Good afternoon, everybody. Thank you very much for joining this afternoon's call. There are a lot of people on the call, so we really do appreciate the interest and appreciate you joining this afternoon at relatively short notice. My name is Jon Davey. I'm the CEO and Managing Director of Tyro. What I'd like to do today is to share some key points following the RBA's announcements earlier on today and then open for Q&A. I will say that
this meeting is being recorded.
I was about to say that this call is being recorded. First of all, just a few opening comments. Firstly, today's RBA announcement represents exactly the kind of regulatory evolution that we have been anticipating, and it is very consistent with the recommendations that Tyro submitted as part of our submission to the RBA in December last year.
Overall, we see the recommendations as providing a win for consumers, a win for small businesses, and importantly for Tyro, a win for Tyro and our investors. However, I would say that for card issuers, payment schemes, and merchant acquirers who have business models that are dependent on surcharging or on the bundling of software and payments, these changes are certainly disruptive. Very quickly, the summary of what the RBA has proposed can really be broken down into three key recommendations. The first one is a complete ban on surcharging across both credit and debit. Secondly, a lowering of the cap in interchange fees that are paid by Australian businesses.
Thirdly, increased transparency on the fees that are charged by card networks and large acquirers to help all players better understand the fees that are being charged and therefore provide businesses with the opportunity to shop around for a better deal. There are really six key points that I just want to make regarding the Tyro business. Firstly, the Tyro business model is in no way dependent on surcharging or bundled product pricing. As we've previously shared, we've limited exposure to merchants on no-cost FPOS or zero-cost acquiring products, and we do not bundle software and payments products. Secondly, the implementation of the RBA's proposal has no impact on our short or medium-term gross profit or EBITDA margin targets.
We expect that we would pass on to merchants the cost benefit that comes with any reduction in interchange, and therefore that would reduce the fees we charge to merchants, but we would still maintain our margin. Thirdly, it's about 80% of all of the transaction value that we process today is from merchants on some kind of card-based pricing plan. That could be a cost-plus plan where we charge the merchant an agreed fee, an agreed margin on top of the cost of processing that card to us, or where we price to that merchant some kind of cost-associated fee associated with the kind of card that is processed, whether that be a debit or credit card as an example. As a result, we already have the pricing plans that provide pricing transparency to merchants.
We have the systems and operational processes that support implementation of the RBA's recommendations, and making any change to disable surcharging is a very simple technical change for us. The next point I just want to make is that we see some opportunities to target merchants whose acquirers currently provide blended pricing models or pricing models that are dependent on surcharging and pricing models that bundle other services. We do believe that this creates opportunities and will allow us to become a net acquirer of merchants following implementation of these changes. The final point I just want to make is it's now more than nine months since the government announced their support for a debit surcharging ban, which was going to start in January 2026.
We're looking forward to seeing the final conclusions and implementation timeline and would certainly encourage and hope that these changes are put through and implemented with some speed. What I'd now like to do is open the call for a brief Q&A. I know that we do have some analysts on the line, and as I'm sure you'll understand, the purpose of today's call is to help investors better understand the scope and direction of the RBA's proposal. Rather than getting into the minutiae today, what I'd like to do is to try and keep the questions at a fairly high level. We obviously will be very happy to sit down with analysts and investors on a one-on-one basis over the coming weeks. I'll now pause, perhaps hand back to Martyn, who can coordinate questions.
Thanks, Jon. For those on the call, if you want to ask a question, please raise your hand virtually through the Zoom function, and we'll come around to your question and ask you to unmute to ask that question. We have one question at the moment, Jon, from Cam Halkett. If you want to go ahead and ask your question, Cam.
Yeah, thanks, Martyn. Guys, just wanted to say firstly, thanks for doing the call. There's a few different listed names out there in the market, each with, I suppose, varying exposures to this outcome, and only Tyro stood up to provide clarity thus far. I think I speak for everyone when I say thanks for doing this. Perhaps we can start around the surcharging ban side of things. I was thinking about this today, Jon. Do you think actually now it's fully out there, full-scale surcharge ban, that this could actually potentially play into Tyro's strengths? I think it's fair to say when you look at some of the challenges over the last few years, you know, take a Smartpay who's leaned aggressively on surcharging.
You've had POS businesses launch also surcharging with payments, but they now don't have the breadth of offering that Tyro has in terms of banking cards and also integrated POS. Do you think now actually as we go forward and we've got these RBA recommendations and potential directives that Tyro is actually in a far better spot now given some of the changes to some of your smaller competitors?
Yeah, I mean, I do, Cam. I think that what we have is pricing models that today where we do provide a level of transparency, a high level of transparency, and that's what I was reflecting on earlier on. What we have seen over the last number of years is business models emerge where you have got the bundle, where you have got product bundling and, let's say, hidden fees associated with that, and where you have had models which are entirely dependent on what might be seen as a free acquiring solution to the merchant, but where the costs are being passed on. The fact that there's far greater transparency, that those models will really be challenged because of the level of transparency we think does create some significant opportunities for us.
I wouldn't want to comment on behalf of any of those other parties because I'm sure that they'll have sort of arguments and defenses which will allow their models to stand up. We look at it at the moment, and based on what we see, we think this creates a great opportunity for us.
Yeah, and given people, particularly those on the call, are focusing around, I suppose, potential financial impacts or anything like that, I believe, Jon, in the past you've said that should a surcharge ban roll through, whether that was debit and/or debit and credit, that there'd be limited if nil impact to Tyro's gross profit going forward. Are you sort of reiterating that again today, given it seems the focus is obviously perhaps a bit more around interchange reduction and arguably, given it's a surcharge ban, everyone in the market who has been surcharging would be somewhat equal in that regard.
I'll say yes, Cam. That's certainly our understanding. I mean, I think what the government's really doing here, or the RBA is really doing here, is to lower the costs of payment acceptance through the reduction in interchange. Our expectation, as I said, is that we would then pass that reduction on through a lower merchant service fee, but that we would maintain the margin that we generate. We're pretty comfortable with where this sits from a financial perspective based on all the information that we have.
Yeah. I'll ask one last one, given you've sort of nicely brought it up there. I mean, you know, clearly the RBA is, you know, sort of leading this as a reduction to consumer costs, you know, some AUD 1 billion of savings, things like that. This all heavily relies on merchants all of a sudden come the start of FY 2027 not suddenly increasing prices by an amount equal to, if not greater than, the surcharging that, you know, they're no longer able to recover. I guess actually, Martyn, like let's say hypothetically across the book, on average, merchants raise prices anywhere from, say, 2%- 5%. If anything, the surcharge ban could potentially be a positive also to Tyro, wouldn't it? You'd see this flow through your TTB, assuming no massive drop-off in demand or quantity of purchases.
Yeah, I mean, conceptually, Cam, I think you're right. That is, if retailers and businesses do pass on the cost, that cost will obviously be a lower cost because the interchange has reduced. If that cost was passed on and demand remained high, we would see higher transaction value being processed through our terminals. At a conceptual level, I can see where you're coming from.
All right. Thanks, guys, and thanks again for doing this. Really appreciate it.
Thanks, Cam. We have one more question from Wei Sin. Wei, if you'd like to go ahead.
Thanks, Martyn. Can you hear me?
Yeah, yeah.
Okay, great. My question is just in regards to any conversations that you might have had with end customers or stakeholders. I hear you on kind of like the card-based pricing plans. Do you think that, and that you already have pricing in place, do you think that these would come under pressure as a result of these changes coming through?
I'm not sure I understand the question, Wei Sin. We do have card-based pricing available today. As I said, it's about, it's slightly more than 80% of our customers are on some form of card-based pricing where we are charging a different fee for credit and debit or breaking that down at a more granular level. We think that allows us to be able to provide transparency to the merchants and demonstrate that we have a different cost for credit, debit, international, etc., etc. I'm not sure that I answered your question.
Is there any risk that the pricing that we have in place right now, differentiated across the board, that that would be lowered?
Yeah, look, I think that to the comment I made earlier, I think that I would see yes at a merchant service fee level. The actual fee being charged to the business, I could see a reduction in that fee, but we would maintain the margin that we currently generate today on all of those transactions. The impact to us on gross profit, gross profit margin is, I'm going to say zero, assuming we do pass all of that through. The impact to us would be at a revenue level where, because we are collecting a lower merchant service fee, we are generating less revenue, but the margin, as I said, would stay the same.
Okay, when you say the margin staying the same, that's dollar amount margin that you're referring to?
I would say dollar amount margin and gross profit percentage margin.
Okay, thank you.
Cam, you still have your hand up. Do you have another question?
I do, Martyn. I can't help myself. One final one, I suppose, Jon, it's knowing you're looking to move on and all the best for the next chapter when that comes time. I suppose as an outgoing view, what do you think these changes, now that that sort of headwind or potential headwind around regulation has passed, what do you think this does to the landscape around M&A? For argument's sake, potentially in this situation, assuming no other changes to scheme or acquirer margin, you know, the GP per trend or GP margin, sorry, per transaction arguably should increase. The need for scale becomes only increasingly more attractive. Just wondering what you think in terms of how this evolves for the market in terms of M&A and how this kind of red cloud is looking to move on.
I do, I sort of stand by what we've said before. I think that scale is increasingly important. I think that the interesting dynamic that could play out here is the challenge that this would create for some of the smaller payments providers and whether that just will accelerate the implementation of further consolidation.
Yeah.
I think that's the question, Cam, but yeah, my view would be that we're only going to see further consolidation as a result of this.
All right. Thanks again.
Thanks, Cam. Next question from Tim Piper. Hey, Tim.
Afternoon, guys. Just two from me. First one, take your point around the card-based payment share of the business, but thinking about the more simple plan pricing models out there in the market, of which you obviously have merchants on as well, given smaller businesses now inability to pass on the cost of that acceptance through surcharging, would you expect sort of competition around pricing to rise in that model? Obviously, those simple plan pricings on an overall take rate basis are higher and merchants can pass that on to the consumer and you have a scenario where one type of card-based payment is kind of subsidizing another. Do you think there'll be a competitive response out there, from a pricing point of view?
Yeah, I do. I mean, I think there has to be, Tim. I think that for merchants that are very, very price sensitive, that have been able to offset the cost of payment acceptance through surcharging, they're suddenly going to be invoiced on a monthly basis with a fee. I would expect some competitiveness around, you know, that they'll be looking for the best deal that they can get and that will create competition and that creates opportunity. Yes, I think that that is the case. That's part of the reason why we feel like we're well positioned because we have those pricing plans in place today. Now the challenge, I think, for small businesses will be that, you know, arguably they've been able to look at it and say, I know I'm being charged 1.2% and that's pretty easy to understand.
Transparency also adds a little bit more complexity because they will look at an invoice on a monthly basis and they'll have a different price for credit and they'll have a different price for debit. Therefore, the invoice will move around a little bit more potentially. I do think that to your broader question, that yes, it will create competition at that end of the market.
With that increased transparency around fees and costs, do you think there could be a shift away from simple priced models for some merchants as they push towards moving on to cost-plus style plans as opposed to the simple pricing models in the market?
I think that there's going to have to be an evolution of the simple pricing plans. How that plays out, I think we need to see. You'd appreciate that the paper today, I think, was 127 pages long, and there was a fair bit of detail in there around surcharging and transparency and what needed to be provided, what needed to be reported. I think we need to see the level of detail that will play out there. There's going to be a bit of a balance that needs to be struck for keeping it simple enough that merchants can understand it and will understand and be able to make price comparisons across acquirers without just over-complexity, without sort of too much complexity in the whole process.
Got it. Sorry, that was too fast to my first question. Second question was just around the banks. If we look at, you know, where the costs and the revenue actually are going to be worn as the issuers, one, how much regulatory pushback do you think, I mean, how much pushback from the banks on the RBA do you think there'll be from what's come out today? Secondly, what do you think the competitive response or the response from the banks might be more broadly? Noting that you've got a banking background, you might have some ideas.
Yeah, I probably struggle a little bit on that one, Tim. I think that, you know, I look at the acquiring side and, you know, the big banks, I think that the impact on the big banks is going to be relatively small on the acquiring side. I think that the big impact will be on the issuing side. How they adapt and influence, I think, remains to be seen. That would certainly be the area that's going to impact the big banks the most. I probably wouldn't want to comment much more than that, Tim. I'm sorry.
Sorry, just a follow-up on that. Do you think this presents an opportunity for Tyro to win larger merchants that might have historically tended to go with the big banks?
I think that opportunity exists, yes.
Great, thanks. I'll jump back in the queue.
Thanks, Tim. We have a question from Owen Humphries. Hey, Owen.
Good day, team. Sorry about the background noise. My question is just around the fact that the RBA mentioned that businesses will save AUD 1.2 billion. I guess someone is paying for that AUD 1.2 billion. Can you break down, I guess it follows from Tim's question, can you kind of break down where you believe that AUD 1.2 billion will be if your gross profit margins won't change?
The RBA did say that there would be a reduction in surcharging costs to consumers of AUD 1.2 million. I think they also mentioned there'd be a AUD 1.2 million reduction for small businesses. Tim, sorry, who was that? There was Owen. Owen, my view on that is that that's going to impact or be funded effectively by the banks through lower interchange and through the schemes.
That basically answers the question, right? The RBA review is targeting the scheme fees of Mastercard and the banks are just going to pay. You guys won't feel it.
That's certainly my assessment.
Good one.
Other questions?
Just going to check now. Okay, we have one more question from Jackson Hewett. Hi, Jackson.
Hi, thanks for taking my question. Actually, I'm a journalist from The Nightly. Do you think that these interchange fees are actually too high given the innovations we were expected to have seen in terms of the cost of transactions and digital payments and the like? Also, for consumers, do you think it's unfair that they're paying sliding scales or effectively a flat rate that costs more and more as they spend more on their transactions?
I'm not sure I really want to comment on either of those. Certainly, I don't want to comment on whether interchange is too high or too low. I think one of the things about interchange that's probably not well understood is that it is funding a lot of the rewards programs that many of us use on a day-to-day basis. Yes, as a consumer, maybe I'm being surcharged, but it is also funding a benefit that I am receiving. I think one of the interesting sort of byproducts of this is going to be what happens to some of those reward and loyalty programs that we benefit from today and how will they be funded in a lower interchange environment. I probably wouldn't want to comment much more than that.
Thank you.
Wei Sin, you've got your hand back up. Do you have one more question?
Yeah, just in terms of, I guess, you know, it sounds like no real impact for us. Just to clarify the guidance for, I guess, this year and on an outlook basis of like the Rule of 40 and all of that kind of stuff, based on what's come out today, would it be fair to understand that we view on balance, nothing has changed or, you know, given your comments around being a net acquirer, could be slightly more positive on the outlook? Is that the way to think about it?
Yeah, I mean, I think that's fair, Wesley. Clearly, the guidance that's currently out in market for FY 2025, that's sort of done and dusted. We will provide our results and guidance for FY 2026 over the coming weeks. Our assessment of the impact is that it is neutral at worst and we see some positive opportunities for us.
Right. Thank you.
Thanks, Wei Sin. Thanks, Jon. We don't have any more questions.
Thank you, everyone, for joining us. Hopefully, that was useful. It's going to be interesting to see this play out over the next 12 months. I believe that the RBA has announced implementation in July of next year. We hope that's the case, but we'll wait and see. Thank you for joining today.