Okay, good morning, everyone. My name is Jon Davey. I'm the Managing Director and CEO of Tyro. Before we kick off our Investor Day today, I would like to ask our chair, Fiona Pak-Poy, to come and say a few opening comments. Thank you.
Thank you, Jon. I'd like to begin by acknowledging the traditional owners of the land in which we meet today, the Gadigal people of the Eora Nation, and pay my respects to elders, both past and present. Good morning, everyone. It's a pleasure to be here and welcome all of those here in person and many of you online. Today is the first time that we've provided investors with a specific update on our strategy since the IPO in December 2019, and clearly, a lot has changed in the past four years. Last year's interest by a number of third parties in acquiring Tyro, which while confirming the attractiveness of Tyro as a compelling and unique business, it also raised various questions that investors had about aspects of our cost base and future growth opportunities, which we'll be addressing today.
Our management has changed significantly since the IPO, with Jon's appointment as CEO last year, along with several key changes to his management team, all of whom are sitting here to my left. The board has also evolved, with a number of non-executive directors retiring and being replaced, and me taking on the chair role. Importantly, a sign of the maturity and the discipline of the business, while still growing significantly, we've also transitioned to become profitable and cash flow positive. The competitive landscape has sharpened a lot in the last four years. Customer needs are becoming more complex, market valuations for high-growth tech stocks has become more acute, and the broader macroeconomic environment is definitely more challenging.
Given these changes, we feel it is therefore an opportune time to provide an update on our strategy, to introduce our executives, to discuss our plans for accelerating business growth, which I know you all have a very keen interest. As you'll hear from Jon and his team, building upon our 20-year history of innovation in payments and serving our growing customer base, we are really well positioned to continue as a leader in the broader Australian payments landscape. The board and management team, in fact, all Tyros, many of whom are sitting in our offices just down the road, are really excited by Tyro's future and the opportunity for us to continue becoming loyal business partners with Australian small business. I'd like to hand back to Jon.
Great. Thank you, Fiona, and once again, thanks to everyone for joining us today. As per my introduction, I'm Jon Davey. I'm the Managing Director and CEO of Tyro, and I've been in this role now for just on 12 months, just over 12 months. I'm joined today by our executive team and several other members of the Tyro team, some whom those of you in the room may have met prior to today's meeting. Talking, no doubt, with great passion about the wonderful products and services that Tyro has. I'm excited to present to you today. In the 12 months since my appointment, we have focused on refreshing our organization. That refresh has required a focus on 3 elements: our strategy, our culture, and our people. Our strategy and a clear plan for how we will deliver is critical.
However, unless we have the right culture and the right people, we will fail. The culture that Tyro aspires to is captured in our five values: to wow our customers, to win together, to do the right thing, to be good, and to commit to greatness. We need a passionate and high-performing team. As leaders of the business, we must create an environment and provide training and support that allows our team to perform. We must provide clear objectives, and we must manage performance against these objectives. Today's presentation is on our strategy. However, over the past 12 months, we've also had a significant focus on our culture and on our people. We will not discuss culture or people in the formal part of our presentation today, but we do welcome a discussion in the Q&A part of the session.
Today's agenda will include approximately 90 minutes of formal presentations and allow up to an hour for questions. For those of you that are in Sydney that would like to stay, 30 minutes of informal discussions at the end will be available for chats with our management team. On our agenda today, we will cover an introduction to the management team. I will provide an outline of our strategy, including the market outlook and our strategic responses to changes that we're seeing. We'll provide an overview of costs associated with two core capabilities and our go-forward plans for our payment technology and our banking model and ADI. We'll also provide an overview of our capital management plans and our transformation roadmap. We will finish with a deep dive into our health business, including an overview of health payments in Australia and a demonstration of the health product offering.
Finally, we will have a question and answer session. I will lead the presentation, however, members of my team will present various sections, and all of the team will be available for questions following the session. The presentation will take approximately one hour, and will be followed immediately by the Health deep dive, which will take another 25-30 minutes. Q&A will be held following both of these sessions, and I ask that you hold all questions until the end. I'd now like to just quickly introduce my management team. So on the far left, we have Steve Chapman, who is our Chief Risk Officer. Next to Steve, we have Paul Keen, our Chief Technology Officer. We have Prav Pala sitting next to Paul, and many of you all know Prav is our Chief Financial Officer.
We have Monica Appleby, who leads our People and Communications function. Dominic White is our Chief Product Officer. Adrian Perillo is our CEO of Tyro Health, and we also have Deanne Bannatyne, who leads our Growth function. And as I said, all the management team will be available for questions during today's session. I'd now like to talk to you about our strategy. At our heart, Tyro is, and always has been, a technology company. We were founded in 2003 by ex-Cisco engineers with an objective to use technology to build a cheaper, faster, more reliable, more secure, scalable solution for card payments. Through Tyro's 20-year history, we've achieved many industry firsts. We were the first to use electronic file transfers to send the daily settlement files to the RBA. We were the first to launch integrated EFTPOS Medicare rebates.
We were the first to launch an integrated EFTPOS mobile solution. We're the first payments business to launch Least Cost Routing, and more recently, we're equal first to partner with Apple and deploy Tap to Pay on iPhone . Today, we are Australia's fifth largest merchant acquirer, and we have a large, loyal installed base of more than 69,000 customers, which since FY 20, has grown by 29% year-on-year. We serve a large and fast-growing market, turning over AUD 836 billion of annual card payments, and yet we support just 3% of all Australian businesses and process less than 5% of total card payments. In a world that is complex for small businesses, Tyro helps remove complexity. We work with businesses every day, and we know that running a small business is hard.
We know that business owners not only do the work and run the business, but they must find customers, they must pay suppliers, they must make sure that they get paid, and they must manage cash flow and working capital. Tyro has a deep understanding of the needs of Australian businesses, and we support those businesses in managing the most critical function, inherently the commercial center of a business, authorizing and processing payments. In a recent Tyro market survey, 60% of respondents indicated that when looking at the services they need to run their business, they look for a payment solution first, compared to 25% who sought an accounting solution first and 14% who sought a point-of-sale or practice management solution first. Businesses want integrated solutions. They're looking for simplicity.
This is Tyro's sweet spot, highlighted by integration of payments into the point-of-sale and practice management systems, and our integration of payments into a daily settlement account and our cashflow lending product. Tyro is well-positioned to deliver continued growth. We won leadership in our verticals because we built payments from the ground up for Australian businesses. We recognized and understood their unique requirements. For hospitality merchants, the ability to pay at table, add tips, and split bills. For healthcare practitioners, integration with Medicare and private health insurers for health claimants, health claims processing. Tyro has made payments for Australian businesses our core focus, not an adjacent business. Our payments switch, banking license, and integrated cashflow management products set us apart.
We are frictionless and reliable because our solutions are designed to be effortlessly interoperable, encouraging merchants to assemble a suite of hardware and software that works best for their business. We are now cashflow positive, and we will continue to generate capital as we gain further operating leverage. As we hone our platform, we will deliver continued growth, along with real cost and yield synergies. To summarize our strategy, we provide industry-specialized payment and cashflow solutions for Australian businesses. We aim to provide customers the fastest, lowest friction, and most reliable way to get paid and manage cash flow. We will continue growing in our installed base of customers, in growing verticals, and with the deepest understanding of their specialized needs. We draw on our efficient, scalable, in-house processing and banking capabilities to allow us to innovate and respond quickly to changing customer needs and market dynamics.
We are increasing value for and from each customer. For example, our cash flow solutions make customers' lives easier, increasing loyalty and Tyro revenue per customer, and allow us to attract new customers. In the future, we will commit capital and talent to invest in repeating our pattern of success for new verticals and new solutions, building on our historical strengths, which have enabled our winning offer in the past. On the following pages, we'll step through this strategy in more detail. Our market continues to evolve, creating risks, but also providing new opportunities for growth and innovation. Competition is increasing. Merchants are looking for simple solutions, and together with Tyro, local and cashed-up global competitors are rising to meet this need. We are seeing a shift in merchant preference from hardware to software-based solutions.
Four out of five respondents in our recent market survey expect to start using a mobile point-of-sale device application within the next two years. Technology is driving changes to the way consumers pay. Cash to card transition has reached 76% of total payments. New payment methods have emerged, and we are seeing significant innovation in Australian payment rails through the New Payments Platform , which enables real-time funds transfer and bypasses traditional card rails. This will continue to gain momentum. We're also seeing an ongoing shift to e-commerce, particularly in retail, where this makes up approximately 18% of all transactions. We expect to see increasing demand for more integrated omni-channel payment solutions. One in three purely in-person merchants today tells us they expect to introduce at least some e-commerce within the next five years.
We also see merchants increasingly rely on their existing providers to solve a growing set of problems. In other markets, we're seeing our global payments competitors extend into business banking to cater to the growing demands of their merchant base. We expect these solutions to come to Australia. Finally, we know that macroeconomic conditions are uncertain. Household discretionary spend has slowed, and merchant costs are rising due to inflationary pressures and macroeconomic volatility. This is putting pressure on the profitability of businesses and their ability to survive. The payments industry always has and will continue to change. While these changes are happening, change creates opportunity. We see lots of opportunity to serve our merchants in new and innovative ways, to manage the risk, and to capitalize on the changes that are taking place. Tyro exists to provide in-person payments and cash flow management solutions for Australian SMEs.
Getting paid, as I said, is the commercial center of a small business, and Tyro has the technology and the capability to make this seamless and reliable for our customers. This is, and will remain, our core focus. This means, firstly, we design and deliver industry-specific in-store payment solutions, often from the ground up, but also with partners to solve problems and create value for Australian merchants. Secondly, we offer complimentary e-commerce solutions for our in-person customers so that they can meet their omni-channel payment needs in one place. Thirdly, we help our customers improve their cash flow, not just with lending, but by providing quicker access to funds and flexible payment options. For example, a key feature of our transaction account is same-day settlement for card transactions made via our terminals. Our customers can also nominate a settlement time that suits them.
These features help Tyro customers better manage and plan their cash flow. Finally, we design and deliver our capabilities so that they seamlessly integrate with other solutions our merchants rely on, such as loyalty and ordering apps, enabling them to easily assemble the suite of hardware and software that works best for their business. We will not seek to compete outside Tyro, Tyro's core competency in payments. These needs are met by a large number of specialist providers already competing in these spaces. I'm now going to ask Deanne Bannatyne to talk about the verticals we support and the opportunity for growth. Thanks, Dee.
Thanks, Jon, and good morning, everyone. As noted earlier, we serve a large, fast-growing market, turning over AUD 836 billion in card payments annually. We currently play in attractive verticals where there is still headroom for growth. We have a strong position in hospitality with a moderate market share as a result of investment in our innovative, vertical-led payment solutions, such as Pay at Table, simple bill splitting, discrete tipping, and Bar Tabs. In retail, we've broken some ground with a lower but still material share of the market. We will defend these verticals by continuing to build on the strengths of our core payments offer, ensuring we will innovate to keep up with the changing merchant needs and preferences, and continue to offer the fastest, most reliable, and cost-competitive products in market.
We will continue to grow penetration in the health segment, where we have stronger market share with our GPs, but limited market share with other modalities. We will expand from our GP-concentrated footprint into the still largely untapped dental specialists and allied health subverticals, leveraging our Tyro Health Online capabilities to provide integrated omni-channel payments solutions to these merchants. We will actively pursue growth in the services vertical, where our market share is still relatively low, but particularly focusing on trades, where we have launched our Tyro BYO solution or Tap to Pay on iPhone , and Tyro Go proposition to provide portability and convenience for these merchants. But we'll also focus on other trade services, such as hairdressers and beauty merchants, where we know that there is a demand for the provision of our surcharging and no-cost EFTPOS products.
We will also selectively enter one or two new verticals over the next two years, but only where we see a number of key important factors. Firstly, there must be attractive economic fundamentals, including a large and growing market, strong merchant-level growth, and an efficient path to market, where consumer spending is largely resilient to market downturn. Secondly, there must be an attractive payments needs that match Tyro's strengths, predominantly in in-person payments, with an acceptable level of forward delivery risk that will help us to manage the costs and risks associated with chargebacks. Finally, we will focus on verticals that have payment-related pain points that Tyro has a right to solve. For example, complex payment needs or systems such as closed-loop payments and multi-party settlements.
Localized requirements, where our global competitors are unlikely to have the appetite or capability to invest in solving, and a low existing competitive presence such that we can be first to market with a strong proposition for these merchants. Thanks.
Thanks, Dee. I'd now like to talk about how Tyro differentiates through a unique combination of strengths. Firstly, we design and build specialist payment solutions, which are adapted to the needs of Australian SMEs in specific industry verticals. As we've touched on, beyond core hospitality features such as splitting bills and tipping, which are widely offered by competitors, we also have Pay at Table functionality, which allows our hospitality merchants to take payments at a diner's table. More recently, we've launched our Bar Tabs feature, which allows patrons to pre-authorize bar purchases on their card up to a specified limit, no longer needing to leave their card at the bar. Our in-house infrastructure is fast, reliable, and cost competitive. The transaction journey starts for 80% of transactions at the point of sale or practice management software.
Our switch routes transactions through various card scheme links and responds back to the point of sale and terminal simultaneously. The full end-to-end payment journey takes just 1.5 seconds. We perform that function over 250 million times a quarter, with a reliability of 99.999%. That equates to less than 20 seconds downtime per month. We are independent of any bank, POS provider, or terminal hardware manufacturer, and our payment solutions are interoperable with our merchants' other hardware and software solutions. We build our direct integrations in-house. This gives us the flexibility to connect to any new partners our customers want to use, whilst our competitors, who rely on third-party middleware providers, need to wait for them to build those integrations.
We also help our customers connect their point-of-sale system to other software through our Tyro Connect offering, making it easier for them to use and manage their solution ecosystem. We provide convenient cash flow solutions, which are seamlessly integrated with our other core payments offering. We offer three business banking products to our payments customers: Tyro Bank Accounts , business loan, and term deposits. More than 28,000 of our customers have an activated Tyro Bank Account today. All of these products are fully connected to our full functionality in our Tyro App. We're also continuing to add value to our banking products, including our web banking functionality, and shortly, by offering debit cards for our Tyro Bank Accounts . Finally, we have built out a broad, diversified distribution channel that includes banks and household corporates.
We have a strong referral partnership with Australian banks, and we also have a retail alliance with Telstra and Australia Post. We expect to launch further retail partnerships in the coming months. These capabilities position us well to defend against local and global competitors who find it difficult to match our hard-won capabilities. A mix of players are developing capabilities to serve specific SME needs. Big bank incumbents are partnering with or acquiring providers along the value chain to provide more fulsome solution ecosystems. Fast-growing local disruptors are targeting the SME market with low-cost terminals and strong retail distribution channels. Global payments companies are entering the Australian market with a scaled, competitive value proposition and providing low-cost wholesale acquiring to help point-of-sale partners and providers break into the local payments market.
Point-of-sale providers are consolidating, acquiring into their revenue model and offering convenient two-in-one solutions to small business merchants. However, no competitor can match our unique combination of capabilities. The big banks have less vertical specialization and treat payments as a means to grow lending. They continue to fall short on service and have not demonstrated extended interest in the SME market. To date, only one major bank has replicated our payments integration, Repay As You Trade option on the business loans. Only one, a different bank, offers interest-bearing business transaction accounts. Local PayFacs are dependent on third parties for acquiring and feature development, and must share margin. This limits their flexibility and speed to market with innovation and their ability to compete on cost.
Global scale-ups do not have an in-depth understanding of the local Australian context and are unlikely to have the appetite to develop the specialized and localized features many of our merchants need. Global majors who have entered the Australian payments markets have done so with a core payments taking solution, marketed to the broader Australian market without targeting any specific verticals. Traditional point-of-sale payments players, and those who have only recently moved into the payment space, have leveraged third-party acquirers to provide basic payments taking solutions as a convenient complement to their point-of-sale offering and for revenue recognition purposes, rather than as a focal point for future innovation. Tyro will build on our traditional strengths to continue delivering market-leading merchant solutions. Our recent releases highlight our ability to deliver market-leading innovation.
We established our online presence in the health vertical through our Medipass acquisition, and we're growing this segment by claiming solutions with major healthcare funders, through comprehensive integrations to core medical systems, and through innovative functionality. Our first-to-market, Tap to Pay on iPhone solution, highlights how we can leverage our in-house payments technology to quickly deliver software-based differentiation. Tyro Go shows our commitment to complement our existing full-featured terminal fleet with an option that works best for on-the-go merchants who need a smaller, portable, and more convenient device. We will continue to build solutions that support growth in our existing verticals and allow us to enter new verticals and sub-verticals. We continue to prepare for a world where payments can be taken on any device. We're developing our integrated BYO offering with two of our point of sale partners.
This will allow merchants to manage their point of sale and take payments on their phone through a single app. We will leverage our Android-based terminal applications to selectively offer wholesale, white label acquiring capabilities to select point-of-sale partners, both as a defensive play and a way of aggressively growing into new verticals. We will use our in-house switch to bring new payment rails to the market, such as QR and account-to-account enablement. We'll also leverage our expertise and experience in delivering differentiated solutions in closed-loop payment systems to solve similar pain points for merchants in new verticals. We will build out our business banking products, first, by closing remaining gaps through full-featured web banking and debit card offerings, but supported by focused go-to-market efforts that drive banking attach.
We will bring all of this together in a single online portal for our merchants to view and manage their payments, their cash flow, and value-adding services, with data-driven insights to help them better manage cash flow. Lastly, we have one of the broadest distribution networks in the market, and we will continue to bolster this with new retail partnerships and by lifting our direct sales capabilities. To support this strategy, we're now going to showcase how Tyro has innovated and integrated our payments capabilities to remove friction and deliver better end customers. Customer outcomes, sorry. We have two examples that we will discuss: Online Extras Claiming in health, which Adrian will talk to, and secondly, cash flow lending, that Dominic will talk to. You can view and discuss these features and products with our team in the entrance area after the session. So over to Adrian.
Thanks, Jon. For Australians with private health insurance who wear optical contact lenses, like myself, being able to receive your rebate and process that from your private health insurer, has traditionally and typically been a very complex process. Traditional, typically, contact lenses are being purchased online, if you don't want to buy them in a practice. And so what that means is that you need to buy your contact lenses online and pay fully out of pocket for that fee.
Then you take that invoice, and you need to submit it to your private health insurer and hope that you've got the provider number right, and hope that you've got the item codes right, and then you'll see what your benefit is, which in many cases, and in some cases, might be a full payment, or it might be, no payment or no rebate. Tyro Health solves this problem with digital private health insurance claiming. So now, Australians with private health insurance can purchase their contact lenses online, and with one click, they can process the benefit amount that comes straight through from their private health insurer, as well as any gap component that they might, have to pay. And those amounts are settled straight through to the provider next day.
It's a brilliant consumer experience that enables those members to not have to be out of pocket if they don't need to be, and Tyro Health is the only payments platform in Australia who offer this capability.
Thanks, AP. Let me talk a bit about cashflow. One of our innovative solutions that can help small businesses with cashflow. We know cashflow is top of mind for SMEs. It has always been, and continues to be, the number one item on the minds of small business owners. We took this pain point on and developed our Tyro Business Loan product. Firstly, our loans offer our merchants the unique option to repay based on their business takings every day. This gives them the flexibility to be able to repay loans when their cashflow is at a healthy level and to slow down when things go a bit slower. We also have a quick and simple loan application process, where our merchants can take up a loan and access the funds through their Tyro Bank Account in as little as five minutes.
Now, this is a big pain point with that businesses often quote when they're applying for lending with Australian lenders in particular. So our solution enables quick, easy, stress-free access to funds when merchants need it the most, and the offering is difficult to replicate, and we believe only one other financial institution offers anything like this today, as Jon mentioned, in Australia anyway. We're able to do this for a couple of reasons. One is that we have visibility of the trading data and our deposits data through our payments processing. And we only offer this product to payments customers. And our in-house banking build enables us to control our customer center innovations and do things in a simple way. And I'm gonna come back shortly and just talk a little bit more about how we do that. Thanks, Jon.
Thanks, Dom. Okay, so moving on. What we'd like to do now is provide an update on our future delivery model for our switch and our banking capabilities. Our in-house payments assets provide a platform that enables us to deliver innovation and competitive differentiation. It is low cost and fully scalable. We don't see a compelling case to divest this capability. Today, we'll talk through how owning our switch is integral to our strategy, and how it enables us to deliver sustainable differentiation. We'll also provide an overview of the economics of owning our own switch. Firstly, Paul is going to provide an overview of our in-house payments technology, including our proprietary in-house payments processing and our banking capabilities.
Thanks, Jon. So what we want to do is demystify a bit around the Tyro technology stack and how it all sort of fits together. So in particular, the proprietary payments solution that Jon was talking about, and also the in-house banking capabilities. So to talk you through this diagram, the main components of the payments platform is the switch. So what the switch does is that takes transactions, and that routes that through to the different card switches, links, and then back-office functions, does things like clearings and settlements. So walk you through this diagram. As Jon was talking about before, about 80% of our transactions start at the POS or PMS partners, and we have 400 of those who have direct integration into the Tyro platform, and that's really important, having that direct integration.
So that POS then tells the terminals to take a payment, you make a tap, and then that goes through the switch into the card schemes and back simultaneously to the terminals and to the POS. So Jon was talking about that's incredibly quick, at 1.5 seconds on average. The median of that figure is actually 1.24 seconds, so it's incredibly fast, and we do that incredibly reliably. In the last quarter, we did 99.999% uptime. Last month, we did 99.99999% uptime. So wherever, in any sort of benchmark, we are class-leading for our proprietary payments platform in both speed, reliability, and scale. The back-office function that does the reporting, the clearing, settlements, and that's how we integrate into the RBA's RITS system.
The banking platform itself, because it's in-house built, we've tightly integrated that with the payments platform. And so what that allows us to do is allows us to build very much payment-like cash flow solutions for both cash flow and banking type end-end grade solutions, which make it very unique in the market. And then what we do from a technology stack, we largely we are largely in-house built, but we do partner where we see efficiencies, where we aren't differentiating, and that's been a bit of a change. But we have really strong in-house capabilities to be able to innovate, and what we like to do is innovate very fast. So we release about 150 new capabilities every quarter, and we release to production about 45 times a day, which is class-leading. Thanks.
Thank you, Paul. So our in-house switch and end-to-end technology solutions does enable market-leading differentiated payments. We have delivered complex, vertical-led solutions that could not easily be delivered through a third-party switch. For example, in health, this includes the ability to process private health insurance and Medicare claims alongside out-of-pocket patient expenses. We've also allowed our switch to be able to allow multi-practitioner health practices to use one terminal but settle in, into individual GP bank accounts. Our payments technology has also allowed us to be fast to market on Least Cost Routing and acceptance of alternative payment methods, such as digital wallets, and with the launch of Tyro BYO, Tap to Pay on iPhone . It's also allowed us to deliver wide-scale, direct POS and PMS integrations. Our payments processing infrastructure is fully scalable, and the cost to run and maintain these capabilities represents less than 10% of Tyro's total operating costs.
Scale is important and will continue to be an area of focus. There is a small cost included in the payments processing analysis that is required to handle an increase in the number of transactions being processed, but this is minimal and is not correlated to the actual growth in transaction numbers. Even if we were to reach peak capacity, peak processing capacity, it is quick, low cost, and simple to scale our infrastructure. The savings would, at best, be minimal if we were to source these capabilities from third parties and would come at the expense of flexibility and the speed of innovation. There would also be a significant cost and a major distraction to the business involved in transitioning 69,000 merchants to a new switch.
As a result, we see a compelling case to maintain these capabilities in-house and will realize the operating leverage that comes with additional scale. Now on to banking. Our banking model and the ADI license provide enhanced economics and enable innovation. Today, we'll explain how our integrated banking products complement and lift our core payments business, how our ADI license provides enhanced banking economics and ensures us from future changes in the regulatory environment, how our credit risk management processes and framework has originated a diversified loan book with minimal lending losses, and how our in-house banking model is capital efficient, enables innovation, and is low cost. I'd like to now hand to Dominic to take over from here.
Wish you wouldn't call me Dominic. It makes me feel. How are you all going out there? Yeah, it's dark. Hang in there. It's good. So let me talk a bit about our banking and what we're calling more the cash flow solutions set of offerings that we have. So we provide an everyday transaction account, a business loan product, and term deposits. They're the three simple offering we have. Our transaction account enables merchants to settle funds seven days a week. It is one of only two offerings that we're aware of in the market in Australia, paying interest on funds deposited. In fact, increasing interest, the longer the funds are deposited with us. It's quite innovative. In terms of lending, we were focused on simplicity and ease of access to funds, which historically has been a pain point for Australian small businesses.
Our cash flow solutions are delivered through our in-house technology stack, integrated with our Tyro App and our payment systems to enable payments linked to cash flow solutions which are difficult to replicate. We take and hold deposits through our own ADI license, as you're aware, and fund our lending activities with a mix of Tyro Bank Account deposits, term deposits, and wholesale money market funds. Our cashflow offering is designed to minimize risk. From an onboarding point of view, our cashflow lending offer is only available to our payments customers. And so we leverage our visibility of a merchant's payments and deposits data to drive our lending assessment. I'll come to our sort of risk profile in a minute, on the next page. Our repayments are linked to business turnover. We get repaid daily, and thereby reducing the credit risk daily.
We're seeing increasing returns from our cash flow solutions year on year, and as you can see by the right-hand side of this chart, and this was data that you may be familiar with from our FY 23 results, and you may recognize that. So we've found that our cash flow solutions increase revenue, our margin per merchant, and make merchants stickier. Specifically, our combined payments and lending customers have significantly higher NPS, and 30% longer average tenure compared to their non-lending peers. Our in-house, on-balance sheet banking model is low cost. Our ADI license allows us to take and hold deposits, and as I mentioned, we use that to fund our loans and our activities, enabling a low cost of funds at around 1.5% in FY 23. That's per annum.
Significantly lower than if we had to borrow funds from the wholesale. That more than offsets the fixed costs of the ADI. Our lending solution minimizes the risk, as mentioned, because of the knowledge we have of the, of our payments customers and the data that we see through their trading. And this meant that we incurred a lending loss rate of only 1.9% of originations last year. An interesting byproduct of our ADI license that we're finding, is that it requires us to enforce additional discipline in our systems, reporting, and compliance across the organization as a whole. This has been a fascinating thing that I, I, I've learned since I've been at Tyro.
Payments regulation and compliance requirements, as you know, continue to grow, and we think will only continue to grow, and the fact that we have this ADI actually helps us build a stronger and stronger risk culture within the organization as a whole. Finally, building our banking portfolio in-house from the ground up, has allowed us to build simple, innovative payments, integrated product features, which many of our competitors find difficult to replicate. This includes our innovative Repay As You Trade functionality, but also escalating interest accrual in our transaction accounts, as I mentioned, and flexible settlement times for Tyro merchants, which is also something that not many others offer. Overall, running and maintaining these capabilities makes up a fraction of Tyro's annual operating cost.
So when we analyze this, we don't see material cost savings from moving to an outsourced delivery model, especially given the strategic and operational benefits of controlling this in-house. Jon, back to you.
Well done. I think I can call you Dom now.
You can call me Dom.
Okay. Okay, what we're now going to do is, we're going to outline our transformation roadmap, map, and, and our capital management approach. So we will pursue opportunities to deliver value over three horizons. Over the next 12 months, we'll focus on how we maximize value from our existing capabilities and ensure we set ourselves up for continued growth. We'll improve our end-to-end go-to-market processes to ensure we are maximizing sales returns from the products we build and deliver, including strengthening our direct-to-merchant capability and continuing to diversify our distribution channels. We will introduce a wholesale or white label offering to support the payments needs of select third-party ISVs, and to simplify and reduce the migration costs to our switch of inorganic acquisitions. We will continue to focus on disciplined cost management and clearly understand the strategic and commercial benefit from all resources working on discretionary project investment.
We will simplify and migrate our banking stack to the cloud to enable shorter time to market for new products, and flexibility to plug into partners who are better placed to deliver certain value-added banking services and features. We will address merchant requirements in our core payments capabilities by completing our integrated BYO solution. We will enhance our e-commerce functionality to support features our in-person merchants most need, and we will launch a debit card and a fully featured web banking solution. Starting in approximately six months, we'll focus on accelerating and de-risking growth by moving into new verticals. We will selectively expand into those where we have a clear right to win. We will build innovative features to solve unique payments-related pain points for merchants in our current verticals. We will also build out a more fulsome payments and cash flow management offering.
Lastly, we will transform what and how we serve our merchants over the next two years. We will design and build new innovative payment solutions to solve unique pain points of merchants in a priority new vertical. We will launch a single, integrated online platform to merchants to manage their payments, their cash flow, and value-adding solutions, powered by data and insights to help them manage their business. We'll launch new payment rails and payment types where there is clear demand from merchants and their customers. I'm now going to ask Prav to come and talk about operating leverage and capital management.
Thanks, Jon. I'm glad you didn't try and pronounce my full name. Our EBITDA margin continues to improve. We delivered an EBITDA margin of 22% in FY 23, which was up from a low of 7% in FY 22, and for FY 24, we are guiding to an EBITDA margin of 26%. We're now consistently over 20%, we are comparing ourselves to our global peers. We've delivered margin optimization and cost savings within the last year. In terms of cost savings, we announced a cost management program in October 2022. From this preliminary operating model changes and efficiencies, we saved about AUD 7 million in FY 23, which is an annualized AUD 11 million into FY 24 and beyond. We've also largely delivered the automated onboarding processes. Some cost savings continue to be in progress.
We're completing our investment in our modern terminals, we're investing in our customer self-serve, and we continue to maintain overall cost discipline. Excluding lending and non-lending losses, we are targeting a flat growth rate in operating expenses in FY 24. So with a focus on margin optimization and cost management, our transformation plan is to sustainably maximize our profitability. We have a targeted focus on generating profits across our payments and banking businesses. In our banking business, we will drive the attach rates of our products through targeted go-to-market efforts to maximize value from our installed base. In our core payments business, we will optimize our front and back book economics and renew our distribution strategy. We will do this by systematic and analytics-driven pricing models.
Our new marketing and distribution strategy, including focusing on direct-to-merchant channels and helping SMEs understand how Tyro can solve their pain points. Mapping out the end-to-end customer journey redesign to reduce leakage across the value chain, we will proactively identify merchants who are at risk and have active retention efforts in place, and we will design and build differentiated new functionality to solve unique merchant needs in untapped segments. At the same time, we will remain laser focused on maintaining our cost discipline across the business. We will work towards making our customer sales and support functions more efficient by introducing automated processes and self-service, and prioritizing customer-facing efforts towards touchpoints that create the most value for our customer. We will also streamline our product and technology delivery method with renewed focus on the customer and their needs throughout the end-to-end life cycle.
This includes more flexible planning cycles and simplified ways of working, to minimize time to market and improve returns on product investments. We have implemented a relentless discipline on costs. A relentless discipline across our other costs, and we will continue working on these into the next year. All of these will generate capital. We are in the fortunate position of generating new capital since last year, adding to our already strong capital position. We were cash flow positive for the first time in FY 23, generating approximately AUD 6 million in free cash flow. Under our current guidance, we are looking to accelerate free cash flow into FY 24. We have more than sufficient capital to continue to invest for growth and to cover our investments and commitments.
We expect to build this capital position over time as we grow the business and further improve our EBITDA margin through achieving real cost synergies. We will deploy this capital towards maximizing our competitive advantage other than growing both our banking and payments businesses. We will be building products and features that increase customer stickiness, and therefore lifetime value. We'll be investing to increase our delivery velocity and realize the scale benefits from our technology. We'll consider forming partnerships and evaluating possible acquisitions that defend our customer base and lower our cost to acquire and cost to serve. We believe this strategy will provide attractive and sustainable returns to our shareholders. If there are no commercially viable investments to put this capital to work productively, we will consider how we return these to shareholders.
At this point, we believe investing capital to increase customer lifetime value, in line with our strategy, will maximize total shareholder return. Thanks, Jon.
Thank you, Prav. Okay, what we're now going to do is to move into a deep dive for health. First of all, I'd like to say that we're really proud of the work that's been undertaken in our health business over the past two years, and we do believe that it provides a great example of the industry-specialized payment solutions that are key to our strategy. We often hear and read talk about the commoditization of payments, and while there's some truth to that for simple payment acceptance, many industries have unique payment needs that create opportunities for true differentiation. Health is one of these.
I'd now like to hand you back to Adrian, CEO of Tyro Health, who will present a deep dive into the health payments industry, and then we'll, rather than doing a live demonstration, what we're going to do is to show a short, a short video of the, the product solution. Thanks, Adrian.
Thanks, Jon. Processing payments in the health industry is complex, and so I wanted to start by providing some background and context on why this is and why winning in this space requires dedicated focus from a specialist team. Firstly, health is a major component of overall spending in Australia. It makes up about 8% of household spending, and this has grown over 6% in the past year. But as a healthcare provider, accessing the total funds that cover the services you deliver is not straightforward. The broad pools of funding are listed here. Individuals pay for healthcare directly, and then there are amounts that are spent by federal governments, state governments, and what is funded by private insurers. But one level deeper, we see that there are at least 80 organizations and schemes that manage and distribute funding.
Federally, there's Medicare, the Department of Veterans' Affairs , etc., and each state and each state government runs their own workers' compensation and traffic accident schemes, which in turn often engage third-party insurers and agents. Then finally, there are over 40 private health insurers. The complexity is that each of these insurers have their own unique requirements that providers must follow in order to get paid. This includes what claims are acceptable, the item numbers they can use, amounts that they can charge that are acceptable, and more. This fragmentation makes it very difficult for healthcare providers to easily and reliably get paid for the services that they have delivered.
Next, there are over about 300,000 providers that deliver healthcare services, but the complexity here is that while we often refer to this as a single health industry, the payment needs of providers in these subsegments differs vastly. For some providers, like allied health professionals, well, private health insurance claiming is key, but for others, like medical specialists, well, deep integrations to inpatient claiming systems is needed. Others deliver services primarily from their practices, while others are leaning heavily into telehealth or home visits or other online solutions. This means that successfully delivering, claiming, and payment solutions to the health industry requires deep and broad payment capability that meets the different needs of those diverse provider types that exist within that industry. Finally, we have the role that software partners play.
These are the practice management and workflow tools that most healthcare providers use to run their day-to-day operations. There are over about 120 software providers in health, and driving adoption requires a payments, requires a payments platform that they have integrated to, not just for payments capability, but for the funder and claiming solutions that they need as well. The end result is that simple, real-time claims processing that will actually be adopted by providers and their practice management staff, requires deep integration to each of these different industry players. So this is where Tyro Health comes in. The role that we play is to address this complexity and make it easy for providers to get to get paid. Key to how we do this is the vast number of partners our platform integrates to.
We proudly boast market-leading integrations with Australian funders and software providers, giving us extensive coverage of the Australian healthcare sector. For funders, we integrate to Medicare Easyclaim, Medicare Online, and Medicare ECLIPSE , agencies such as Comcare, the Department of Veterans' Affairs, and we integrate with over 40 private health insurers and to a number of workers' compensation schemes, including icare NSW and WorkSafe Victoria. The list is only continuing to grow. We also integrate with over 77 health-specific software partners, more than any other claiming and payments player. This includes leading PMS providers across GP, allied dental, and pharmacy. These complex integrations have taken our dedicated team over 14 years to build. Each integration requires negotiation and agreement finalization, often with government agencies and other uniquely Australian partners, followed by integration work to be completed by both Tyro and the integration partner.
This complexity means that the list of payment providers we compete against is very small in health. It has required a significant investment of both time and effort to reach the level of platform maturity that we now enjoy. We offer our payment and claiming solutions across our EFTPOS and online offerings. These enable us to solve for provider requirements, no matter how they deliver care, whether that's in practice, in a hospital, at home, online, via telehealth, et cetera. We've recently launched product bundles to incentivize customers to purchase more than one of these products. We've seen great success in this approach, and we have high ambitions to continue this cross-sell strategy going forward. At the center of our platform is Tyro Health Online. This was capability we acquired with the acquisition of Medipass in 2021, which we have recently rebranded.
Tyro Health Online is an incredibly powerful tool that providers and their practice managers can use to process payments and claims for their practice. And all the functionality is available as a library of SDKs and APIs that we make available to our very active developer community for integration into their software. We wanted to show you the power of this platform, and so, let's press play on something we prepared a little earlier. And welcome to Tyro Health Online. Now, while there is a great range of, features and functionality included in this software, I wanted to take you through three key use cases today. And the first one was in relation to digital private health insurance, claiming, and quoting.
So whilst we have been doing claiming for a number of years, what we're increasingly hearing from our customers is the importance of affordability to patients and being able to explain to them what their private health insurer might pay and how much their out-of-pocket might be, and providing that information before they have the service. So today you could do that in practice, but if you're not actually in the practice in front of a EFTPOS device, the only other way to do that is to call up, get your item codes and the prices, then call up your private health insurer and obtain a quote. That's typically the way that it's being done. We've digitized that process, and I'd love to show you what that looks like.
So this is the Tyro Health Online portal with the range of payment options and claiming solutions that we offer. I'm gonna click into private health insurance and outline that I'd like to do that as a quote. My provider details are entered in, which has my provider number and where I'm located. I'm gonna outline that I'm gonna send this digitally, not to the, not to the terminal. And then I need to put in some member information or patient information, basically, my member number for the private health insurer. This has been saved to file, so I can easily pull this up. I then outline what the item code is that I'm going to process. I'm gonna do an item 500 here for AUD 100.
Once I hit submit, this goes through to the back-end systems of the insurers and comes back and says that there's an AUD 60-dollar benefit that the insurer will pay, which means that there is a AUD 40-dollar gap that the patient will need to cover. I can email that straight through to the patient for their own records, or if I've actually delivered the service, I can submit that straight through as a claim. What typically happens here is that an SMS is sent through to the patient, who is able to view that on their phone, including all the details of the amount of the service, how much their fund covered. If they have Apple Pay or Google Pay enabled on their device, those options will come up.
Claudia here has saved her card details, and so all she needs to do is hit the Approve button, and both the benefit and the gap payment is processed, and those funds will be made available to the provider next day. The next use case I wanted to take you through is for workers' compensation and traffic accident schemes. Now, these vary state to state, but typically, what a provider needs to do is create a tax invoice that includes all the information associated with the claim to enable that scheme or that insurer or that agent to be able to adjudicate and pay that claim. The problem is that typically and often, there's information that's either incorrect, or not complete.
Perhaps the patient number didn't exist or was incomplete, or maybe that provider wasn't registered for the scheme, or maybe the fee that was charged for that item code was not correct or not allowed. This can mean that invoices for workers' compensation and traffic accident across the various schemes in Australia can typically take days and weeks for payment back to that healthcare provider. We've simplified and streamlined this process, and I want to take you through and show you what that looks like. So we have a range of schemes connected for workers' compensation, but I'm going to go with Comcare. They fund workers' compensation claims for anyone who works for the federal government. Similar information is needed to be entered here as before, including who the provider is, what their provider number is.
We also need to know who the injured worker is by typing in their claim number, which I've just stored on file here. What's great is that we instantly verify that straight through the Comcare system, so that as a provider, I know that a policy actually exists for this injured worker. We also enable attachments to be included alongside that claim. In this case, I need to include a certificate of capacity. So I complete that, and that's uploaded and presented alongside my claim in case Comcare requires that information. I then can select my item type, and in this case, I'll go with an item 2. We show the price that Comcare will pay on that, which is AUD 129.30. That's it. I then submit the invoice.
That then goes right through to Comcare systems, who in this case have instantly approved that, and I can see that through the status here and the money will be in my bank account tomorrow morning. Now, the final use case I'd like to take you through today is in relation to medical specialists. Now, we've always had a really compelling offer for medical specialists when they are trying to process claims and payments for patients that they see in their rooms as outpatients. What we wanted to do was extend that to when they're seeing their clients as inpatients and the services that they are delivering to their patients in a hospital. This is for anesthetists and cardiologists and similar professions. We did that by integrating through to Medicare ECLIPSE and in what was one of our most complex integrations.
We successfully delivered it this year, and the response has been fantastic from customers, and we're very excited about growing this solution, and into this segment into the future. Let me show you a little bit about what this looks like. So similar to previously, I just select the ECLIPSE tile, and that I want to process an inpatient medical claim, and we present the required information in a similar way. The difference here is that there's a lot more information that's required. It's a lot more complex. When I select Claudia, this time, I need both her Medicare card details and her private health insurance details, and, as before, we verify this information in real time. I then need to know who the principal provider is, and I'll put Ellie here, who is an anesthetist.
What this does is open up options specifically related to anesthetists. I need to obtain financial consent. Information is required around the referral and how that was obtained, and then I can type in the different item codes. In this case, I'll put in a initial attendance fee of AUD 95. We include a range of advanced options in relation to if required for the claim, such as, you know, when it might have been processed, when it might have been done, whether it was after hours, et cetera. And then we can submit that claim straight through and receive the real-time adjudication, as we did for the other claim types. Now, raising claims in the way that I've just shown you has proved incredibly popular with a broad range of different providers.
But larger provider groups needed something a little bit different. These are the groups like pathology or radiology groups that process high volumes of claims. And so what we built for them was a batch upload function, and this works across the whole site, across all of the claiming types, that I talked about. And I just want to show you how simple and easy this is to use, using ECLIPSE as, as the example. So here I am in the ECLIPSE claim, like before, but there is this, tab here called Batch Upload. If I click on that tab, I can click Browse and access a CSV file that I have had created from my PMS and exported from that, PMS system. And what this does is it uploads each of those different line items, gets each of those ready to process.
You can see here the ready status. What that's doing is saying that all of the details within that claim are verified, there's no missing information, and all I need to do as a practice manager is select all of them and hit Submit, and every single one of those will go through for adjudication and payment. So as you can see, we offer a range of tools to make it easy for providers to process claims and payments. But what we also do is follow those invoices and payments right through to when they hit bank statements, to give transparency to providers and practice managers about where the claim status is and whether or not they've received all the money that they are owed. Let me just show you what that looks like.
If I click here into Invoices, I can see all of the individual invoices that I've raised, and I can see the status of them. These here have been completed, and so I can expect settlement of funds. These have been canceled, and I can see this one here is still outstanding. So I might want to contact that patient and understand what we can do to help finalize that payment. Then what we do is provide full remittance services and advice to track those funds back to the money that's actually hit my bank account. So I can see here that AUD 934.30 was remitted.
This was in a single settlement, and I can see each of the actual invoices that I raised, and the patients and the providers that made up that total payment that finally hit my bank account. It's really invaluable for, typically, practice managers or other people that work in the accounts department at healthcare practices to ensure that they've actually been paid for the services that they have delivered.
Thank you, Adrian. I think it's a great example of how we're trying to bring some e-commerce capabilities to be able to support health in what is largely an in-store or person-to-person type, proposition. But it also highlights to, I think, how complex the whole health payment, area is, and, and why we see some real opportunities to be able to continue to invest in this space and, and continue to grow. That ends the formal, presentations for today. What we would like to do now is to open up for questions. We have one or maybe two, roving microphones in the room. And if you could please introduce yourself and ask questions. I think we might start in the room. We know that there's also questions that will come online.
You can either direct your question directly to one of the members of our executive, or I'll nominate someone. So why don't we start the first question? If you could just state your name as well when you introduce it, please.
Hi, team. Nick Harrington. Question about the banking. How should shareholders think about the contribution of banking at the moment? And then, how much capital is tied up, and then how much CapEx to get to, where you want to get to on the banking side?
Do you want to take that one, please, Prav?
Yeah, sure. Sorry. Sorry, Nick. There's a couple of questions in there. Do you mind just repeating?
Yeah. So treat it as three parts. So contribution margin of banking at the moment, then how much capital is held up with the banking license? And the final part is, what, how should we think about CapEx going forward to get-
Great
T o where, where the banking platform needs to get to?
Sure. So the first two probably relate to the banking side of our business. The contribution margins, so in the last year, from a gross profit perspective,
Yeah, yeah, sure. I'll get to that.
So the contribution margin from a gross profit perspective was about AUD 11 million. If you actually look at the slides in terms of how much it costs us to run the ADI license, it's a fraction of our OpEx cost. So in FY 23, it was roughly break even. So as we scale that business, which we will be able to by leveraging our installed base, that cost increase, I don't see increasing too much. And therefore, that contribution margin, like our payments business, will be a scale play. In terms of capital tied up, this has been a question that has come through a number of times, as to, should we actually be tying up capital on our balance sheet for these loans, or should we be partnering with other people?
And that is something that we've actually done quite a bit of a deep dive over the last few months to make sure that we challenge ourselves and ensure what we're doing is the right thing. They're both profitable. But if you look at the economics of it, so one is, it's very short term. Our loans turn over every six months, and that's end to end, so the duration is probably about three months. The APR that we've been able to generate on that is about 25%, which is very attractive. As Dom mentioned, we get the repayments back every single day. So while it's unsecured, our credit risk actually comes down every single day.
So the capital impost of that loan balance is not as high as a traditional loan that sits on the balance sheet for a while. Our capital position was about AUD 88 million last year, and that is well in excess of what we are required to hold. So at this point, from last year, we already have excess capital, and we will be generating more capital as we go forward. CapEx, I think this is from an overall business perspective. Obviously, as our merchant base grows, we will need to grow our CapEx to support that business. One of the issues we've had in the past is the lack of form factors. So if you're a micro merchant, you would still get exactly the same terminal as if you were a multimillion-dollar business.
We have been addressing that. So if you actually, again, look at the cost base in the last year, we've spent a reasonable amount of our OpEx in terminals and integration. So in the last year, we've launched the Tyro Go, the Android-based Tyro Pro, and then the Apple-based BYO solution. The Tyro Pro is similar CapEx to our current terminal. The Tyro Go is one-tenth of it, so about AUD 60 a terminal, and the BYO, zero CapEx. In order for us to be growing, what we would like to do is to a nd that is our strategy, is to divert the right form factors to the right merchant segment. So for the micros and smalls, we'll be using more the BYOs and the Gos, which is lower CapEx.
On the larger SME segments, we'll be using the Tyro Pros and any other terminals that we evolve into. So there'll be an increase in CapEx from an increased base, but there'll be a decrease in CapEx because we've got a diversified form factor. So I hope that gives you a bit of a flavor.
Yeah, the question was more about the banking, how much CapEx into the banking? So the CapEx question is specific to banking.
The banking costs that we actually included in the diagram on the presentation includes both capital and OpEx. As a fraction of our total base.
Okay. Next question.
Hey, guys, it's Bob here. Just a couple from me. I think when you provided the trading update back in August, it looked like July was a bit of a slow start. Can you talk a little bit about how the business has been tracking since then?
No. Sorry, Bob.
No.
No, we will provide a trading update at AGM, which is in four weeks. But I can say that we're still very comfortable with where we sit from a guidance perspective.
Okay, cool. I mean, you did highlight the EBITDA margin expectation, and that's at 26%, Prav. I think you also mentioned that you sort of benchmark yourself to global peers. Like, who do you see as your global peers, and what sort of margins are they operating at now?
Yes.
Prav?
Yeah, sure. When we obviously look at the businesses in the top of their class under each segment. So globally, we think there are two excellent businesses, Square on the lower end with micros, and Adyen on the top end with enterprise. I personally keenly follow their progress and their margins. So Square on the micro end has been roughly about 20% to low 20%. Adyen, at its peak, was at about 60%. They've come off the favor lately. I think they're in the low 40s%. So that's effectively our benchmark, and we've been aspiring to be beyond the 20% mark, which we achieved last year. We're looking to improve that in our guidance range.
I think, I don't think we would ever get to an Adyen level, because I think that's a very different business model. Our business is a mix of the micros, SMEs, and the, and the large businesses, so something in between is where we benchmark ourselves as.
Thanks. Tim Piper from UBS. Just to follow up on the banking. If you take gross profit, and you take into account lending losses, et cetera, you haven't quantified the sort of OpEx in that chart, but it looks like it maybe doesn't make money at a bottom line level. Then second part to the question is, I think previously there was kind of medium to long-term targets around what gross profit share of GP would come from banking. Now, they weren't, Jon, your targets, so I won't sort of mention the number. But can you give us a sense on what you think banking could contribute from a gross, gross profit point of view, you know, in five years time?
Yeah, look, I'll, I'll perhaps get the first part of that, and then pass to Prav. We're still pretty comfortable with gross profit representing about 20% or banking representing about 20% of the gross profit. We sort of have an FY 27 type timeframe on that. Prav, do you want to take the other parts of the question?
Yeah. So in terms of the other part of the question, so what we, what we showed on the chart obviously is CapEx and OpEx. In the last year, if you take the total cost of just the banking contribution, we would have broken even, including the CapEx. As I mentioned, the investments in the banking side have largely been completed if we were to stick with the same product. So as that scales, we would see more leverage coming off that. The other thing as well, though, is the way that we segment it, there is, deposits that come through in our transaction account, and where we're not actually able to lend that to businesses, we're able to actually get a positive spread on that as well.
So if you contribute a portion of that, which was relatively decent last year, I think about AUD 10 million, we would actually have made a modest profit last year.
The other thing I'll probably just add to that is, the way I look at this is, it's the value that banking contributes to our payments business as well. And you might have seen one of the slides earlier on that, that highlighted the better margin that we have for payments customers that also use our, or use our banking products as well. So there's sort of a flow-on benefit into the payment side of the business there as well. I don't think about them as banking versus payments. We think about it very much as an integrated product suite.
You got it. One on the payments business. I think you mentioned a survey near the start that I think it was 60% of merchants choose a payment solution up front.
Mm-hmm.
Now, obviously, historically, a lot of your merchant growth has come from being a preferred partner of integration partners-
Mm-hmm.
like point of sale. That 60% sounds quite high. So when we think about your merchant growth from here, you would say that being a preferred partner of point of sale has been a competitive advantage historically. How much do you need to change your marketing/merchant growth type strategies or spend going forward?
Look, I think that we need to think very much at an industry vertical level. I think that in some verticals, you have a far greater level of competition, which is driving perhaps different kinds of sort of sales and distribution type models. If we look at, as an example, one of the areas that Adrian spoke to, in health, in the dental market, there's actually only two real sort of providers of software services for dental practices. So we see some real opportunities to be able to partner in that particular space, to be able to grow market share in a modality where we have relatively low market share today. It's very different in hospitality, different in retail, so I wouldn't sort of give a broad, general comment.
I think we need to focus very much on what it looks like in those different industry verticals.
Can you give a sense on some of those new verticals you might be targeting and what your specific competitive advantage is?
Yeah, look, I'm not going to to do it today. I think what we've tried to do is to outline how we will look at some of those, some of those verticals. And it's we do have several verticals that we are looking at and that we're targeting, but I would say that in many cases, that requires us to be able to understand some of the dynamics associated with those industries, and look at some of the incumbents, and in some cases, partner with some of those incumbents to be able to really build out the proposition. And as soon as I start to delve into industries, it starts to be possible to be able to look at where some of those players are, and we don't want to go into that detail.
Okay, just one last one, if I can. Just on the health business, just two parts. Firstly, the Medipass solution, can you give us some or quantify sort of the penetration of that product across the health vertical at the moment in terms of transaction volume coming through that part of the business versus sort of in-store terminal? And then second point or question, you had a chart around the different, you know, parts of the health business, GP, specialist, allied, et cetera. Maybe can you just give us a real quick rundown or a bit of a one-on-one around how you generate revenue across those different subsegments-
Yeah
-of health and who that revenue comes from?
Yeah, I think that's a good idea because we saw the whole claiming piece up there, and it is a very different commercial model to a traditional payment. But, I will ask Adrian to take those questions.
So if we look at it from a segment perspective, Tyro Health has quite high penetration in the GP and specialist market, predominantly based off of our EFTPOS solution. From an allied perspective, we also perform very well. That is typically off the back of our online solution. And so you can see that certainly in those verticals, there's opportunity around cross-sell. Because, you know, from a GP and specialist perspective, it's more EFTPOS currently, and from an allied perspective, it's more online. Dental and pharmacy, we have low penetration and market share at the moment. We think there's quite a bit of opportunity there.
We also have greater average revenue per customer in the GP and the specialist segment, because they have an in-practice EFTPOS device, which typically processes more of their payments. And so that's why we think there's opportunity in the allied space, because as we incentivize customers to take up both of our online and our EFTPOS solution, and as we pull them together in more, you know, tightly integrated use cases and build that proposition out, it enables us to convince them to bring in one of our EFTPOS devices into that segment. I hope that answers your question.
Maybe if you could just touch on the commercials associated-
Oh, yes
with the different claiming types as well.
So it really varies. There's probably three different types. There's the revenue that we receive from payments, whether that's online or EFTPOS. There's revenue that we receive from funders and insurers for some of those, for some of the integrations that we've got. And if we have an agreement with a funder or an insurer, and they will pay for the claiming component, we make that free to healthcare providers. For some insurers and schemes, they don't pay, and so we either require a provider to have an EFTPOS machine that they pay a monthly rental on for us to make that available to that provider, or we charge providers a fee.
So an example of that is, if you want to process Medicare on our EFTPOS device, it's free because you've got an EFTPOS device paying a monthly rental terminal fee. But if you want to process a Medicare fee on our online solution, which does not have a monthly subscription, you've got to pay a per transaction fee. So there's kind of those three, three buckets. And what our incentive or our bundle does is it says, "The online stuff doesn't need to cost you any more if you pull in your EFTPOS device. If you have an EFTPOS device with us, the bundle enables us to give you discounts on all the online component," which sometimes for some funders has a transaction fee.
There's probably just a couple of points that I would highlight there. I mean, I think the first one would be, one of the big differences there is that for many of those claiming types, we're actually not being paid by the merchant, we're being paid by the funder, and that's quite a different commercial model that we have in place with those. I think probably the second point that Adrian did highlight, that I would reiterate, is that, while we have reasonable market share in allied, as an example, what we find is that many of those allied professionals are using us for some of the online services, but not necessarily using us for some of the EFTPOS services.
So there's both how we grow in those industry verticals, but how we broaden the product offerings to include the integrated payment and claiming solution, which is where we see some real opportunity as well.
Brendan Carrig from Macquarie. Jon, are you able to provide any more detail, just historically, on what Kounta was a contributor in terms of application volumes during that referral partner arrangement? And/or how many merchants were well currently in the back book that were referred across by Kounta over the years?
Look, I'm not now. No, Brendan, I'm sorry, I, I can't go into detail on Kounta or any of the Lightspeed activities. As you'd be aware, we've got a case which will be held shortly. What I would say is that, I've seen some analyst reports in the last week or two, which suggest that, up to, I think it was 90% of our back book might be at risk, and we think that is a very pessimistic view of the world.
Okay, thank you. Maybe just moving to sort of e-commerce volumes. I think, historically, that's been an area which is obviously growing from a low base. Me&u was one area, and which was previously highlighted that was going to be driving growth there, which doesn't seem to be referred to as much anymore. Can you just talk to sort of e-commerce volumes, expectations there, and, and, and how we should be thinking about that as a growth driver for TTV or TV going forward?
Yeah, let me, I'm gonna ask Dom to take that one. But I suppose I just start by just touching on the me&u part. I mean, I think you're aware that we do have an equity stake in me&u. On an undiluted basis, that's about 4.9%, and obviously, you would have read, no doubt, there's merger activity going on with Mr Yum. We took that equity stake originally with an intent to be able to integrate our e-commerce capability into that offering. We never have. We have never actually done that. And therefore, it's really been a sort of effectively a sort of a lazy investment that we've had sitting there.
We've got a really, really good relationship with both me&u and Mr Yum, actually. But we don't provide e-com services for them at this point in time. Dom, do you want to talk about e-com volumes more broadly?
Yeah. I think, Brendan, we've got a small proportion of e-com volume, as you're aware, coming through. But what I think we are thinking more about is how we simplify the integration with our in-person facilities. So we have not made it easy enough, I think, to access our e-com facilities as an omni-channel offering. So we think that it's not a new platform, a new infrastructure. It's not a massive investment. It's actually about how we integrate better with our systems and how we then take that to market with Deanne and the team, and with partners like me&u and others, that we can have a more simple integration.
So we're doing quite a bit of work on a simplified API-based structure, having something available for small businesses on our main portal that's very easy just to click and have an associated omni-channel capability with your in-person. So the focus is primarily on in-person payments customers, but we know that they need that omni-channel, so that's. It's a building out. So it's not a standalone e-com strategy. It's a complementary e-com strategy or omni-channel strategy.
Okay, that's clear. And one more, if I may. Just, just in terms of banking or moving into trying to acquire merchants at the middle and larger end of town, this is probably an area that's a bit more difficult, given you're competing with the major banks, and, and those merchants have dedicated banking relationships and individual bankers that look after those relationships. So at some point, given the strategy to retain the banking license, would the strategy then to move to be, to move into that space over time and, and potentially, you know, bring on more dedicated relationship managers in that space in order to take share from the major banks in that space?
Look, I'd probably start to struggle with that a little bit more. I mean, I think that what's great about our bank offering at the moment is it's integrated into our payments offering, and it removes real complexity associated with getting lending for SMEs. And I think that we need to focus on where we can differentiate rather than where we would directly compete. We think that the offering that we have today in the banking space is unique, that it does remove complexity for SMEs, and we think that's where the opportunity is.
I think as soon as you start moving up the stack in terms of the segment size, and you do start to compete against sort of the big banks in their traditional heartland, I think it gets harder and harder.
Hey, Jon. Garry Duursma. I saw in your feature set list there that you now have a product called No Cost EFTPOS. Could you maybe just explain to us a little bit about what that is, how it's rolling out, what it's doing to your margin?
Great. I am going to ask Dom to take that one as well.
Yep.
Over to you, Dom.
So we, Gary, you, you're basically aware that we've been surcharging and making surcharging available for merchants for a long time. So this is an extension of the surcharging capability, basically, that we're seeing in the market. So it is effectively surcharging the full cost of the facility, including terminal rental, for the merchant to be able to choose to pass that on to their customers. And signing up for that then means that they have zero cost. So there is no charge. We rebate the cost back in full, or we collect that as a full surcharge enabled on their system from their customers.
Do you want to talk a little bit about how we're going to market with that one, too, Dom?
Yeah, we've been piloting that for a number of months now. Earlier this month, we made that available fully for any new customers. Then we'll be enabling that for existing customers over the coming months, just or in a couple of months, I think, in the with a tick on the website on the portal.
So we've really linked it as well in with a lot of our new Tyro Pro marketing activity. There's a lot of that is underway at the moment. In terms of margin, we do see some real margin opportunities there. It's probably a little bit early to start to talk about the sort of the difference in margin. But you would have seen in our full year results that margins are a real area of focus for us. We've seen some improvement from a margin perspective, and we would expect that to continue to be enhanced by No Cost EFTPOS. I would say that we also see some opportunities with that particular product in parts of the customer segment and parts of the verticals that we service.
We certainly wouldn't see it representing, you know, 50% of or being used by 50% or anything like that of our merchants, but we think it's a real value add, particularly, you know, in some of these perhaps tougher economic conditions where merchants are looking to offset some of the costs associated with payment acceptance.
Look forward to maybe a little bit more detail on that, margin improvement at the AGM, then. One last question, if I can. We haven't heard a lot about AI. It has been a major impact to a number of development houses in Australia and globally, and we're hearing that it's improved, the throughput and efficiency of the development team. Just want to understand, how that's looking here at Tyro, whether there are targets, for improvement in throughput based on deployment of AI-based tools.
I'm going to hand that one to Paul.
Yeah, sure. So, there's a number of use cases we can look at AI for. So from a development point of view, we are using things like GitHub Copilot at the moment to do those sort of scaffolding, basic type of use cases. It's still very early. It's not the promised land that is currently there, but it's certainly the thing we're keeping a very close eye on and rolling that with the teams. I think the biggest use case we currently have is around the customer area, so things like chatbots, and where we can leverage that, when sort of making a call, we can make sure that we get all the answers to the customers really quickly.
So our strategy around that really is we're leveraging off the back of people like Salesforce, who are working very closely with OpenAI. We are working with them on making sure that we get all the knowledge bases correctly, so we can feed into the AI models to get for that, for that use case. The other probably one is around fraud, and that's where we probably struggle. As we've talked about, the transaction volumes are really, really fast, and so every couple of years, Tyro looks at fraud engines, but they're always too slow. What we're trying to find is ways we can leverage a fraud engine with AI and see if we can look at the trends potentially beforehand, rather than actually at the per transaction level.
Okay.
Thank you.
Other questions?
Hugh Mays , private investor. Just a good segue to f rom the last, comment, any further insight into fraud management, risk management?
Yeah. Steve, if you could, if you could take that one.
There's a microphone. Hi there. Hi there. Yeah, so fraud management, obviously, really important for an acquirer. I think Tyro has very strong, we're very strong with fraud management. You know, we monitor merchants as they are onboarded with us, and we also have transaction monitoring in place to pick up on anything that's occurring once they're onboarded. And we find that certainly my understanding from talking to peers in the industry is that we're very good at fraud management, and we really look after our merchants.
When we look at our, I mean, we can't go into the numbers, but when we look at our non-lending losses over the last quarter or so, they are very much well within our areas of risk tolerance. So it's an area that we do actively manage, as you would hope, and we think we've got the right tools, but it's obviously an area where we need to continue to look at and invest. I think we have another question there from behind the pole.
Thank you. Elijah Mayr here. Just referring to Slide 11, just when you're sort of talking about hospitality and retail and, and Tyro's focus to maintain those verticals, could you sort of give us a little bit of color on what you mean by maintain from a merchant growth and from a transaction growth perspective?
Yeah, look, I mean, I suppose, I think I know, I know the slide you're talking about. I think that when we look at both the hospitality and the retail vertical, I'm not going to go into the specifics, but our market share in hospitality is pretty strong. But we also know the competitive dynamics in hospitality are different, and we've sort of touched on and alluded to some of those with one of the earlier questions. What we need to be able to do in some of those verticals is make sure that we have the products, the features that allow us to continue to maintain the strong market share and the margins that we have in those verticals.
I think it's fair to say that while our market share and market share and differentiation in hospitality, as an example, we still think is high. I think in retail, as an example, we would say that our competitive differentiation is probably lower, and that is highlighted, I think, by sort of the example I use, where we're seeing approximately 18% of all retail transactions taking place online now, and we know that, I think it's one in three of the merchants that we work with and the merchants that we survey, have indicated to us that they will need an omni-channel e-commerce solution as well within the next five years. We just look at that particular vertical and say, our differentiation is lower. We need to maintain, continue to build our product features there, as we look forward.
So that's hopefully that answers your question.
Yep. Yeah, it just seems, I guess, a bit tough from a competitor's perspective in the hospitality space. I mean, following on from that, there seems to be a number of other competitors that are sort of bringing to market sort of initiatives or partnerships in order to gain sort of market share. Is there anything that Tyro has, I guess, in the pipeline or in place that can differentiate themselves and continue to grow market share or at least maintain market share in that space?
Well, I mean, so when you think about some of those other offerings, I assume that you're alluding to point-of-sale partners in the hospitality industry broadening out into provision and payment services. Is that what you're alluding to?
That's sort of one example, and I guess, other examples of maybe partnering with Qantas to provide points for customer transactions. You know, little things like that, that people or other-
Yeah, people value.
companies are using.
Yeah, I might get Dee to talk about some of those, but, but just quickly, I would also say that one of the things that we spoke about from a strategy perspective is the wholesale or white label offering, and that, that is an important part of our strategy because it allows us to be able to, to defend. And you would have noticed that we spoke about selectively partnering with ISVs to be able to bring payments capabilities to market. So, so I think that that's one, let's call it, defensive play, that we'd be able to, that we're, is key to our strategy because it allows us to be able to integrate payments into third-party software solutions, whether that be in the hospitality industry or other industries, to be able to maintain the transaction volume.
Margins are pretty good, too, but for the services that we provide, albeit on a white label basis. Okay, so that would be one comment, and I might get Dee to sort of refer to perhaps even your Qantas example.
Yeah, look, I think there's a number of opportunities that we see. Actually, I might start with just thinking about some of our existing capabilities that we haven't necessarily traditionally, you know, distributed through our channel partner channels. So we're engaging, obviously, with a lot of our software partners at the moment and talking to them about how we can help them to differentiate. When you sort of think about some of those competitive pressures that we've talked about, we have a large range of software partners that are also experiencing some of those competitive pressures.
So how can we work with them to leverage some of the Tyro capabilities, such as our banking capability or our eCom capability, to be able to help them to differentiate, whether that's on a referral basis or a partner basis or indeed a white label basis? So there's a number of opportunities there. And most definitely looking at what matters to customers. So loyalty is clearly incredibly important. We have a capability called Tyro Connect that gives us the ability to integrate multiple applications, and working with those partners on how they might be able to leverage that to provide differentiation to the offers that they take to market. And card- linked loyalty is one of those opportunities.
The insights that our partners and our merchants can glean from Tyro's transaction data as it relates to an individual and then leverage that from a loyalty standpoint, I think is actually unprecedented and differentiated.
I think your Qantas one, too, is an interesting one. I think that we would see some merchants that would require that kind of capability. And what we will absolutely do is prioritize developing to those where we see commercial and economic benefit, and that includes retaining and differentiating. Okay. Other questions in the room here? Bob.
Just, just to follow up to the partnership one. Like, what, what does, what would the commercial model sort of look like, if you do white label your offering to an ISV or a-
Yeah.
Uh, vendor.
I might. Who's best to take that one? Anyone holding their hand up?
You are. You are, Jon.
I'll take that one. The way that a model would work there is you typically price at a wholesale rate and then charge for additional services. The partner would set a retail rate, so they'd be able to set whatever the retail rate would be, but we would be guaranteed a certain margin, and we'd know what that margin was. And then there would be additional services or costs associated with possibly terminal rental, but also things like chargebacks. So, you know, we've done some analysis there. We'd be pretty comfortable with the margin that would be earned there. But it is a different commercial model and a different go-to-market approach for us.
Okay, cool. And then, I guess the other side of the partnership front is, I think you mentioned you're looking at more retail partners as well. Can you maybe talk to me a little bit about how maybe your relationship with Post and Telstra has been tracking, and what sort of other retail partners you'd be looking at?
Yeah. Okay. So, Dee?
Yeah. So look, we're obviously very proud of the relationship that we have with, with Telstra and Post. Just to answer that second part of the question, it's going very, very well. Really strong growth, really strong engagement with, respect to the frontline stores in particular. And we're, you know, enhancing our, partnership model as it relates to continuing to build out and invest in those, in those partnerships. We will be in, a couple of well-known retailers. I'm not in a position to be able to share the names of those, at this particular point in time.
But over the course of the next few weeks, you'll see more detail about that, and, you know, we're proud that Tyro products will be front and center at some of these prominent retailers that traditionally play to the small business market.
I would say that, you know, if you just take the Telstra arrangement as well, we're, we're really, really pleased with the the lead volume. We've got a bit of work to do still on conversion rates, and I think we've maybe spoken to you about that in the past, Bob. It's certainly improving, but it remains an area of focus. But the relationship's fantastic, and and what we're really trying to do through this distribution strategy is get our products and services in front of our merchants in the channels that they're they're most likely to be in. So, I think, from a strategic perspective, it's been a, it's been a really strong one for us.
Can I just follow up on that? Have you just sort of done an analysis around ultimately, this expansion into some of these retail channels to acquire customers, what your cost to acquire is, for a merchant, compared to maybe your point-of-sale referral channel, where you pay away a commission to that provider? What kind of return are you getting on merchants as you go into these verticals?
We have, but I don't have that with me, and I don't know whether, Prav, you can talk to it.
Probably, probably not specifics, but in terms of retail, which is a distribution channel for us, that that is on a commission model. And it's fairly much in line with what we'd be offering to a POS partner that brings in similar business. The one point I would make is, in a number of these cases, they would typically be on the smaller end in terms of the merchant size. The unit margin on those are better, so you would normally get them at 1.5% or so. And so even after a commission level, they'd be accretive to the overall portfolio margin.
I'll just maybe add to that, is to say that the investment that Tyro's made over the course of the last, what, you know, six-12 months in further digitization and automation has helped to bring down that cost of acquisition and improve the way that we can. And hence why we want to actually expand out those distribution channels, because we know we can push more of those smaller merchants through those automated channels.
Thanks. And just one on the cost base. I think, you know, the chart, that might be the first time you've kind of given a rough breakout of what you're attributing cost-wise to the payment switch. I guess maybe there was a view that payment switch was a huge part of the OpEx base and why you've struggled to generate operating leverage. Historically, that chart would kind of suggest, you know, that's not the case, but it also suggests that there's a huge amount of costs in other line items within the business, and you've sort of talked to keeping it flat, but that cost base does look relatively big. Can we think about any further cost out from here?
I'm going to ask Prav to take that one, and then-
Yeah. So in terms of cost out, I'd probably again guide us to the current guidance that's in place in the market at the moment. If you look at the breakdown, so we've broken down between the running costs of the switch, which is a relatively small fraction, and then the running cost of the ADI, which is a small fraction. In the last year, we have a reasonable amount that went into terminals as a project. So effectively, that is about to roll off, but we will continue to look to invest in the next piece of things. Which leaves that remaining cost base. Now, if you just break that piece down, about 30% of that is in marketing and sales.
And marketing in particular is an area that we have actually consciously been investing a little bit more. It is a discretionary spend on our part, but it is something that we've been increasing over the last few years. So that we would flex up and down, depending on the returns of that investment. Another 30% is in the customer delivery, product and customer delivery area. That I would see, as we invest in automation and self-serve, that it wouldn't increase as our top line increases. So as opposed to a cost out, I think it'll be more efficiency coming through. About 28% of that portion is in corporate overhead.
So as this part is just running the overall business of this scale, it's 28% of that portion, but if you look at our total cost base, it's about 17%, which is fairly reasonable, and I think it's where it needs to be. So as the business scales, that percentage would come down. That then leaves about 10%-12%, which is more other costs, including tech costs, where we have had to incur those because we haven't invested in this automation and things in the past. So I think that's, again, an area where efficiencies will come through going forward.
Got it. And just sorry, to clarify on the payment switch cost part of the business, were you saying that's effectively almost 100% fixed cost, or there is some variable portion of that cost as the business grows?
There, there's some variable component. So as you put more capacity on, then whether it's being hosted on third-party web services, for example, there's an incremental cost associated with that. But that doesn't directly correlate to transaction volumes. So I wouldn't say it's fixed, but, but we do think, as we've probably guided to as well in our full year results, that we've reached this point where our cost base is sustainable, and we can continue to grow on, on that one. So it does become important that we continue to, to get capacity.
Are you gonna acquire or invest in a better e-commerce solution?
I'm gonna get Dom to talk to that one. I think we sort of partly touched on it, but Dom.
It's not the plan in the near term. So we will be partnering, so Mastercard's our partner for the core platform, MPGS. We're working a lot with Mastercard to build out the functionality and capability in that. We are building, as I mentioned before, API interfaces to enable other partners to be able to connect simply into that back-end platform. But we think that certainly in the near term for our strategy being a complementary omni-channel capability to in-store merchants, that the MPGS platform is fit for purpose for what we need. And we're just gonna be working to make it easier for our customers to be able to integrate with that.
Okay, any other questions in the room? Giovanni, I'm not sure whether we have any online. None online.
Jon.
Ah, sorry. We have another one.
Hi, Jon. Han from SmallCo. Just two quick questions. On the switch and the banking license, do you need one for the other? And any other benefits or considerations for having one or the other?
Sorry, can you say that again? Do you need-
So having the switch and the banking license, are they related? Is there benefits of having both, or are they complementary dependent?
Well, is there benefits from having both? No, I don't think there's any strategic benefit from having both. But from a cost and, from a cost perspective and from a capability perspective, we do think that having both is important. I'm just trying to think.
You don't need the banking license for the switch?
No.
No, no, no. No, we don't. We used to need the, In fact, when we first acquired the banking license, we did need it for the payments business. That is no longer the case.
Just on the new payment rails with NPP and the like, how much do you need to invest to integrate into that as a tier one provider, effectively?
Yeah, I mean, I think that we need to look at different integration options. We can do a direct integration, or we can integrate pretty quickly through third-party services, which are available today. Obviously, there's a different economic cost associated or benefit associated with that one. I think there's probably a couple of things. We see some real opportunities with NPP, for example, but we also need to see a commercial value from a consumer perspective and take up of some of the consumer and changes in behavior. But we think that from a integration perspective, by partnering, we can do that relatively cheaply and relatively quickly.
Thank you.
Okay. I would like to thank everyone for coming along today. It's been a great opportunity for us to talk a little bit more about our business. We are, as I'm hoping you have seen today, we're really excited about the future for Tyro. The last few months, as we've gone through this work, as we've got a deep understanding of our cost base, of our capabilities, it's really allowed us to be able to both get excited about the future, but also provide absolute clarity and focus on what Tyro needs to do to continue to grow and continue to differentiate. So thank you for coming along today. Thank you for your interest in the business, and I'm sure we'll see you all and talk shortly. Thank you.