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European payments landscape: The great escape

In a new piece of research from Jeffries on the European payments landscape, they take an in-depth look at the shape of a recovery in the Euro card present market and early signs of the new normal.

The proprietary analysis of easing measures across countries and key spend verticals, combined with real-time data suggests F2Q/FY20 is shaping to be better than feared. It also find early evidence structural changes in consumer payment habits are occurring, which could mitigate the downside macro risk arising during a recovery.

The research notes mapping of lockdown plans by 26 European countries suggests a meaningful recovery in card TPV is likely from late May onwards.

European payments market recovery

Based on the mapping of lockdown plans from all Eurozone members and key European markets, it estimates countries accounting for nearly 80% of European card volumes will have implemented the first phase of easing measures by the end of May.

While F2Q results may only reflect c.4 weeks of lockdowns being relaxed across Europe, markets such as Austria, Germany, Switzerland and the Netherlands enjoy considerable lead times over other markets with easing measures implemented as early as mid-April and ramped progressively since.

European payments market recovery

The mapping of how lockdown measures are phased across key expenditure verticals within each of the 26 European markets, points to significant differences in how easing measures are implemented by vertical.

The analysis suggests the card volumes linked to leisure and hospitality sectors will likely be the last to recover as lockdown measures for restaurant and bars extend into early F3Q.

Exposure across European payments to the vertical remains manageable accounting for at most c.35% of acquiring revs, with Nexi and Worldline being relatively less exposed and Ingenico the most exposed within its Retail business.

Early evidence European payment players are emerging as net winners from the crisis

Using real time data the research finds markets that were early in lifting lockdown measures (i.e. Germany, Austria) are seeing more meaningful recoveries with the expenditure weighted indices off c.20-30% from their pre-COVID level, whereas France, Italy and Spain are off by >30%.

With cash accounting for >50% of consumer payments in Germany and Italy, there is evidence the crisis will likely result in an acceleration in the shift from cash to card.

The research survey of c.46 retailers across the five largest Eurozone countries indicates >70% of retailers are prioritising cashless payments. A trend that is likely to result in changes to consumer payment habits, mitigating the macro downside risk during a recovery.

As Europe emerges gradually from lockdown over the next months, focus is increasing only on the exit path and the ensuing “new normal” set to take place in European payments.

While the relaxation of lockdown in most countries is nascent with many European countries, as we speak, only in the first phase of the relaxing their respective lockdown, our mapping of lockdown plans and usage of real-time data allows us to draw the following key conclusions about the shape of a recovery:

Conclusion 1:

F2Q will be the litmus test for a recovery in card volumes as the vast majority of card TPV exits lockdown by the end of May: Based on detailed mapping of easing measures and phasing across the Eurozone and key European markets we estimate by the end of May markets accounting for substantially all of European card TPV (total payment volume) will exit lockdown.

While F2Q results may only reflects c.4 weeks of lockdown easing across Europe, geographic exposure matters as markets such as Germany, Austria, Switzerland and to a lesser extent the Netherlands will enjoy a lead time in excess of 2 months by the end of June.

Conclusion 2:

Verticals are not treated equally and recoveries in card TPV will be throttled based on the phasing of easing measures: Phasing of lockdown across countries only captures one aspect of easing measures, noting countries have taken differing approaches to reopening economies.

Based on mapping of easing measures by expenditure vertical we find the card expenditure linked to hospitality and travel will likely remain subdued as lockdowns and border restrictions remain in place at least until early F3Q, with countries laying additional restrictions on capacity and opening hours in certain cases.

Conclusion 3:

Optimism in Euro Payments is not misplaced as early signs of a recovery and structural change in payment preference place PSPs as net winners: Analysis of real-time data suggests major Eurozone economies (eg. France, Italy, Spain, Germany, Netherlands) are seeing the first benefits of easing measures, indicating YoY declines in card TPV in F2Q are likely to be lower than previously expected.

Furthermore, the analysis of 46 retailers (incl. grocery stores, food chains, clothing outlets) across Italy, France, Spain, Germany and the Netherlands points to a growing preference for digital payments as stores seek to create a safe environment for employees and their customers, with >70% of stores in our sample instituting policies which prioritise digital payments.

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