In order to grow SMP must take market share from incumbents - mainly from banks, who are non-specialist and see the small business end of market as not worth their time. The marginal acquiring cost will increase over time. Banks also have the ability to subsidise via interchange fees.
Other non-bank competitors - the likes of Tyro and Square have larger asset bases and could exert market power to reduce Smartpay growth. New competitors will also go through the regulation process to get acquiring capability.
Limited moat - although SMP interfaces with various providers, terminals are relatively commoditised. It's point of difference is customer service and pricing.
The company relies on fixed assets - terminals - in order to generate revenue. These require reinvestment to keep current and could cause earning lumpiness.
Existential - these terminals interface with the current EFTPOS system. The EFTPOS system is around due to government regulation. EFTPOS share of card payments is declining. It doesn't do online payment at scale and this has allowed the Visa/Mastercard duopoly and other alternatives to gain share. Arguably, banks, the major provider, are not incentivised to lobby to retain EFTPOS as it is not a major revenue driver. They are also clearly not incentivised to support online EFTPOS.
New technology – simpler terminal systems that interface via phone could cut Smartpay out of the loop. The New payments platform (NPP) allows real time payment (part-owned by banks). App-to-app based payment using the NPP or otherwise could do away with cards altogether.
Underinvestment in NZ business.
Where does SMP go after market saturation in Australia?
Multiple contraction likely once this plays out. Like in NZ, it seems the exit plan relies on takeover by a larger player. However, the number of potential purchasers is quite small.
