EML chair Luke Bortoli
EML Payments has gone to ground in the last four months as it scrambles to fix non-compliant anti-money laundering systems and a swathe of operational problems in Europe.
The Brisbane-based company, which tried to ride the hype of the fintech boom of the last decade, is now at a crossroads amid uncertainty over its strategic direction, the tenure of an “interim chief executive” and its ability to continue trading profitably in Europe.
While EML markets itself as an “awesome” provider of payments solutions in 32 countries, its regulatory headaches combined with growing financial losses suggest it is more likely to be the next Australian fintech to truncate its global ambitions.
EML’s revamped board led by former Afterpay executive Luke Bortoli has kept silent since the middle of April when it announced a strategic review to be overseen by advisers from Barrenjoey and the appointment of a Dublin-based banker Nathan Murphy as interim CEO.
When he announced the strategic review on 17 April, Bortoli indicated that Barrenjoey would consider the feasibility of selling all or parts of the EML business with a view to maximising shareholder value.
Bortoli, whose LinkedIn profile indicates he now works from offices somewhere in La Jolla Shores, California, has not uttered a word publicly about the company’s prospects since the April announcements.
Murphy’s activities as interim CEO based in Ireland have also been blanketed, with shareholders receiving nothing in the way of updates on his efforts to get the Central Bank of Ireland to remove operating constraints on the group’s troubled Irish subsidiary, PFS Card Services Ireland Limited (PFSCSIL).
PFSCSIL’s core operations are focused on the issuing of prepaid cards and other payments solutions to European merchants and financial institutions.
EML paid 226 million pounds sterling (A$423 million) for PFSCSIL’s holding company in 2019, with most of the funds raised from Australian and overseas institutional investors who paid $3.55 for new ASX-listed shares issued by the company.
The acquisition has not worked out well for EML shareholders who include Colonial and Vanguard.
In May 2021 the Central Bank of Ireland raised concerns about the adequacy of the PFSCSIL’s anti-money laundering systems and a remediation program was launched.
However, progress on fixing the AML deficiencies did not meet the CBI’s expectations and resulted in the regulator last year slapping a ten per cent growth cap on PFSCSIL’s total payments volumes.
In February EML disclosed via the ASX that the regulator was contemplating reducing the growth cap to zero – a move that would have impacted group revenue negatively for a twelve month period from March 2023.
While EML said in the April 17 filing to the ASX that it was taking steps to resolve the remediation crisis, it has not provided investors with any clear guidance on whether the CBI has now enforced a no-growth cap on the subsidiary.
The remediation saga has been a costly exercise that has chewed up millions in additional capital, professional fees and special provisions.
According to financial accounts for the subsidiary lodged with Irish regulators earlier this year, PFSCSIL has required two equity injections since June 2022 worth 9.95 million Euros (around A$16.6 million) to meet regulatory capital obligations.
The total cost of the unresolved remediation program is difficult to gauge, but also includes total payments to professional consultants of about 10 million Euro since 2021.
The collapse in EML’s ASX-listed scrip from a peak of $5.66 in April 2021 to under 80 cents this year is largely attributable to the financial underperformance and reputational issues of its international operations.
PFSCSIL is not the only overseas subsidiary delivering costly headaches for EML’s investors.
Another recent acquisition – Sentenial Ltd – was also hit by large-scale merchant fraud in August 2022, which inflated its costs by A$8.5 million.
Sentenial, which was purchased towards the end of 2021, was also the subject of material goodwill write-downs in the six months to the end of December last year.
Payments experts say EML looks to have pursued an ill-considered global strategy based on over-paying for compliance-challenged businesses.
“This is a classic situation of a fintech unwinding and the problems are extensive,” said Melbourne-based payments consultant, Grant Halverson.
“They can’t get new customers and existing customers are cutting back their services.
“If there was a buyer, you would have thought they would’ve already been in there but any deal has to look good.
“Today, many investors are just steering away from payments fintechs.”
EML reported a group bottom line loss of almost $A 130 million for the December 2022 half.
Given the company’s recent lack of guidance to the market, it’s a pure guess on what the June half will have delivered.
An external public relations firm acting on the behalf of the company yesterday could not give a date on which the full year results will be unveiled.
The spokesperson said in a message to Banking Day that the results announcement would probably be held in the last week of August.