Can European merchant acquirers continue to deliver double-digit growth in their core business?

Yes, we believe so. Cash usage remains elevated in continental Europe and the transition to digital payments should remain a powerful growth driver in the medium term. In the short term, we are cognizant that there are some risks related to comps and the macroeconomic environment, although the sector has historically proven defensive through economic slowdowns (even in 2009 card payment volumes grew 2% y/y).

The secular shift to cashless payments has further to go

We calculate that card volumes as a share of household expenditure have increased by 120bps per annum in the Eurozone in the last 20 years. This has translated into a steady high-single-digit growth for card payment volumes through the period (7.1% CAGR 2023-21).

  • We calculate that more than 70% of this growth (6.1pp) was driven by the displacement of other payment methods (mainly cash).
  • Slightly less than 30% was driven by the increase in household consumption (up 2.2% p.a. on average over the period).

Expanding the Slowflation framework to rates and FX

We adapt the stock selection framework to identify most/least preferred currencies and rates under Slowflation. We replace stock earnings momentum by Commodity Trading Advisor (CTA) price momentum, and replace equity valuation metrics with our proprietary rates & FX valuation models. We apply a constrained Markovitz optimization, flooring the total carry of the portfolios and capping (not preventing) relative value trades.

Will growth of European online payment processors return to prepandemic highs?

No. Following 10 years of rapid growth, further boosted by lockdowns in 2020 and 2021, we believe the e-commerce market is now more mature. In addition, in this slowing market, we believe the new e-commerce "giants"  are now operating at a scale where they will struggle to replicate the market share gains achieved previously, and where they are increasingly competing with each other. This could lead to further pressure on pricing.

We have tracked a group of 22 large e-commerce merchants across retail but also travel and digital services, and note that growth slowed down from a 23% CAGR in 2018-21 to 15% in 2022, with a further deceleration to 11% expected by consensus this year and low-teens growth beyond 2023.

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