. Thanks, John.

Thank you, Prav. Okay. What we're now going to do is to move into a deep dive for Health. And first of all, I would say that we're really proud of the work that have been undertaken in our Health business over the past 2 years. And we do believe that it provides a great example of the industry specialized payment solutions that are key to our strategy. We often hear and read talk about the commoditization of payments. And while there's some truth to that for simple payment acceptance, many industries have unique payment needs to create opportunities for true differentiation. Health is one of these. I'd now like to hand you back to Adriano, CEO of Tyro Health. He will present a deep dive into the Health payments industry, and then we'll -- rather than doing a live demonstration, what we're going to do is to show a short video of the product solution. Thanks, Adriano.

Thanks, John. Processing payments in the health industry is complex. And so I wanted to start by providing some background and context on why this is, and why winning in this space requires dedicated focus from a specialist team. Firstly, health is a major component of overall spending in Australia. It makes up about 8% of household spending, and this has grown over 6% in the past year. But as a health care provider, accessing the total funds that cover the services you deliver is not straightforward. The broad pools of funding are listed here, individuals pay for health care directly. And then there are amounts that are spent by federal governments, state governments and what is funded by private insurers. But one level deeper, we see that there are at least 80 organizations and schemes that manage and distribute funding. Federally, there's Medicare, the Department of Veteran Affairs, et cetera. And each state government runs their own workers' compensation and traffic accident schemes, which in turn often engage third-party insurers and agents. And then finally, there are over 40 private health insurers. The complexity is that in each -- is that each of these insurers have their own unique requirements that providers must follow in order to get paid. This includes what claims are acceptable, the item numbers they can use, amounts that they can charge that are acceptable and more. This fragmentation makes it very difficult for health care providers to easily and reliably get paid for the services that they have delivered. Next, there are over about 300,000 providers that deliver health care services. But the complexity here is that, while we often refer to this as a single health industry, the payment needs of providers in these subsegments differs vastly. For some providers like Allied Health professionals, well, private health insurance claiming is key. But for others, like medical specialists, deep integrations to inpatient claiming systems is needed. Others deliver services primarily from their practices, while others are leaning heavily into telehealth or home visits or other online solutions. This means that successfully delivering claiming and payment solutions to the health industry requires deep and broad payment capability that meets the different needs of those diverse provider types that exist within that industry. And finally, we have the role that software partners play. These are the practice management and workflow tools that most health care providers use to run their day-to-day operations. There are over about 120 software providers in health, and driving adoption requires a payments platform that they have integrated to, not just for payments capability, but for the funder and claiming solutions that they need as well. The end result is that simple real-time claims processing that will adequately -- that will actually be adopted by providers and their practice management staff requires deep integration to each of these different industry players. So this is where Tyro Health comes in. The role that we play is to address this complexity and make it easy for providers to get paid. Key to how we do this is the vast number of partners, our platform integrates too. We proudly boast market-leading integrations with Australian funders and software providers, giving us extensive coverage of the Australian health care sector. For funders, we integrate to Medicare Easyclaim, Medicare Online and Eclipse, agencies such as Comcare, the Department of Veteran's Affairs. And we integrate with over 40 private health insurers and to a number of workers' compensation schemes, including icare in New South Wales and WorkSafe Victoria. And the list is only continuing to grow. We also integrate with over 77 health-specific software partners, more than any other claiming and payments player. This includes leading PMS providers across GP, allied, dental and pharmacy. These complex integrations have taken our dedicated team over 14 years to build. Each integration requires negotiation and agreement finalization, often with government agencies and other uniquely Australian partners, followed by integration work to be completed by both Tyro and the integration partner. This complexity means that the list of payment providers we compete against is very small in health. It has required a significant investment of both time and effort to reach the level of platform maturity that we now enjoy. We offer our payment and claiming solutions across our EFTPOS and online offerings. These enable us to solve for provider requirements no matter how they deliver care, whether that's in practice, in a hospital, at home, online, via telehealth, et cetera. And we've recently launched product bundles to incentivize customers to purchase more than one of these products. We've seen great success in this approach, and we have high ambitions to continue this cross-sell strategy going forward. At the center, of our platform is Tyro Health Online. This was capability we acquired with the acquisition of Medipass in 2021, which we have recently rebranded. Tyro Health Online is an incredibly powerful tool that providers and their practice managers can use to process payments and claims for their practice. And all the functionality is available as a library of [indiscernible] and APIs that we make available to our very active developer community for integration into their software. We wanted to show you the power of this platform. And so let's press play on something we prepared a little earlier. [Presentation]

Welcome to Tyro Health Online. Now while there is a great range of features and functionality included in this software, I wanted to take you through 3 key use cases today. And the first one was in relation to digital private health insurance claiming and quoting. So whilst we have been doing claiming for a number of years, what we're increasingly hearing from our customers is the importance of affordability to patients and being able to explain to them what their private health insurer might pay and how much their out-of-pocket might be, and providing that information before they have the service. So today, you could do that in practice. But if you're not actually in the practice in front of a EFTPOS device, the only other way to do that is to call up, get your item posed, and the prices, then call up your private health insurer and obtain a quote. That's typically the way that it's been done. We've digitized that process, and I'd love to show you what that looks like. So this is the Tyro Health Online portal, with the range of payment options and claiming solutions that we offer. I'm going to click into Private Health Insurers and outline that I'd like to do that as a quote. My provider details are entered in, which has my provider number and where I'm located. I'm going to outline that I'm going to send this digitally, not to the terminal. And then I need to put in some member information or patient information, basically my member number for the private health insurer. This has been saved to files, so I can easily pull this up. I then outline what the item code is that I'm going to process, and I'm doing to do an item 500 here for $100. Once I hit submit, this goes through the back-end systems of the insurers and comes back and says that there's a $60 benefit that the insurer will pay, which means that there is a $40 gap that the patient will need to cover. I can e-mail that straight through to the patient for their own records or, if I've actually delivered the service, I can submit that straight through as a claim. What typically happens here is that an SMS is sent through to the patient, who is able to view that on their phone, including all the details of the amount of the service and how much they're fund covered. If they have Apple Pay or Google Pay enabled on their device, those options will come up. Claudia here has saved her card details. And so all she needs to do is hit the Approve button and both the benefit and the [ GAAP ] payment is processed and those funds will be made available to the provider next day. The next use case I wanted to take you through is for workers' compensation and traffic accident schemes. Now these vary state to state. But typically what a provider needs to do is create a tax invoice that includes all the information associated with the claim to enable that scheme or the insurer or that agent to be able to adjudicate and pay that claim. The problem is that typically, and often, there's information that's either incorrect or not complete. Perhaps the patient number didn't exist or was incomplete or maybe that provider wasn't registered for the scheme or maybe the fee that was charged for that item code was not correct or not allowed. This can mean that invoices for workers' compensation and traffic accident across the various schemes in Australia can typically take days and weeks for payment back to that health care provider. We've simplified and streamlined this process, and I want to take you through and show what that looks like. So we have a range of schemes connected for workers' compensation, but I'm going to go with Comcare. They fund workers' compensation claims for anyone who works for the federal government. Similar information is needed to be entered here as before, including who the provider is, what their provider number is. We also need to know who the injured worker is by typing in their claim number, which I've just stored on file here. What's great is that we instantly verify that straight through to Comcare system, so that as a provider I know that a policy actually exists for this injured worker. We also enable attachments to be included alongside that claim. In this case, I need to include a Certificate of Capacity. So I complete that, and that's uploaded and presented alongside my claim in case Comcare requires that information. I then can select my item type, and in this case, I'll go with an item 2. We show the price that Comcare will pay on that, which is $129.30. And that's it. I then submit the invoice. That then goes right through to the Comcare systems, who, in this case, have instantly approved that. And I can see that through the status here, and the money will be in my bank account tomorrow morning. Now the final use case I'd like to take you through today is in relation to medical specialists. Now we've always had a really compelling offer for medical specialists when they are trying to process claims and payments for patients that they see in their rooms as outpatients. What we wanted to do was extend that to when they're seeing their clients as inpatients and the services that they are delivering to their patients in a hospital. And this is for anesthetists and cardiologists and similar professions. We did that by integrating through to Medicare Eclipse and in what was one of our most complex integrations. We successfully delivered it this year and the response has been fantastic from customers. And we're very excited about growing this solution and into this segment into the future. Let me show you a little bit about what this looks like. So similar to previously, I just selected the Eclipse file and that I want to process an inpatient medical claim. And we present the required information in a similar way. The difference here is that there's a lot more information that's required. It's a lot more complex. When I select Claudia, this time, I need both her Medicare card details and her private health insurance details. And as before, we verify this information in real time. I then need to know who the principal provider is, and I'll put [ Eli ] here, who is an anesthetist. And what this does is open up options specifically related to anesthetists. I need to obtain financial consent. Information is required around the referral and how that was obtained. And then I can type in the different item codes. In this case, I'll put in an initial attendance fee of $95. We include a range of advanced options in relation -- if required for the claim, such as when it might have been processed, when it might have been done, was it after hours, et cetera? And then we can submit that claim straight through and receive the real-time adjudication as we did for the other claim types. Now raising claims in the way that I've just shown you has proved incredibly popular with a broad range of different providers. But larger provider groups needed something a little bit different. These are the groups like pathology or radiology groups that process high volumes of claims. And so what we built for them was a batch upload function. And this works across the whole site, across all of the claiming types that I talked about. And I just want to show you how simple and easy this is to use using Eclipse as the example. So here I am in the Eclipse claim like before, but there is this tab here called Batch Upload. If I click on that tab, we can click browse and access a CSV file that I have had created from my PMS and exported from that PMS system. And what this does is it uploads each of those different line items, gets each of those ready to process. You can see here the ready status. What that's doing is saying that all of the details within that claim are verified. There's no missing information. And all I need to do as a practice manager is select all of them and hit submit. And every single one of those will go through for adjudication and payment. So as you can see, we offer a range of tools to make it easy for providers to process claims and payments. But what we also do is follow those invoices and payments right through to when they hit bank statements, to give transparency to providers and practice managers about where the claim status is and whether or not they've received all the money that they're owed. Let me just show you what that looks like. If I click here into invoices, I can see all of the individual invoices that I've raised. And I can see the status of them. These here have been completed. And so I can expect settlement of funds. These have been canceled. And I can see this one here is still outstanding. So I might want to contact that patient and understand what we can do to help finalize that payment. Then what we do is provide full remittance services and advice to track those funds back to the money that's actually hit my bank account. So I can see here that $934.30 was remitted. This was in a single settlement. And I can see each of the actual invoices that I raised and the patients and the providers that made up that total payment that finally hit my bank account. It's really invaluable for typically practice managers or other people that work in the accounts department at health care practices to ensure that they're actually being paid for the services that they have delivered.

Thank you, Adriano. I think it's a great example of how we're trying to bring some e-commerce capabilities to be able to support health in what is largely an in-store or person-to-person type proposition. But it also highlights too, I think, how complex the whole health payment area is and why we see some real opportunities to be able to continue to invest in this space and continue to grow. That ends the formal presentations for today. What we would like to do now is to open up for questions. We have one or maybe 2 roving microphones in the room. And if you could please introduce yourself and ask questions. I think we might start in the room. We know that there's also questions that will come online. You can either direct your question directly to one of the members of our executive or I'll nominate someone. So, why don't we start with the first question. If you could just state your name as well when you introduce, please.

[ Nick Harrington ]. Question about the banking. I'd love to -- how should shareholders think about the contribution of banking at the moment? And then how much capital is tied up and then how much CapEx to get to where you want to get to on the banking side?

Do you want to take that one, please, Prav?

Yes. Sure. Sorry, Nick. Do you -- there's a couple of questions in there. Do you mind just repeating? .

Yes. So treated as 3 parts. So contribution margin of banking at the moment. Then how much capital is held up with the banking license? And the final part is what -- how should we think about CapEx going forward to get to where the banking platform needs to get to?

Sure. So the first 2 probably relate to the banking side of our business. The contribution margin, so in the last year, from a gross profit perspective -- yes, yes, sure. I'll get to that. So the contribution margin from a gross perspective was about $11 million. If you actually look at the slides in terms of how much it costs us to run the ADI license, it's a fraction of our OpEx cost. So in FY '23, it was roughly breakeven. So as we scale that business, which we will be able to by leveraging our installed base, that cost increase, I don't see increasing too much. And therefore, the contribution margin, like our payments business, will be a scale play. In terms of capital tied up, now this has been a question that has come through a number of times as to should we actually be tying up capital on our balance sheet for these loans or should we partner with other people? And that is something that we've actually done quite a bit of a deep dive over the last few months to make sure that we challenge ourselves and ensure what we're doing is the right thing. They're both profitable. But if you look at the economics of it, so one is it's very short term, our loans turn over every 6 months, and that's end-to-end. So the duration is probably about 3 months. The APR that we've been able to generate on that is about 25%, which is very attractive. As Dom mentioned, we get the repayments back every single day. So while it's unsecured, our credit risk actually comes down every single day. So the capital impost of that loan balance is not as high as a traditional loan that sits on the balance sheet for a while. Our capital position was about $88 million last year, and that is well in excess of what we are required to hold. So at this point, from last year, we already have excess capital, and we will be generating more capital as we go forward. CapEx. I think this is from an overall business perspective. Obviously, as our merchant base grows, we will need to grow our CapEx to support that business. One of the issues we've had in the past is the lack of form factors. So if you're a micro merchant, you would still get exactly the same terminal as if you were a multimillion dollar business. We have been addressing that. So if you actually again look at the cost base in the last year, we've spent a reasonable amount of our OpEx in terminals and integration. So in the last year, we've launched the Tyro Go, the Android-based Tyro Pro, and then the Apple-based BYO solution. The Tyro Pro is similar CapEx to our current terminal. The Tyro Go is 1/10 of it, so about $60 a terminal. And the BYO is 0 CapEx. In order for us to be to be growing, what we would like to do is to -- and that is our strategy, is to divert the right form factors to the right merchant segment. So for the micros and smalls, we'll be using more the BYOs and the Gos, which is lower CapEx. And on the larger SME segment, we'll be using the Tyro Pros and any other terminals that we evolve into. So there will be an increase in CapEx from an increased base, but there will be a decrease in CapEx because we've got a diversified form factor. So I hope that gives you a bit of a flavor.

The question is more about the banking, how much CapEx into the banking. So the CapEx question is specific to banking.

So the banking costs that we actually included in the diagram on the presentation includes both capital and OpEx. So as a fraction of our total base. .

Okay. Next question.

It's Bob here. Just a couple from me. I think when you provided the trading update back in August, it looked like July was a bit of a slow start. Can you talk a little bit about how the business has been tracking since then?

No. Sorry, Bob. We will provide a trading update at AGM, which is in 4 weeks. But I can say that we're still very comfortable with where we sit from a guidance perspective.

Okay, cool. You did highlight the EBITDA margin expectation, and that's a 26%, Prav. I think you also mentioned that you sort of benchmark yourself to global peers. Like who do you see as your global peers? And what sort of margins are they operating at?

Yes, sure. When we -- obviously, we look at the businesses in the top of their class under each segment. So globally, we think -- there are 2 excellent businesses, Square on the lower end with micros, and Adyen on the top end with enterprise. I personally keenly follow their progress and their margins. So Square on the micro end has been roughly about 20% to low 20%. Adyen at its peak was at about 60%, that come off the favor lately, I think they're in the low 40s. So that's effectively our benchmark. And we've been aspiring to be beyond the 20% mark, which we achieved last year. We're looking to improve that in our guidance range. I think -- I don't think we would ever get to an Adyen level because I think that's a very different business model. Our business is a mix of the micros, SMEs and the large businesses. So something in between is where we benchmark ourselves as.

Tim Piper from UBS. Just a follow-up on the banking. If you take gross profit and you take into account lending losses, et cetera, you haven't quantified the sort of OpEx in that chart, but it looks like it maybe doesn't make money at a bottom line level. And then second part of the question is, I think previously, there was kind of medium- to long-term targets around what gross profit share of grid would come from banking. Now they weren't, Jon, your target, so I won't sort of mention the number. But can you give us a sense on what you think banking could contribute from a gross profit point of view in 5 years' time?

Yes. Look, I'll perhaps get the first part of that and then pass to Prav. We're still pretty comfortable with gross profit representing about 20%, or banking representing about 20% of the gross profit. We sort of have an FY '27 time frame on that. Prav, do you want to take the other part of the question?

Yes. So in terms of the other part of the question, so what we showed on the chart, obviously, is CapEx and OpEx. In the last year, if you take the total cost of just the banking contribution, we would have broken even, including the CapEx. As I mentioned, the investments in the banking side have largely been completed if we were to stick with the same product. So as that scales, we would see more leverage coming off that. The other thing as well, though, is the way that we segment it, there is deposits that come through in our transaction account. And where we're not actually able to lend that to businesses, we're able to actually get a positive spread on that as well. So if you attribute a portion of that, which was relatively decent last year, I think about $10 million, we would actually have made a modest profit last year.

The other thing I'd probably just add to that is the way I look at this is it's the value that banking contributes to our payments business as well. And you might have seen one of the slides earlier on that highlighted the better margin that we have for payments customers that also use our banking products as well. So there's sort of a flow-on benefit into the payment side of the business there as well. I don't think about them as banking versus payments. We think about it very much as an integrated product suite.

You got it. One on the payments business. I think you mentioned the survey near the start that I think it was 60% of merchants choose a payment solution upfront. Now obviously, historically, a lot of your merchant growth has come from being a preferred partner of integration partners like point of sale. That 60% sounds quite high. So when we think about your merchant growth from here, you would say that being a preferred partner of point-of-sale has been a competitive advantage historically, how much do you need to change your marketing/merchant growth type strategies or spend going forward?

Look, I think that I think that we need to think very much at an industry vertical level. I think that in some verticals, you have a far greater level of competition, which is driving perhaps different kinds of sort of sales and distribution type models. If we look at, as an example, one of the areas that Adriano spoke to, in health, in the dental market, there's actually only 2 real sort of providers of software services for dental practices. So we see some real opportunities to be able to partner in that particular space to be able to grow market share in a modality where we have relatively low market share today. It's very different in hospitality, different in retail. So I wouldn't sort of give a broad general comment. I think we need to focus very much on what it looks like in those different industry verticals.

And can you give us a sense on some of those new verticals you might be targeting and what your specific competitive advantage is?

Yes, I'm not going to, today. I think what we've tried to do is to outline how we will look at some of those verticals. And it's -- we do have several verticals that we are looking at and that we are targeting. But I would say that in many cases, that requires us to be able to understand some of the dynamics associated with those industries and look at some of the incumbents, and in some cases, partner with some of those incumbents to be able to really build out the proposition. And as soon as I start to delve into industries, it starts to be possible to be able to look at where some of those players are, and we don't want to go into that detail.

Okay. Just one last one, if I can. Just on the health business, just 2 parts. Firstly, the Medipass solution, can you give us some -- or quantify sort of the penetration of that product across health vertical at the moment in terms of transaction volume coming through that part of the business versus sort of in-store terminal? And then second point or question, you had a chart around the different parts of the health business GP, specialists, allied, et cetera. Maybe you can you just give us a real quick rundown or a bit of a 101 around how you generate revenue across those different subsegments of health and who that revenue comes from?

Yes, I think that's a good idea because we saw the whole claiming piece up there, and it is a very different commercial model to a traditional payment. But I will ask Adriano to take those questions.

So if we look at it from a segment perspective, Tyro Health has quite high penetration in a GP and specialists -- in the GP and specialist market, predominantly based off of our -- predominantly based off of our EFTPOS solution. From an allied perspective, we also performed very well. That is typically off the back of our online solution. And so you can see that certainly in those verticals, there's opportunity around cross-sell, because from a GP and specialist perspective, it's more EFTPOS currently. And from an allied perspective, it's more online. Dental and pharmacy, we have low -- we have low penetration and market share at the moment. We think there's quite a bit of opportunity there. We also have greater -- we also have greater average revenue per customer in the GP and the specialist segment because they have an in-practice EFTPOS device, which typically processes more of their -- more of their payments. And so that's why we think there's opportunity in the allied space, because as we incentivize customers to take up both of our online and our EFTPOS solution, and as we pull them together in more tightly integrated use cases and build that proposition out, it enables us to convince them to bring in one of our EFTPOS devices into that segment. Hopefully that answered your question.

Maybe if you could just touch on the commercials associated with the different claiming types as well.

So what we -- so there's a couple of -- so we -- so it really varies. There's probably 3 different types. There's the revenue that we received from payments, whether that's online or EFTPOS. There's revenue that we receive from funders and insurers for some of those -- for some of the integrations that we've got. And if we have an agreement with a funder or an insurer and they will pay for the claiming component, we make that free to healthcare providers. For some insurers and schemes, they don't pay. And so we either require a provider to have an EFTPOS machine, that they pay a monthly rental on, for us to make that available to that provider or we charge providers a fee. So an example of that is if you want to process Medicare on our EFTPOS device, it's free because you've got a EFTPOS device paying a monthly rental terminal fee. But if you want to process a Medicare fee on our online solution, which does not have a monthly subscription, you've got to pay a per transaction fee. So there's kind of those 3 buckets. And what our incentive or our bundle does is it says the online stuff doesn't need to cost you anymore if you pull in your EFTPOS device. If you have an EFTPOS device with us, the bundle enables us to give you discounts on all the online component, which sometimes for some funders has a transaction fee.

There's probably just a couple of points that I would highlight there. I mean, I think the first one would be one of the big differences there is that for many of those claiming types, we're actually not being paid by the merchant, we're being paid by the funder. And that's quite a different commercial model that we have in place with those. So I think probably the second point that Adriano did highlight that I would reiterate is that, while we have reasonable market share in allied as an example, what we find is that many of those allied professionals are using us for some of the online services but not necessarily using us for some of the EFTPOS services. So it is both how we grow in those industry verticals, but how we broaden the product offerings to include the integrated payment and claiming solution, which is where we see some real opportunities on.

Brendan Carrig from Macquarie. Jon, are you able to provide any more detail just historically on what Counter was a contributor in terms of application volumes during that referral partner arrangement and/or how many merchants are -- were currently in the back books that were referred across by Counter over the years?

Look, I'm not -- no, Brendan, I'm sorry, I can't go into detail on Counter or any of the Lightspeed activities. As you'd be aware, we've got a case which will be held shortly. What I would say is that I've seen some analyst reports in the last week or two which suggest that up to, I think it was 90% of our back book might be at risk. And we think that is a very pessimistic view of the world.

Okay, thank you. Maybe just moving to sort of e-commerce volumes. I think historically, that's been an area which is obviously growing from a low base. me&u was one area, which was previously highlighted that was going to be driving growth there, which doesn't seem to be referred to as much anymore. Can you just talk to sort of e-commerce volumes expectations there and how we should be thinking about that as a growth driver for TTV?

Yes. Let me -- I'm going to ask Dom to take that one. But I suppose I'll just start by just touching on the me&u part. I mean I think you're aware that we do have an equity stake in me&u on an undiluted basis, that's about 4.9%. And obviously, there's -- you would have read -- no doubt read, there's a merger activity going on with Mr Yum. We took that equity stake originally with an intent to be able to integrate our e-commerce capability into that offering. We have never actually done that. And therefore, it's really been a sort of, effectively, sort of a lazy investment that we've had sitting there. We've got a really good relationship with both me&u and Mr Yum, actually. But we don't provide e-com services for them at this point in time. Dom, do you want to talk about e-com volumes more broadly?

Yes. I think, Brendan, we've got a small proportion of e-com volume, as you're aware, coming through. But the -- what I think we are thinking more about is how we simplify the integration with our in-person facilities. So we have not made it easy enough, I think, to access our e-com facilities as an omnichannel offering. So we think that it's not a new platform, a new infrastructure. It's not a massive investment. It's actually about how we integrate better with our systems and how we then take that to market with [indiscernible] and the team and with partners like me&u and others that we can have a more simple integration. So we're doing quite a bit of work on a simplified API-based structure, having something available for small businesses on our main portal that's very easy just to click and have an associated omnichannel capability with here in [indiscernible]. So the focus is primarily on in-person payments customers, but we know that they need that omnichannel. So that's -- it's a -- there's no stand-alone e-com strategy. It's a complementary e-com strategy or omnichannel strategy.

Okay. That's clear. And one more, if I may. Just in terms of banking or moving into trying to acquire merchants at the middle and larger end of town. This is probably an area that's a bit more difficult given you're competing with the major banks, and those merchants have dedicated banking relationships and individual bankers that look after those relationships. So at some point, given the strategy to retain the banking license, would the strategy then to move it -- to be to move into that space over time and potentially bring on more dedicated relationship managers in that space in order to take share from the major banks in that space?

Look, I'd probably start to struggle with that a little bit more. I mean I think that what's great about our bank offering at the moment is it's integrated into our payments offering and it removes real complexity associated with getting lending for SMEs. And I think that we need to focus on where we can differentiate rather than where we would directly compete. We think that the offering that we have today in the banking space is unique, that it does remove complexity for SMEs. And we think that's where the opportunity is. I think as soon as you start moving up the stack in terms of the segment size and you do start to compete against sort of the big banks in their traditional heartland, I think it gets harder and harder.

[ Gary Desmond ]. I saw in your feature set this year that you now have a product called No Cost EFTPOS. Could you maybe just explain to us a little bit about what that is, how it's rolling out, what it's doing to your margin?