Alphabet-Backed GoCardless Halves Losses, Targets 2026 for Debut Profit

GoCardless, the London-based account-to-account payment specialist backed by Alphabet, has reported impressive revenue growth of 44% to £70.4m for the year to June 2022, despite widening operating losses of £61m. The company's vision is to become "the world's bank payment network," offering account-to-account payments that can help merchants improve cash flow and reduce payment-related headaches.

GoCardless has expanded its core acceptance services to include additional products, such as Success+, which uses payment intelligence to increase the chances of a successful transaction, and is moving into open banking following the acquisition of Nordigen, a Latvian bank API aggregator. The company charges a premium price for its services, with standard pricing at 1% + £/€0.2 to a maximum of £/€4 or 2% + £/€0.2 for international transactions. Additionally, 37% of GoCardless' revenue now comes from "committed" merchants who pay a monthly fee on top of transaction costs for additional features.

Total payment volume rose 44% to £22.7bn, and revenue also grew 44% to £70.4m. GoCardless' take rate is a very creditable 31bps, and its investors will be hoping that it can sustain the premium pricing as it enters new markets. The company has opened an office in New York to supplement those already established in London, Paris, Munich, Melbourne, and San Francisco. Although global expansion is top of the priority list, the UK and Ireland still account for 80% of GoCardless’ revenue.

The total number of merchants grew 10% to 76,000, with both revenue and volume per merchant increasing 25% to £925 and £298.000, respectively. GoCardless has a wide range of clients from SMEs to large enterprises, including blue-chip names such as Tripadvisor, DocuSign, and the British Government.

GoCardless charged £114m of administrative expenses for 2022, notably £74m for employees. The total staff count rose by 239 to 825 at an average cost of £106k per person. The main headcount increase was in operations, which includes "the increasingly complex compliance needs of a global business." One example is the additional payment licence obtained in France to serve the EU.

Fraud and bad debt are not eliminated by account-to-account payments, and GoCardless holds £2.7m as merchant deposits where clients "operate in a sector with a very high failure or chargeback rates." It also has provisions for £1.9m for failed payments and £3.8m for fraud losses, equivalent to 8% of turnover. Sensibly, GoCardless is trying to get its merchants to fund their share and has launched Protect+, its first anti-fraud product.

Total operating losses for the year were at £60.9m, and accumulated losses stand at a not inconsiderable £171m. Despite the red ink, GoCardless is well-funded, having raised $306m in February 2022 in a round led by Pereira and BlackRock. To justify the $2.1bn valuation, GoCardless will need to deliver broad-based international expansion while maintaining high margins and negotiating the move to open banking.



In conclusion, GoCardless' impressive revenue growth and strategic initiatives, such as expanding its product offerings and global presence, have positioned the company well for future success. Despite facing challenges such as widening operating losses and the need to maintain high margins, GoCardless is well-funded and backed by prominent investors. As the company continues to grow and adapt to the evolving fintech landscape, it remains an attractive investment opportunity for those seeking exposure to innovative payment processing solutions.