PFS owner cites hit to margins from Central Bank restrictions

The owner of Prepaid Financial Services (PFS) said Central Bank restrictions hit group gross profit margins in the first half of its financial year.

Australian fintech EML Payments, which acquired Irish-based PFS and its British subsidiary in a multimillion euro deal from its founders Noel and Valerie Moran in 2019, also set aside 10.5 million Australian dollars (€6.6 million) to cover the legal costs of defending a potential class action taken in Australia over its disclosure obligations relating to the Irish subsidiary.

PFS has been under investigation by the Irish regulator over money laundering and counter-terrorism concerns, and risk and control frameworks and governance.

While it has yet to conclude its inquiry, the Central Bank late last year gave permission for PFS to begin signing new customers, albeit with restrictions in place. This came after the regulator told the company it had not identified any instances of financial crime, anti-money laundering or counter-terrorism financing events, nor deficiencies with respect to safeguarding, capital adequacy or solvency measures.

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The news of the provision cast a shadow over EML’s first-half results, which saw a record gross debit volume of 31.6 billion Australian dollars, more than 200 per cent higher than the comparative period.

Revenues were up 20 per cent on the previous comparative period, reaching 114.4 million Australian dollars. Underlying earnings before interest, tax, depreciation and amortisation were $26.9 million Australian dollars, down 4 per cent.

EML said it saw strong organic revenue growth over the period, but costs rose at its PFS business as it invested additional resources to address Central Bank of Ireland expectations and concerns.

A significant increase in people, controls and technology overheads pushed costs to 48.5 million Australian dollars, a 24 per cent rise. PFS accounted for almost two-thirds of that increase.

New customers

PFS Card Services, which accounts for a large part of the group’s European business, was given permission by the Central Bank to sign up new customers in November last year, and launched 22 new programmes in December. EML said it expected establishment fee revenue to improve in the second half of the year, with the launch of those new programmes.

The group saw significant growth in gross debit value from the General Purpose Reloadable segment, driven by gaming, salary-as-a-service and government verticals.

The gift and incentive business saw a significant recovery from the Covid-19 slump, although social distancing restrictions introduced in Canada, Germany and the UK in December continued to weigh.

EML’s Digital Payments business saw gross debit value rise 431 per cent as its acquisition of Sentenial contributed the bulk of total volume.

Underlying operating cash flow of 14.7 million Australian dollars was hit by the delayed receipt of two large customer balances totalling 8.6 million Australian dollars. EML said approximately 75 per cent has been received in the second half.

EML also reaffirmed its underlying ebitda guidance range of 58 million to 65 million Australian dollars.