Tyro Payments Limited ($TYR)

Good afternoon, everybody. Thank you for joining our briefing today to cover the conclusion of the RBA's review of merchant card payment costs and surcharging. I'd like to begin by acknowledging the traditional owners of the land on which we meet today, and pay my respects to elders past and present. I'd like to hand the call over to Nigel to share some comments upfront and then open to Q&A, which I will facilitate afterwards. Please note, this call is being recorded.

Thank you, Martyn, and thank you, everybody, for joining the call today. First of all, I'd like to say that we welcome today's RBA announcement because it represents a win for Australian. [Technical Difficulty] Sorry, apologies. Look, thanks, everybody, for joining the call. And we welcome today's RBA announcement because it represents a win for Australian core businesses through simpler and more transparent pricing. Now the changes represent a positive shift in the market towards greater transparency, stronger competition, a level playing field, and this represents an environment that plays to Tyro's unique strengths. Tyro is well positioned both technologically and commercially for the changes, and our proposition is well suited to the environment the RBA is creating. As investors in Tyro, you should be encouraged by the reforms that have been announced today. Now at the same time, these reforms can and will be quite disruptive for other parts of the industry, particularly for issuers, for the schemes and for acquirers whose business models are reliant heavily on surcharging on opaque pricing, which does not help small businesses and merchants or those that bundle payments and software together. I'd like to be clear upfront. The implementation of the RBA's reforms is expected to have no impact on our ability to deliver against our short or our medium-term financial targets. And we believe that we are well positioned, both technologically to implement these changes. We have done so before as we've implemented changes in pricing over many years. And now I will summarize the key reforms that the RBA announced today. Firstly, surcharging on debit, prepaid and credit cards will end on the 1st of October 2026. This will apply to EFTPOS, Mastercard and Visa cards. Also, the RBA is lowering the maximum interchange fee that businesses will require -- be required to pay for consumer credit cards and debit card payments. And I should note that these interchange fees are a cost that we pass through. So inherently, there's no impact to our overall economics from this. The introduction of an interchange fee cap will also occur for foreign issued cards, and those are typically the most expensive to process. And finally, a requirement for large acquirers and the schemes to publish the fees that they charge making it much easier for small businesses to compare the fees that they pay. Taking these together, we're pleased with the reforms and for what it means for Tyro and for our merchants. Our business model has always been focused on building vertical-specific solutions with very clear pricing and economics. And as the market shifts away from surcharge led products and opaque pricing, we expect that merchants subject to those structures today will reassess their payment providers. In this more transparent market, merchants will be able to compare their providers more easily and we believe that this creates a natural opportunity for us, as that's the way we've been operating for the very longest time. Thank you. I'm now going to hand back to Martyn, who will facilitate Q&A.

Thanks, Nigel. [Operator Instructions].

And Martyn, there are also some questions that are coming through in the chat, so we can perhaps voice those too.

Yes. Right. So...

I should say as well, I have Emma here with me as well, our CFO, who will also be able to ask -- answer some of the questions, particularly if they're related to some of the detail around how we've implemented pricing initiatives previously.

Excellent. Okay. So we have a question from Roger Samuel.

Yes, I'm just wondering how would the merchants react to this announcement. Presumably, the margins are already under pressure without any surcharging. And I'm just wondering if the merchants would be more price sensitive and if the large acquirers are required to publish the fees that you charged. And yes, I'm just wondering if the market will become more competitive for Tyro and potentially this pressure on the merchant service fee?

Thanks, Roger, for the question. I guess -- so first of all, we already are transparent to our merchants about what we charge them. They can see the charges either by card type, sometimes a simple charge structure. That is not the case with most of the providers. We believe that that's one of the reasons why we think this is both net good for us and net good for merchants. That merchants now will be able to compare fees where perhaps they're seeing fees that are bundled fees that look like they might be net okay for them, but quickly realize that's not the case. They will be forced to see -- they will be seeing unbundled fees. And for us, again, I think that just creates an opportunity for people to understand the nature of what we've been doing and be able to then encourage merchants to ask the same questions of their current providers. There's a lot of opaque charging in the marketplace, and we don't believe that's good for anybody.

Thanks, Nigel. So until we get another virtual hand on the call. I'll just go through one of the questions in the chart, which says, Hi Nigel, thanks for the update. What does this mean for the Tyro Zero Cost EFTPOS offering?

So it's a very good question, Martyn. We have a very small portion that relates to Zero Cost EFTPOS at the moment. And it's typically our smaller -- very small merchants as well. From our perspective, we have several -- we went through a repricing process and a transition over the last 2 years. And we are -- we'll reach out to those merchants that are on Zero Cost EFTPOS today and offer them the opportunity to do business with Tyro on one of the other pricing programs that we think will be the most appropriate for them. With Zero Cost EFTPOS and no surcharging in the market, it means that they would have to critically assess whether or not there was anybody else out there able to provide them a service at a competitive price point. And we think that, that transparency that we will provide will ensure that they will be able to stay with us.

Great. So we've got a question, Owen, you got your hand up there with Humphries. Do you want to go ahead?

Can you guys quantify -- thanks for the update today and the opportunity to ask questions. Can you just quantify with the interchange fee reductions across debit and credit given your current cost structure and COGS structure and how you kind of route through your partners, can you talk about what the dollar value that will be passed on to merchants?

Thanks, Owen, for the question. Look, we -- the RBA is very clear they're requesting that all players or providers will pass through these changes transparently through to the merchants. We've done this in the past. As you all will know when we were subject to some benefits from small business pricing from the schemes. So we have a very clear way that we will do this. And we believe that, a, we can implement it quickly; and b, that it will be net neutral, if not slightly positive for us.

But in terms of the -- if you look at your P&L, the COGS line, which is what they're talking about here is in the hundreds of millions of dollars. Can you justify what the savings would be to those merchants.

I think...

Just handing over to Emma for a second. Go ahead.

If we look at some of the different areas, it depends obviously on our pricing structures at the moment. But if we think about it, the -- if we look at debit cards at the moment, there will be a small reduction in the debit cards, about a 20% reduction. And so at the moment, that is obviously one of the areas that we route a lot of our costs. Now we've already put in our lowest cost routing. We also have the SMB program in play at the moment, and we have a lot of cost plus or card-based pricing in place. And so therefore, that's going to flow through. Obviously, across some of the other credit card ones, the reduction are even more significant. I think when I try and respond to your question, Owen, obviously, our revenue line will reduce, but we will see that our cost line will also reduce by arguably the same amount. We've got a history of passing through the benefits of these programs to our merchants. We think that is part of our transparent pricing and why we continue to be very successful in the market, particularly in the SME space, and we will look to continue that going forward. Now as it comes to the absolute specifics, we're working through how that flows through across each of them, each of our customers. But because we already have a large portion on lowest cost routing and a large portion of our customers on cost plus that will always be immediate to flow through.

And I think, Owen, as well, it's a very good point that Emma makes here. It's important for everybody to realize that surcharging itself going away will be one dimension for merchants. But the fact that the interchange fees have come down dramatically also means that the net for us is relatively neutral. The net for the merchants actually is relatively neutral as well. And that's a good thing.

Thanks, Owen. So Nigel, we'll just move to questions on the chat again. So the first one is, how are you positioned to update customers on the changes. Have you had any concern from merchants today? And then I might just add in a second one here. How does this impact customers' current contracts, combine the 2?

Yes. Look, we're working through the process of updating customers. Clearly, we've got our call centers when customers call in, have a response to describe what's happening. And we're reaching out to customers directly over the coming weeks in order to be able to update them for any implications that they might have. In essence, as Emma says, in many cases, it's going to be a process, but we've already done this in the past. And our ability to, therefore, use that previous experience to be able to update customers both directly and ad hoc when they call in, I think, is a muscle that we currently have. I think one of the things I would say is that where other providers have not had the kinds of pricing transformation initiatives that we've run very recently. They both will find it extremely difficult to update their customers. In addition, they will find it very difficult to understand the economics on a per customer basis and be able to provide pricing sensible pricing alternatives. So we believe on both of those fronts, we're incredibly well positioned.

Thanks, Nigel. Next question is, do you expect any revenue or cost impact for Tyro when these changes become effective in October 2026?

I'm probably going to ask Emma to give a view on that because it also relates, I think, to the way in which we're looking at our financials over the next couple of quarters.

Yes. And as I mentioned previously, we will see a reduction in our revenue line, but our process will be obviously to -- and that will come through particularly where it comes to cost-plus as it comes to other customers as we roll through the benefits of these reduced fees as we did with the SMB program and the likes, you will see a reduction in your revenue and an offsetting reduction in your cost line. So we do not see any impact to our margin from a negative perspective because when it comes to cost plus pricing, it will flow through automatically, and it will be a net clear position as it comes to our other pricing structures as we did with both lease cost routing and the SMB program, we will constructively work with the customers and pass the new pricing programs on to them so that they can get this benefit flowing through.

Yes. So just to simplify that, we're thinking that likely this is going to have a net neutral effect on GP for us, which is really the important message.

Thanks. We have another question. Does Tyro have a dynamic lease cost routing? And if not, will it move to providing this for merchants? Surely, that's the best way to reduce debit fees.

We already have it in place.

Yes.

And so we already feel that it is operating effectively. And as we have that in place, it will flow through appropriately as costs adjust from our providers.

Yes. And just -- I mean this is one of the core principles. I think that we have been applying as an organization, as a company that is not necessarily the standard in the marketplace historically. It is that we are trying to achieve the best outcomes as it relates to the payments components for our merchants with a combination of transparency and a combination of a technological capability to price at a very granular level, and that includes dynamic lease cost routing. I think that's part and parcel of what we do as an organization. And I think this is simply consistent with us continuing to do that.

Great. And we have one more question that's just come in. Do the new rules apply to online payments as well?

It's a very good question, and the answer is yes.

Okay. There are no questions -- other questions. I'll maybe give the attendees today another 20 seconds or so if there are other questions you'd like to ask.

Great. Well, let me say thank you very much, everybody, for joining today, particularly for asking the questions for those of you who asked Owen, Roger, and those on the chat. If you do have any more questions or you should, by all means, please feel free to pass them through to Martyn. We'd love to be able to respond to them I'd say, just to reinforce, we think this is great news for the industry. It's good news for Tyro. It presents us with an opportunity to be able to take advantage of this in the industry. And I think it will put pressure on many of the other players in the industry going forward, and we welcome the transparency it provides for merchants and for consumers. Thank you, and have a great rest of your day.

Thank you.