The Tyro Payments Ltd (ASX: TYR) share price has gone bananas today after announcing a merchant alliance with Bendigo and Adelaide Bank Ltd (ASX: BEN).
Tyro’s merchant alliance with Bendigo Bank
Tyro announced today that it’s partnering with Australia’s fifth biggest retail bank, Bendigo Bank.
The payments business said that it will deliver its leading card-present and card-not-present payment solutions to Bendigo Bank’s merchant acquiring customers. Tyro will aim to help Bendigo Bank’s customers with better functionality, more payment options, enhanced reliability and seamless cloud integration to more than 300 point of sale systems.
Bendigo Bank will continue to provide all other banking services to those customers.
Tyro said it expects to deploy more than 26,000 Tyro terminals in 2021 for the alliance, increasing its terminal fleet to just over 89,000. That suggests an increase of 41%.
Bendigo Bank will exclusively refer new merchant opportunities from its business customer base to Tyro, under a co-brand.
The economic benefits of Bendigo Bank’s existing merchant service contracts will move to Tyro when the deal is completed, which is expected to occur in the first half of the 2021 calendar year.
Bendigo Bank will provide transitional services to Tyro for an expected 90 days from completion to enable Tyro to progressively deploy its payment solutions to Bendigo Bank business customers.
On expiry of the alliance, all Bendigo Bank transferred and referred customers will remain with Tyro, with Bendigo Bank’s gross profit share to continue while those customers are served by Tyro.
The cost to Tyro
Tyro is purchasing Bendigo Bank’s existing merchant acquiring arrangements (essentially its merchant service contracts and associated goodwill).
Bendigo Bank will receive an upfront consideration of $9 million and an ongoing gross profit share from existing and newly referred Bendigo Bank business customers who use Tyro’s services.
The alliance has an initial 10-year term with an option to extend by further five-year terms.
In addition, Tyro thinks there will be some costs. A one-off project resourcing cost of $3.8 million, other one-off project costs (including terminals) of $16.1 million and ongoing additional personnel costs to support the alliance expected to be $6.7 million per year.
Expected benefits
Bendigo Bank’s business customers will generate approximately $5 billion in transaction value in FY22.
Tyro’s gross profit share (after gross profit share to Bendigo Bank and before operating costs) from the Bendigo Bank cohort will be approximately $19 million in FY22.
Summary
Tyro CEO and Managing Director Robbie Cooke said: “This is a great example of two customer focused Australian organisations coming together to provide better solutions for Australian businesses through a partnering of capability and expertise.”
I think this was a great move by Tyro, though it will take a year or two for the full benefits to be realised, particularly with COVID-19 impacts on the current retail and hospitality industry.
Tyro is an idea to play the reopening of the Australian economy, which seems increasingly on track in NSW and particularly Melbourne. It’s among the most promising ASX growth shares with good profit margin potential. I’m also really interested in Pushpay Holdings Ltd (ASX: PPH), though its share price has been rising strongly recently.
