Guide to Payment Processing Industry KPIs

This guide highlights the key performance indicators for the payment processing industry and where investors should look to find an investment edge. While this guide is not a fully integrated payment processing industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in the industry. This guide will aid market participants in identifying industry trends and the potential future performance of payment processing companies.

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Guide to Payment Processing Industry KPIs

This guide highlights the key performance indicators for the payment processing industry and where investors should look to find an investment edge. While this guide is not a fully integrated payment processing industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in the industry. This guide will aid market participants in identifying industry trends and the potential future performance of payment processing companies.

Industry Overview

The payment processing industry comprises companies that facilitate electronic payment transactions between buyers and sellers, also known as merchants. Payment processing companies work with sellers or merchants, financial institutions, and other organizations to facilitate secure and efficient payment transactions, through credit or debit cards, electronic fund transfers, and online payments.

The payment processing ecosystem comprises a combination of players that interact with each other during a payment transaction process, including:

Buyers or cardholders that initiate a payment transaction.
Issuing banks that provide payment cards (credit and debit cards) to buyers on behalf of network-providing or card network companies.
Card network companies that operate payment card networks such as Visa, Mastercard, and American Express. They provide the infrastructure for payment transactions to be routed between issuing and acquiring banks.
Merchants or sellers that accept card or electronic payments from buyers. Merchants work with acquiring banks to apply for and receive a merchant account. In the payment processing industry, the customers are the merchants.
Acquiring banks, also known as merchant acquirers, are financial institutions that process card payments on behalf of merchants and settle funds to the merchant account. Acquiring banks securely transmit card details of buyers through the card network for authentication from the issuing bank.
Payment aggregators are intermediaries facilitating online payments, and connecting customers with merchants. They are third-party service providers that allow merchants to accept payments from customers by integrating them into their websites or apps.
Payment gateways are software applications that allow the safe and secure transfer of money from the customer’s bank account to the merchant’s bank. A payment aggregator handles funds, while the gateway only provides the technology.
Payment processors are authorized companies that process transactions between buyers and sellers.

Given that payment processing involves multiple players, the industry can be further classified into sub-industries including:

Digital payment networks such as Apple Pay, Google Pay, Venmo, Square, and Zelle.
Card networks such as Mastercard and Visa.
Acquiring banks or merchant acquirers such as PayPal and Fiserv.
B2B or corporate payment companies such as Fleetcor and Verra Mobility.
Money transfer or international remittance services providers such as Wise, Remitly, and Western Union.

The payment processing industry is characterized by recurring revenues, high operating leverage, and robust free cash flow generation, driven by the continuing global shift from paper to electronic forms of payment.

Industry Business Model

Revenue

The business model of payment processing companies typically involves charging merchants or sellers a fee for every processed transaction. Transaction revenue is a key source of revenue for payment processing companies and is directly tied to the volume and value of transactions processed. Transaction revenue is the revenue generated by payment processing companies for facilitating electronic transactions between buyers and merchants/sellers. This revenue is usually a percentage of the transaction value and is earned by the payment processor for providing the infrastructure, technology, and security required to process electronic payments.

Transaction revenue is calculated as transaction volume (also known as total payment volume) multiplied by the take rate. Take rate is the percentage of the transaction value that the payment processing company charges as a fee for its services. Total payment volume refers to the total amount of payments processed by the payment processing company.

Transaction volume is calculated as total payment transactions or the number of transactions multiplied by payment volume per transaction. Here, payment volume per transaction is the average value of each payment transaction processed by a payment processing company, and the number of transactions is the total number of payment transactions processed over a given period.

The number of transactions is calculated as the number of active accounts multiplied by the number of payment transactions per account. Here, the number of active accounts refers to the total number of active accounts (i.e., merchant accounts) that are using a payment processing company’s platform to accept payments. At the same time, the number of payment transactions per account represents the average number of payment transactions processed per active account over a given period.

Other revenue is revenue earned by payment processing companies from offering additional services or features beyond their core payment processing functionality that provide added value to merchants. Other revenue generated by payment processing companies can be calculated as a sum of subscription revenue, hardware revenue, foreign exchange revenue, and other value additions.

Payment processing companies earn subscription revenue by providing merchants with subscription-based services that may include premium features like enhanced fraud protection, analytical tools, payment gateway services, and subscription-based POS systems. Hardware revenue is generated by payment processing companies through the sale of various hardware products and solutions to merchants, such as card readers, POS systems, and integrated payment solutions.

Additionally, payment processing companies generate revenue from other value-added services such as interest earned on merchant deposits, commissions earned on payment processing services, incentives or rebates offered to merchants for using their platform or meeting certain transaction volume requirements, and revenue generated from processing cross-border payments, which are payments made between buyers and sellers in different countries.

Most companies in the payment processing industry report revenue on a gross basis, except for Block (NYSE: SQ), where transaction expenses are netted against operating revenue.

Expenses

Payment processing companies typically incur several major expenses, including:

Cost of service/revenue including transaction expenses
Research and development (R&D) expenses
Selling & marketing expenses
Hardware costs

These expenses vary by company, and may also depend on the company’s size, revenue, and target market.

Profitability

To evaluate the profitability of companies in this industry, analysts focus on operating margins, gross margins, net margins, and adjusted EPS.

Gross margin refers to the percentage difference between the total revenue generated from payment processing services and the direct costs associated with providing those services. It is a key financial metric that reflects the profitability of a payment processing company’s core operations.
Gross margin is calculated as:
Gross Margin=(Total Revenue−COGS)/ Total Revenue × 100%

Here, COGS (cost of goods sold) includes expenses such as interchange fees, processing fees, and other costs directly associated with facilitating payment transactions.
Net margin is a key financial metric that measures the profitability of a company’s overall operations after accounting for all expenses, including operating costs, interest, taxes, and other non-operational items. It provides a percentage representation of how much profit a payment processing company retains from its total revenue.
Net margin is calculated as:
Net Margin=(Net Income / Total Revenue) × 100%
Operating margin is a measure of the company’s operating income as a percentage of its revenue. After deducting its operating expenses, it shows how much profit a company generates from its operations. A higher operating margin indicates better efficiency in managing costs.
Operating margin is calculated as:
Operating Margin=(Operating Income / Total Revenue) × 100%

Key Payment Processing Industry Metrics

Key performance indicators (KPIs) are an industry’s most important business metrics. When understanding market expectations for the payment processing industry, whether at a company or industry level, some KPIs to consider include:

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Numbers of Transactions
Number of transactions or processed transactions is the total number of financial transactions that a payment processing company has successfully processed over a given period.
Take Rate
Take rate or processing fee, often used interchangeably, is the percentage of transaction amount charged by payment processors as fees for processing a transaction. Take can also include interchange fees and is expressed as a percentage rather than a fixed amount.
Processing Fee per Transaction / Revenue per Transaction
Revenue per transaction measures the average amount of revenue a company generates for each transaction.
Transaction Revenue
Transaction revenue is the revenue earned by payment processing companies for facilitating electronic payments between two parties. This revenue is typically a percentage of the transaction amount, known as the processing fee or merchant discount rate. Transaction revenue is a major source of revenue for payment processing companies.
Cost of Service / Revenue
Cost of service refers to the total cost incurred by a business in providing a particular service.
Research and Development (R&D) Expenses
Research and development (R&D) expenses refer to the costs associated with the activities a company undertakes to discover, design, and create new products, services, or processes or to enhance existing ones.
Operating Margin
Operating margin is a financial metric that measures the profitability of a company’s core business operations and is computed by dividing the operating income of a company by its total revenue.

Visible Alpha’s Standardized Industry Metrics

To understand market expectations for the payment processing industry, a key information source is sell-side analyst estimates and consensus forecast data. The buy-side, sell-side, and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.

Visible Alpha Insights includes analyst, company, and industry data at a level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.

Data as of February 2024

Our integrated payment processing industry data set includes:

Global Tickers

576

Current Analyst Excel Models

Proprietary line items in our standardized operating metrics data

Contributing Brokers

222

Proprietary line items in our standardized financials data

295

Total standardized line items

Available Comp Tables – Consensus Estimates

Visible Alpha offers seven payment processing-related comp tables, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for global companies, Americas, or Europe. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.

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Financial and Operating KPIs Available for 33 Payment Processing Companies including:

NORTH AMERICA

PayPal Holdings, Inc. (NASDAQ: PYPL)
MASTERCARD INC (NYSE: MA)
Fiserv, Inc. (NYSE: FI)
VISA INC. (NYSE: V)

EMEA

Adyen N.V. (AEX: ADYEN)
Worldline SA (EPA: WLN)
Wise Plc (LSE: WISE)

APAC

GMO Payment Gateway Inc. (TSE: 3769)
kakaopay Corp. (KRX: 377300)
Zip Co Limited (ASX: ZIP)

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Industry KPI Terms & Definitions

Visible Alpha offers an innovative, integrated experience through real-time, granular consensus estimates and historical data created directly from the world’s leading equity analysts. Using a subset of the below KPIs, this data can help investors hone in on the key drivers of companies to uncover investment opportunities.

Acquirer
An acquirer is a financial institution that receives and processes a transaction on behalf of the merchant.

Issuer
An issuer is a financial institution that issues a card (debit, credit, or prepaid card) to the buyer or the cardholder.

Incentives / Rebates
Rebates and incentives (contra-revenue) are rewards or benefits provided to customers that meet certain volume targets. These could include discounts, cashback, or other perks offered for using a specific payment method or processing a certain volume of transactions. Rebates are often used to foster loyalty, promote higher transaction volumes, or incentivize the use of particular payment services. Rebates and incentives are recorded as a reduction of revenue when revenue is recognized.

Number of Transactions
Number of transactions or processed transactions is the total number of financial transactions that a payment processing company has successfully processed over a given period.

Processing Fee
Processing fee refers to the fee that a payment processor charges for each transaction it processes. This can also include interchange fees charged by card networks.

Take Rate
Take rate or processing fee, often used interchangeably, is the percentage of transaction amount charged by payment processors as fees for processing a transaction. Take can also include interchange fees and is expressed as a percentage rather than a fixed amount.

Payment Volume
Payment volume also known as transaction volume is the total amount of money processed by a payment processing company over a given period. Payment volume is an important metric for payment processing companies, as it directly impacts transaction revenue.

Revenue Per Transaction
Revenue per transaction measures the average amount of revenue a company generates for each transaction.

Transaction Revenue
Transaction revenue is the revenue earned by payment processing companies for facilitating electronic payments between two parties. This revenue is typically a percentage of the transaction amount, known as the processing fee or merchant discount rate. Transaction revenue is a major source of revenue for payment processing companies.

Subscription Revenue
Subscription revenue is the recurring revenue earned by payment processing companies through subscription-based services that include access to payment processing tools.

Cross-border Revenue
Cross-border revenue refers to the revenue generated by payment processing companies through fees charged to issuers and acquirers when there is a difference between the merchant’s country and the buyer/cardholder’s country. This type of revenue is typically associated with fees related to currency conversion, as well as fees charged for processing foreign payments.

Other Revenue
Other revenue is the revenue earned by payment processing companies from various non-transactional services offered, such as merchant account setup and maintenance fees, chargeback and dispute resolution services, and other value-added services that are not directly related to payment processing.

Cost of Service/Revenue
Cost of service refers to the total cost incurred by a business in providing a particular service.

Research and Development (R&D) Expenses
Research and development (R&D) expenses refer to the costs associated with the activities a company undertakes to discover, design, and create new products, services, or processes or to enhance existing ones.

Operating Margin
Operating margin is a financial metric that measures the profitability of a company’s core business operations and is computed by dividing the operating income of a company by its total revenue.

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