@Chagsy - re: your recent straw. 

This is a good question and something I have been considering since the announcement last week. I have a slightly different take on this. I am interested to see what you and other members think, too.  

To date, Tyro and Square have coexisted in the same market as primary competitors. Both have notable market share in Australia.

I can’t recall the topic, but someone made a valid point not long ago on this site when discussing the BNPL sector. Square have targeted the kingpin of the market in Afterpay – in a deal that will probably see benefit to both players. The user made the point that its likely Afterpay and Zip will continue to be the main competitors in the BNPL space, while smaller BNPL players will likely disappear into obscurity.  

I agree with this long-term, but also think it applies to EFTPOS solution providers (Tyro/Square). This is my primary bear case for Smartpay; they are competing against both Tyro AND Square – both of whom were first market movers and have significant market share in Australia. Tyro is the preferred point-of-sale partner in Australia with over 200 software providers – more than any other bank. It also has a partnership with Bendigo Bank (a top 6 AUS bank), which will see Tyro exclusively provide merchant acquiring services to the bank’s existing merchant acquiring customers. In short, Tyro has sizeable market share in Australia – providing services to over 35 thousand merchants (H1 FY21 results). This figure should increase significantly in the next year as Bendigo Bank’s merchants (existing and new) are migrated across. 

But where does this leave Tyro going forward? As merchants continue to leave the banks – seeking lower cost alternatives – Tyro and Square remain the best alternatives. I think the market is big enough for both to coexist (this has been demonstrated over the last year). I would be surprised if Tyro didn’t continue to target banks. There was obviously benefit for Bendigo offloading that side of the business to Tyro – will other banks follow suit? Banks care very little about the EFTPOS-solution side of the business, its what allowed Tyro and Square to disrupt the sector. Should Tyro and Square both continue to win merchants from the bank, I think the banks will care less and less about that aspect of the business. Why not partner with Tyro and reduce the headache, allowing them to focus on other areas of the business? I think the banks are fighting a losing battle here. This naturally creates opportunity for Tyro – the Bendigo partnership supports this.

I think the bottom line is, provided Tyro continue to expand/grow its merchants, the thesis remains intact. The possible bear case that needs to be monitored is whether the Afterpay acquisition will see businesses more likely to use Square’s services, as opposed to Tyro’s. I personally think this has happened too late to have a notable impact on Tyro (whereas this announcement two or three years ago would have really hurt). It can also be monitored overtime by keeping a close eye on Tyro’s merchant growth, in addition to merchant churn.

The longer Tyro continues to be a pesky, smaller competitor of Square – that steals market share and possibly continues to partner with banks – the better it is for Tyro. I think it might see Tyro shape up as an attractive takeover proposition for Square. The other angle not yet considered is, with Square acquiring Afterpay, could it open up opportunities for Tyro and Zip to further collaborate?