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Tyro Payments (ASX: TYR) has struck an exclusive agreement with Bendigo Bank (ASX: BEN) to manage merchant acquiring services for its business banking customers potentially for the next 15 years.
The alliance represents a potential $19 million boost in gross profit for Tyro Payments in FY21 as it prepares to manage up Bendigo Bank's merchant card transactions which are expected to hit $5 billion in FY22.
The news was immediately welcomed by the market, pushing Tyro shares more than 7 per cent higher in morning trading on the ASX.
The deal will see Tyro exclusively provide merchant acquiring services to current and referred Bendigo Bank customers for both its card-present transactions and its card not-present transactions. Merchant acquirers act as a link between merchants, issuers, and payment networks through customer card payments.
Tyro is expected to book one-off costs of $19.9 million on the deal, including the cost of merchant terminals. Ongoing personnel costs are estimated to be $6.7 million a year.
Thecompany is paying Bendigo Bank $9 million to acquire the bank's existing merchant acquiring arrangements and has struck the alliance through a profit-share arrangement.
In FY22, the first full year of operation, Tyro expects its gross profit share before expenses to be about $19 million.
The agreement, to be completed in the first half of CY21, is for an initial 10-year term with an additional five-year extension granted if both parties agree.
Tyro expects to deploy more than 26,000 of its terminals in 2021 for Bendigo Bank merchants, increasing its total terminal fleet to just above 89,000 terminals.
The company currently services more than 32,000 Australian merchants and processed $20.13 billion in transactions in FY20, up 15 per cent year on year.
With Bendigo Bank expecting volumes of $5 billion in FY22, the arrangement effectively bolsters the fintech's existing volumes by 25 per cent.
In FY20, Tyro generated $210.7 million in revenue, originated $60.1 million in loans and held total merchant deposits of $50.5 million.
Tyro CEO Robbie Cooke (pictured), whose experience includes a stint at the helm of Wotif.com and Tatts prior to its merger with Tabcorp (ASX: TAH), says the deal brings together 'Australia's fifth-biggest retail bank with the fifth-largest merchant acquiring bank'.
"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," he says.
"Partnering with Bendigo Bank will see Tyro's leading proprietary payments platform made available to Bendigo Bank's current and future business customers giving them access to more features, more payment options and seamless integrations to more than 300 point of sale systems."
Bendigo Bank currently has existing arrangements with a number of merchant acquirers. The group's business banking executive Bruce Speirs says the agreement with Tyro is aimed at simplifying Bendigo's product offering and provide enhanced capability.
"In line with our group strategy to invest in capability and reduce complexity, we are reshaping our merchant services offering to help customers better run their businesses and further improve the market-leading customer experience we provide," he says.
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