London-based payments fintech GoCardless is weighing up further acquisitions in the open banking space as it looks to rebound from a challenging 2023 and achieve profitability next year.
The firm, valued at $2.1bn (£1.7bn) in a 2022 funding round, is poised to pounce on a looming wave of consolidation among fintechs as part of efforts to become “the world’s bank payment network”.
Fintech valuations broadly peaked in 2021, with the sector since struggling with interest rate hikes and higher funding costs that have stymied investment.
“One of the things that is true of most financial services firms is you need significant scale, especially when you think about the requirements around compliance and fixed costs,” GoCardless co-founder and chief executive Hiroki Takeuchi told City A.M.
“That combined with the change in the funding environment means previously there was more of an opportunity to just grow into that scale with more funding. Now, that might not really be feasible.”
GoCardless, founded in 2011, made its first major acquisition in 2022 when it snapped up Latvian start-up Nordigen, which claimed to have the widest open banking connectivity in Europe.
“We’re in a very fortunate position where we’ve already got to a meaningful level of scale. We raised significant funding before the change in the environment,” Takeuchi said. “We want to take advantage of opportunities to accelerate.”
In March, GoCardless agreed to buy open banking rival Nuapay from Australia’s EML Payments for €33m (£28m) in a move it said would “unlock new vertical sectors and use cases” in areas like payroll, utilities, insurance, gaming and gambling.
Takeuchi said the firm is mulling further M&A. “We’re open-minded, absolutely,” he added. “But I think the key thing is that we want to stay very disciplined. We don’t want to go and just acquire things for the sake of acquiring them.”
Profitability in ‘very near future‘
Takeuchi’s comments come as GoCardless pushes towards profitability as quickly as possible after a difficult 2023. Last month, it posted a loss of £78m for the year to June 2023, widening 21 per cent from the previous year.
The firm said the result was expected and pointed to its investment in product development, as well as compliance costs involved in serving customers globally. It also saw a higher rate of customer cancellations, partly driven by merchants going into administration amid a tough macroeconomic environment.
GoCardless launched a redudancy programme last June that has seen more than 200 people, or nearly a quarter of its workforce, leave the business. “We made some painful changes. We had to let go of some people. I don’t think that’s uncommon,” Takeuchi said.
“Whereas previously we were much more focused on growth at all costs, we’re now very much focused on how we continue growing but in a more profitable way.”
The firm said in April that it aimed to hit profitability within the next 12 to 18 months.
“We’ve made really big progress on that over the last year,” Takeuchi added. “There’s a lot of reporting around historic accounts, but they were from 30 June 2023, so they’re almost 12 months out of date.
“We’re pretty close to profitability now, and we’re in a position where we’re very well capitalised – we have a lot of cash on the balance sheet. We think we’ll be crossing that path and operating in a profitable way in the very near future.”
Takeuchi added that the firm had grown its volumes and revenues between 30 and 40 per cent over the last 12 to 18 months, with nearly 100,000 businesses now collecting payments through its platform.