This week - Ant Financial, Cambridge, Earthport, Fleetcor, Mukuru, PayPal, Ria, Santander, WorldRemit, WU, Xoom
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Cambridge Global Payments, a leading B2B player, was acquired by the US public company Fleetcor in 2017 for c.$675m. Since then, the business has received little coverage but has quietly grown and significantly increased its profitability. We go inside Cambridge with President Mark Frey to bring you up to date.

We also look at what it means to have your work overseen by a a cross-border payments company.

Cambridge makes its platform play

Fleetcor is a US public company best known for fuel cards and corporate payment products. It stunned the market when in 2017 it paid $675m for Cambridge, a historically traditional FX payments and currency risk management company that had begun offering more automated and tech-powered products.

Did Fleetcor have a strategy in mind different from everyone else? The results suggest its bet paid off. 

(Note that since Fleetcor does not report on Cambridge separately - it includes it within its Corporate Payments division - we've pieced the numbers together below for you). 
There are many benefits to being bought by a big strategic player. Fleetcor is an M&A machine and, in a period of three years, has pulled the EBITDA margin of Cambridge up from c.40 to 60%. Applying the same EBITDA multiple as the acquisition (13.5x) would make Cambridge worth north of $1.5bn.

To frame this valuation, Western Union Business Solutions (WUBS), the biggest standalone player in the space, is twice the size but far less profitable (in 2019 its EBITDA margin was 22%). WUBS was reported to have been up for sale in 2018 for c.$500m but there were no takers. Fleetcor were the odds-on favourite to buy WUBS but instead have ended up adding more value organically.

Not bad going at all. What's driving this growth and increase in value according to President Mark Frey (aside from Fleetcor's ability to drive margin improvement)?
  1. A core B2B currency risk offering
    Cambridge offers the full suite of spot, forwards and options products to mid-size and up companies. Few players at scale actually offer this now if you include options in the mix (Afex, Global Reach). Alongside this sits a well-oiled, traditional B2B direct sales model that has kept chugging along.
  2. Product expansion into Payments as a Service
    A handful of new products have helped fuel growth. Cambridge's invoice automation product, formerly focused just on the legal sector, is being repositioned as a general offering. The second is its emerging markets payment business focusing on the last mile of the payments' delivery even in countries with complex jurisdictions. The target customer here is Tier 1 banks and, increasingly, payment aggregators (but not startups or smaller fintechs, which others have chosen to target). 
  3. A model shifting to partnerships and one to many sales
    If you want to move the needle quickly, partnerships with companies who themselves have a lot of customers is a good way forward. That's been a focus.
  4. Towards a unified API model
    Cambridge is looking to both pull its own products into one offering and then put it alongside Fleetcor's other payment products. For large corporates, that may be very compelling. For standalone fintechs, it will be something harder to compete against. 
While organic growth will continue to be a priority in Cambridge's future strategy, we'd expect some M&A backed by Fleetcor's experience to happen at some point too. 
Where does Cambridge sit within the industry?

Who wants to be managed by a parent?

Cambridge is not alone in being part of a larger payments conglomerate. More and more companies in the sector are being acquired by publicly listed players. 

What are the benefits and the downsides?

The benefits:
  • Financial stability and cheaper access to capital and liquidity
  • Shared central resources
  • Ability to cross-sell within the group and offer combined products
  • Leverage existing infrastructure
  • Access to an existing customer base, often in new markets
The downsides:
Well, you don't want to become a forgotten child  - it took PayPal a few years to remember it owned Xoom and, by then, many fintechs had already grabbed plenty of market share (Xoom has since picked up its pace). And you'll lose some of that independent company nimbleness too.

The performance to date of the companies bought by  publicly listed groups is mixed. For some of them like Earthport, which was acquired by Visa in mid-2019, it is just too early to tell. With Ant Financial (owner of WorldFirst) planning to IPO too, that will add another one to this list to assess.

Which means, as of now, there seems to be no straight forward recipe for success when it comes to growth.
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On our radar this week:
Curated by FXC Intelligence's Team
Finablr looks to discover misconduct
Finablr appoints law firm Skadden to investigate potential misconduct and misappropriation of company's assets
Ant Financial plans its IPO
With an estimated value of c.$200 billion and a concurrent listing on the Shanghai and Hong Kong's stock exchanges
WorldRemit & Mukuru expand Airtel
The two deals will allow Airtel to expand its instant money and mobile transfer service across key African markets
Verdict & PML Daily
Monzo tries premium again
Monzo will re-launch premium accounts and test again whether customers will pay for these value adds

Missed the last few weeks?

Removing frictions in international payments (here)
Does the payment sector need banking as a service? (here)
How press releases can get investors' attention (here)
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