Good afternoon. Thank you for standing by. Welcome to Payoneer's second quarter 2022 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. Following the speaker's remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. I would now like to turn the call over to Michelle Wang, Payoneer's VP of Investor Relations.
Thank you, operator. With me on today's call are Payoneer's Co-Chief Executive Officers, Scott Galit and John Caplan, as well as Michael Levine, Payoneer's Chief Financial Officer. Before we begin, I'd like to remind you that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available in the investor relations section of our website. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered as a supplement to and not as a substitute for GAAP financial measures.
Reconciliations of the nearest GAAP measure can be found in today's earnings press release, which is available on the company's website. With that, I'd like to turn the call over to John to begin.
Good afternoon, and thank you all for joining us today to discuss our second quarter 2022 results. This is my first earnings call since joining Payoneer on May 25. I would like to first thank all of my colleagues for the warm welcome that I have received. I'm impressed with our talented team around the world and with the work Scott, Michael, and many others have done to build a global, diversified business with a great brand, tremendous assets, and loyal customer relationships. Payoneer is well-positioned to be the leading financial operating system and platform for small businesses globally, and I see significant growth opportunities ahead.
On the call today, I will begin by discussing our vision for Payoneer, followed by Scott, who will provide more details around our top line growth drivers and the trends we're seeing across our business, and Michael, who will discuss our financial results and guidance. The World Bank estimates that 90% of businesses are SMBs, and they represent more than 50% of employment worldwide. However, access to financial services is a key constraint to global SMB growth. In emerging markets, doing business across borders is often the only way to meaningfully scale. These businesses, these cross-border businesses, are our customers. The Payoneer team believes that brilliance is evenly distributed around the globe, but opportunity is not. At Payoneer, we are not just selling a product to our customers.
We are providing them with the tools they need to access global markets and demand to run and scale their businesses. We make it easier and more efficient for our customers to get paid. We enable them to utilize the money they receive wherever their business needs it to go in the currency that they desire. Our most active customers utilize our full platform to get paid, manage their finances, and pay their suppliers, partners, and employees. Given our global reach, our scale, our tool set, we are seeing Payoneer's network effects as customers benefit from being part of our global ecosystem and all of the connected SMBs on our platform. Our customers are in a wide variety of industries.
They are exporters selling goods cross-border, freelancers and businesses capitalizing on the digitization of the workplace and remote work, service companies exporting their capability to international clients, vacation rental hosts reopening after the pandemic, and digital creators delivering their content to consumers around the world. Our geographic reach extends across more than 190 countries and territories, and with our expertise and our technology infrastructure, we have built a financial network for the future of global trade. We have a deep moat around our business, given the operational and regulatory complexities that are required to run a trusted global financial services platform. The diversity of industries and geographies we serve means that our business model is resilient to individual market trends or shifts. The heartbeat of our company is our customers and their engagement with us.
We continue to see strong customer growth both year over year and sequentially. Looking ahead, in addition to acquiring more and larger customers, one of our priorities for our next leg of growth is to upsell and cross-sell existing customers more of Payoneer's capabilities. We will also continue to build internally and buy companies with innovative products that make our customers' jobs easier, from sending and receiving payments, to managing their purchases, to working capital. Given the growth opportunities we see across our global business, we are continuing to invest in our R&D efforts and our go-to-market capabilities, so we can meet even more of the financial operating needs of our customers. While we continue to invest, we plan to continue to deliver positive Adjusted EBITDA going forward.
The tailwinds we are seeing from our rising interest rate environment are helping us pull forward our path to sustained profitability, and we remain committed to our long-term target of 20%+ revenue growth and 20%+ adjusted EBITDA margins. Our team is focused, our customers are global, and our platform is strong. Scott and I each bring our complementary skill sets to partner with the rest of the extraordinary Payoneer team together to serve our global customers. I believe we are just at the beginning of our next leg of growth. With that, I'll turn it over to Scott.
Thank you, John, and thank you to everyone for joining us today. I'm happy to be working alongside John to lead Payoneer into its next chapter of growth. We had another quarter of strong results as we continued to drive strong new customer acquisition and increase adoption of our higher-value services. We also benefited from better than expected results from Ukraine and rising interest rate tailwinds. Total revenues grew 34% year-over-year and 8% sequentially, and we delivered another quarter of positive Adjusted EBITDA of $15 million. Our business has several powerful growth drivers. Our regional diversity and the broad set of industries we serve position us well to navigate the market uncertainties with respect to inflation and the interest rate environment and will enable us to grow in the current macroeconomic landscape.
Our positive cash flow generation and ample cash on our balance sheet enable us to continue investing for long-term revenue growth and future profitability. For example, B2B AP/AR continues to be a highlight, growing faster than our overall business and at a higher take rate. B2B AP/AR helps our customers that are trading across borders to invoice, get paid, and pay their suppliers across currencies without needing to open bank accounts around the world or to rely on outdated ways to move money, such as wires and checks. B2B AP/AR generated year-over-year volume growth of 66%, re-accelerating from the first quarter. B2B AP/AR now represents 12% of our volume, up from 8% a year ago. Our revenue growth is also being driven by regions like Latin America and South Asia, Middle East and North Africa, both of which grew faster than the overall business year over year.
In addition to the above, revenue growth is being driven by increased usage of our virtual Payoneer commercial Mastercard and improvement in cross-border travel. Though our travel volumes are more tied to travel in Asia and other emerging markets, which are recovering at a slower pace than Europe. We remain optimistic about the long-term trend of digitalization and the growth drivers of the many industries we've served. Our goal is to continue to expand the portfolio of higher-value services we offer to both the SMBs we serve and the global ecosystems they are part of. Our higher-value services include B2B AP/AR, our virtual Payoneer commercial Mastercard, supplier payments, and more. These services enable us to serve more customers across a broader range of their needs.
For example, a software development company with over 200 programmers in Ukraine recently became a Payoneer customer because we were able to offer them several products that meet their financial operating needs, as well as local customer success managers to help them continue their expansion across borders. They already use Payoneer to get paid by their clients using our B2B AP/AR services to pay their programmers in the Payoneer network directly into Payoneer accounts and to pay other suppliers around the world directly into bank accounts. We are excited to support and enable their growth for a long time to come. One of our newest higher-value services is Payoneer Checkout, which marks our entry into the market serving SMBs that sell directly to consumers around the world. While it's still very early days, we think this is a big long-term growth opportunity.
Checkout provides our customers with improved acceptance rates and integration into their Payoneer account. This is an area we're investing in as we expand the tools we offer to SMBs to get paid and to manage their financial operations. We also continue to focus on nurturing our ecosystem of partners. For example, we have hosted a series of events with Walmart in the U.K. and India. This collaboration introduces and onboards high-quality Payoneer sellers to Walmart's online marketplace, where our customers can reach a growing market of more than 120 million U.S. consumers each month. This effort builds on our Green Channel solution, which helps onboard Payoneer customers to new marketplaces. We launched several new partnerships in the second quarter.
A few highlights included PrivatBank, the largest bank in Ukraine, where we are particularly happy that we have had the opportunity to provide more support for Ukrainian businesses. We also launched with Linnworks, an SMB tech platform based in the UK, EC21, a B2B wholesale trade marketplace based in Korea, and Shoplazza, a leading e-commerce platform in Asia that is partnering with us to drive distribution of Payoneer Checkout. Our momentum is continuing since the end of the second quarter. Last week, we announced that Naver Z, one of Asia's largest technology companies and owner of a global metaverse platform with over 320 million registered users, chose Payoneer to provide payments to their creators worldwide.
We have a robust pipeline of partnership opportunities around the world. The dedication of all our employees globally and their successful execution translated into strong results for our second quarter and make us optimistic about our future. I'll now hand it over to Michael to discuss financial results and forward guidance in more detail.
Thank you, Scott, and thank you to everyone for joining us. Payoneer delivered another very strong quarter of results, once again exceeding our forecast. Q2 revenue increased 34% year-over-year to $148 million, driven by strong customer acquisition, a more favorable mix toward higher take rate areas of our business, and better than expected results from Ukraine and rising interest rates. Revenue reflects faster growth in regions such as Latin America and South Asia, Middle East, and North Africa, as well as continued adoption of our higher value services. Our Q2 customer cohort was larger than the prior year period as customers continued to adopt our tools and services and leverage our partnerships to grow and scale their businesses. We have a global business operating in 190 countries and territories.
However, over 85% of our Q2 revenue is US dollar denominated, so most of our revenue is not subject to significant foreign currency risk. The Q2 take rate was 101 basis points, up compared to 82 basis points in the second quarter of last year and 94 basis points in Q1, primarily driven by the previously mentioned regional mix and higher value services, along with non-volume based services and other revenues. Q2 volume increased 8% year-over-year to $14.6 billion. Volume growth benefited from continued strong growth of B2B AP/AR, as well as growth in customer acquisition, which was fueled in part by growth in eBay sellers who are now fully onboarded compared to the second quarter of last year when eBay was just being launched.
We are also seeing a gradual rebound in travel, as Scott mentioned earlier, and stability in the freelance vertical. These drivers of volume growth are partially offset by a slowdown in certain e-commerce marketplaces, which saw strong growth earlier in the pandemic as demand was pulled forward. Year-over-year comparisons have been more pressured this year. We remain optimistic about e-commerce growth over the long term. We expect volume to grow faster towards the back half of the year as we have typically seen fourth quarter seasonality in our business. At the same time, we anticipate that our revenue growth rates will exceed that of our volume growth as we expect to have continued mix shift towards higher take rate regions and products.
Q2 transaction costs were $26 million, representing 17.7% of revenue, an improvement from 25.7% in the second quarter of last year and 18.7% in Q1. Bank and processor fees, the largest component of transaction costs, increased 11% year-over-year, well below Q2 revenue growth, driving better margins. The year-over-year improvement in transaction costs as a percent of revenue also benefited from lower working capital provisions. Q2 revenue less transaction costs increased 48% year-over-year to $122 million representing 82.3% of revenue. Total operating expenses, including transaction costs, were $150 million, up 16% year-over-year. Excluding transaction costs, operating expenses increased 23% year-over-year.
Given our global footprint, approximately 60% of our expenses are paid in non-USD currencies, and we benefited from the strengthening US dollar. The biggest component of operating expenses is our labor cost, which includes both cash and equity compensation, and represented approximately 60% of our operating expense less transaction costs in Q2. Our labor expenses increased 28% year-over-year, reflecting headcount growth primarily in our sales and marketing and R&D teams, as well as base salary increases for employees and higher equity compensation. Labor expenses were relatively flat sequentially, although we met our hiring expectations in Q2. Therefore, we'll see labor expenses increase in the back half of the year as we recognize the full quarter impact of new hires. We still expect operating expenses to be higher in the second half of the year versus the first half.
Given the uncertain global macroeconomic outlook, we are moderating our hiring plans for the remainder of the year relative to our original plans and focusing our talent investments in areas that will deliver the greatest returns. Q2 operating expenses also benefited from timing as certain items such as marketing initiatives were delayed into the back half of the year. Operating expenses also reflected continued investment in our global infrastructure to support onboarding of additional customers, enhancing our regulatory compliance capabilities, and expanding our transactional capacity. Other operating expenses are growing at a slower pace than sales and marketing and R&D, which help drive future growth, and we expect that to continue going forward. We will continue to make capital investments in areas with large addressable market potential and positive ROIs.
Q2 Adjusted EBITDA was $15 million compared to less than $1 million in the second quarter of last year. Q2 net income was $4 million compared to a net loss of $12 million in the second quarter of last year. Net income for Q2 benefited from a $13 million gain from the change in fair value of warrants. Both Q2 basic and diluted earnings per share were $0.01. Our business continues to generate positive cash flow, and we ended the quarter with cash and cash equivalents of $492 million, an increase of $26 million from Q1. Customer funds grew sequentially by over $510 million to $5.1 billion. More than half of the customer funds on the balance sheet are interest earning and bear no cost.
Q2 interest income increased by $2.8 million year-over-year to $3.5 million. Turning to our outlook for full year 2022, we are raising our prior guidance provided in May. This reflects our latest views on the evolving broader macroeconomic and geopolitical environment, the diversity of geographies and industries that we serve, and the strength of our operations. It also includes our improving outlook on our business in Ukraine, along with the contribution from interest income in a rising rate environment. We are raising our revenue guidance to be between $580 million and $590 million, reducing transaction costs as a percent of revenue to 19.5%, and increasing our Adjusted EBITDA guidance to be between $30 million and $35 million.
We believe our faster-growing regions and higher value services along with interest income will drive revenue growth in the second half of this year. This will be partially offset by softness we expect in e-commerce trends and the lapping of our eBay launch, which started in the middle of the second quarter of last year. Keep in mind, the majority of our revenues come from customers that are not e-commerce sellers of goods. Regarding the war in Ukraine, while the situation in the region remains fluid, our Ukrainian customers have been incredibly resilient. Q2 revenues from Ukraine remain relatively stable sequentially. Going forward, we assume 75% of our original pre-invasion revenue forecast to the region for the second half of 2022. This represents $21 million of revenues, which is approximately $7 million higher than our previous guidance.
We expect to maintain relatively strong take rate performance in the second half as our fast-growing emerging markets and higher value services increase in mix. We also expect to benefit from increases in interest income. We expect transaction costs over 2022 to be approximately 19.5% of revenues, an improvement from the previous guidance of 21.5%. This full year improvement is driven by lower transaction costs as a percentage of revenues year to date, as well as reducing chargeback and working capital costs going forward. As customer mix shifts from higher margin e-commerce to other verticals, however, we expect slightly lower overall margins in the second half. As previously mentioned, we are also revising our 2022 Adjusted EBITDA guidance to be between $30 million to $35 million.
This improved guidance is due to our strong year-to-date results, as well as our confidence in our ability to continue generating positive Adjusted EBITDA going forward while investing in our business to drive additional future growth. Based on our latest guidance, 2022 will mark our eleventh consecutive year of positive Adjusted EBITDA. In conclusion, our Q2 success once again demonstrated our ability to deliver strong financial results. We have built a resilient and profitable business model that benefits from a diverse set of revenue drivers, and we see positive trends for our business going forward. Our ongoing momentum leading into the second half provides us with confidence in our ability to meet our 2022 financial targets while investing to position Payoneer for many years of future profitable growth.
On behalf of John, Scott, and the rest of the Payoneer management team, we thank you for your continued interest and support. We are now happy to answer any questions you may have. Operator, please open the line.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from the line of Bob Napoli with William Blair. Bob, your line is now open.
Thank you. Good afternoon. You know, great numbers. Congratulations. Nice to see.
Uh, so just, uh-
Thank you, Bob.
You know, the take rate. You're welcome. It's good to talk to you, John Caplan, Scott Galit, and Michael Levine. The take rate, obviously, 102 basis points up significantly sequentially quarter-over-quarter and year-over-year. I mean, what inning are we in? I mean, you have so much momentum in the growth of that take rate. I mean, where can we go from here? I don't know. I mean, it's B2B, obviously, working capital, commercial card driving that. You have a lot of momentum in that business. Should we see several basis points of expansion quarter to quarter to quarter for foreseeable future?
Bob, thanks for the question and good to talk to you again. I'll start and give you just kinda some general themes quickly, and then I'll ask Michael to talk about the forward guidance and how to think about that. When it comes to take rate, I would say something to have in mind is there are two parts of the take rate. One is kind of our very intentional and purposeful drive of our higher value services and penetrating our customer base with those.
With that, we very much intend to continue to bring higher take rate value propositions to our customers, and it will continue to provide opportunities for us to increase take rate as customers adopt things like the commercial card and as you talked about B2B AP/AR. Another part to have in mind is mix. As we talked about kind of the relative weakness of e-commerce and relative strength of some of these faster growing, which also are higher take rate geographies, in addition to some of the higher value services, that mix plays a role as well. We are very upbeat about how we're executing on the higher value services, but there are kind of multiple components there. Michael, you wanna talk about the forward look on take rate?
Yeah. Generally we would say that we see it as stable, from this point, being that again, there's a mix of factors and, all in all, we do expect to see volume growth, in the second half, modest volume growth. From a take rate standpoint, we would expect to see it relatively stable.
Okay. Yeah, that the stable seems conservative given the mix items that you talked about going forward. I just did wanna follow up on something that you seem excited about, the team seems excited about, Payoneer Checkout. Maybe if you could give us a little more color on the strategy and, you know, how that's playing out so far.
Yeah. We are excited and we do think that this is a large opportunity and something that we're keen to pursue from a long-term perspective. I think some key indicators to look at, right? We talked about launching in Asia where we see a tremendous amount of excitement, entrepreneurship and eagerness to sell globally. We also announcing our partnership with Shoplazza, again, an indicator of how we see opportunities to collaborate with industry players that are providing services to SMBs, in particular, those focused on global growth and exports. We're still very early days, but this is, again, many of our customers are keen to pursue direct to consumer sales opportunities online.
We also see it as a wedge into new types of customers that we've never had an opportunity to serve before that we think we're very well positioned to serve going forward. Long term excited, still very, very early though.
Great. Thank you.
Thanks, Bob.
Thank you for your question. Our next question comes from the line of Will Nance with Goldman Sachs. Will, your line is now open.
Hey guys. Good afternoon. Very nice results. I wanted to ask on something you mentioned a handful of times in the prepared remarks around the rising rate environment and what that could mean for your business. I'm wondering if you could kind of quantify what that run rate has been more recently, and you know, given the rapid rise in interest rates, what you're expecting, I guess, or in the back half of the year, but more broadly, I think you said something like over half of the customer funds are in interest bearing accounts. Is the idea that, you know, just for round numbers in a 3% Fed funds environment, you know, that should correlate to roughly, you know, $150 million of interest income off of the customer funds on an ongoing basis?
Yeah, Will, it's Michael. I can take that one. As far as the way to think about it, yeah, I think it's easy to model, you know, directionally, we said more than half. Keep in mind though that, we don't always get the immediate impact when rates or when the Fed raises rates. There's a time lag. Also, when we look at balances, it's an average balance that can fluctuate, throughout the quarter. Then there's also the banks themselves will take something, out of it in terms of where the Fed funds rate is. All that together, we would expect that. Again, I think the variable is gonna be, what people do as balances continue to go up.
Not all of our balances are in US dollars, so a portion of balances are being used operationally. Other balances are non-USD, and so that's why not all of it is interest earning. We do focus on trying to optimize. We do think that it will be meaningful in the second half and continue to climb with a very strong exit rate. I think you know from a where we think things if you do the sort of math on current balances, you'd probably come out to yeah low- to mid-20s in the second half in terms of interest.
Got it. Okay. Very helpful. I'm guessing that was $20 million-$25 million of revenue. Just confirming that. I'll lump in my second question. The guidance for the remainder of the year, it seems a bit conservative given, you know, the results to date. Implies kind of EBITDA down in the back half, you know, much lower than what you've seen in the first half, and revenue decelerating. I know we've been talking about, you know, difficult e-commerce comps for most of the year. I kind of thought we might be getting towards a little bit easier comps in sort of the back half.
Just can you talk about, you know, layers of conservatism that you guys are layering in, just given the uncertain environment, the environment and particularly around e-commerce and, you know, what's on your mind in terms of, you know, room or, reasons you might be able to outperform that?
Yeah. We are being cautious obviously because there are a number of uncertainties. You mentioned it, you know, you have inflation, you know, macro issues in terms of economic growth and, you know, where the Fed will actually go in terms of rates as a result. There are a number of different variables. I would say that, you know, we did take a cautious view on that. You know, from an overall economic standpoint, you can see that the implied transaction profit or the variable profitability will continue to increase in the second half. We'll continue to invest. We're not investing, but we're going to moderate our investment from our original plans given some of the uncertainties in the marketplace.
Got it. That's super helpful. Appreciate you taking the questions and nice results.
Thank you, Will.
Thank you for your question. Our next question comes from the line of Sanjay Sakhrani with KBW. Sanjay, your line is now open.
Thanks. Good morning, good afternoon. John, you mentioned you wanna upsell to existing clients. I'm just curious, sort of if we think about what that addressable opportunity is, you know, can you help us think about what that might be and how quickly you can come through then to the numbers? Thanks.
Thanks for the question. You know, I'm in my first couple of months, so I will defer some specifics as we're putting the plans together. I'll share this context. We have an exceptional go-to-market team with relationships with our customers in the emerging markets around the globe where they are. We have a diverse portfolio of products, and we think we have the opportunity to increasingly introduce those products to our customer sets across the globe. The team is looking at ways to achieve that, and I think in 2023 you'll see that as a focus of the organization.
Okay, great. Michael, can you just help us think about the eBay contribution in the back part of this year? Like, what's incremental and sort of where it run rates going forward?
Yeah. We haven't broken out eBay specifically, and in general, we don't break out specific clients or customers. What I can tell you to help give you more color is that we did start the launch a year ago, Q2 last year. When you start seeing the lapping really started Q2 over Q2 and started to increase as we onboarded into the rest of the year. What you'll see is that we had a you know a meaningful benefit comparing year-over-year in Q1. Q2 is a little mixed because it was being launched in Q2. You start seeing that impact of the lapping in Q3 and Q4, where it's more of like-for-like, so less of a benefit in terms of the growth.
When we look at the implied growth in second half from the revenue standpoint, part of the reason why you would see a lower implied growth rate in the second half from the first half is that lapping of eBay.
Okay. That's very helpful. Thank you very much.
Thank you for your question. Our next question comes from the line of Josh Siegler with Cantor Fitzgerald. Josh, your line is now open.
Yes. Hi. Congratulations on the strong results this quarter. I'd appreciate some additional color on the value-added services portion of the business. Specifically, can you comment on the flywheel effect occurring, especially as you scale this portion of the business?
Great. Thanks, Josh. It's Scott. Yeah, the exciting part of a number of these higher value services, I'll start with B2B AP/AR, is the kind of network effects that kick in and naturally in some ways, growth begets growth. We very much see that as our teams are able to actually sell
Suppliers around the world, that those suppliers then essentially kind of introduce us in some ways to buyers, who tend to be in developed markets. We often then see those buyers start to recognize and understand that they can use Payoneer to pay their suppliers, not just the initial one that introduced them to us, but others. The kind of network effects continue to propagate from there. It's actually something that's been consistent across our business, across different vertical market segments, partnerships, things like that. In terms of the, some of the other higher value services, I think the other one that I think is the most consistent theme for us around the world would be the card.
As we're starting to kind of introduce that and grow that, again, seeing a lot of excitement. It's a great win-win-win type of opportunity, where we get to essentially lower the cost of our customers for their entire kind of relationship with Payoneer, provide them with additional utility, and generate a higher take rate for us overall. All things considered, really terrific value proposition, and we're excited to continue to introduce that. We had good continued performance in the second quarter there. We think there's still a long way to go, but we're excited about where we're headed.
Excellent. Really appreciate the color there. How are you guys thinking about Payoneer's positioning, especially as we enter an uncertain macroeconomic landscape? Are your end customers beginning to express any shift in strategy with how they'll engage with Payoneer in the near future?
Yeah. I think in general, the what we're seeing at this point. Let me rephrase. From our point of view, the way we're approaching it is we're continuing to engage the market largely as we have. As Michael mentioned, given the increase in uncertainty, we are moderating the pace of some of the investments that we've been planning, just to make sure we don't accelerate too far too fast on some things. Overall, the way we engage the market and engage customers, we continue to see lots of demand, lots of excitement around the world to participate in the global digital economy. Again, I think everybody feels some increased uncertainty, so they're factoring that in. So far, it's not changing the way they want to actually engage.
In some cases, it's increasing the pace of their efforts to diversify and explore other opportunities themselves. We think we're well-positioned with a diversified set of products, geographies, vertical markets that we serve to help customers around the world navigate this uncertain environment. That's how we're approaching it.
Great. Thank you very much, and congratulations again.
Thanks, Scott.
Thank you for your question. Our next question comes from the line of Ashwin Shirvaikar with Citi. Ashwin, your line is now open.
Thank you. Hey, great quarter, guys. Congratulations.
Thanks, Ashwin.
I guess I was hoping to get any sort of disaggregation, if you will, between the factors that sort of have been driving revenue growth as we think of, you know, growth in number of customers, growth in number of markets, rate environment, sort of the fee-based or non-volume kinda services. You know, is it any help in terms of disaggregating what's more or less important to growth as we look at the next six to 12 months?
Ashwin Shirvaikar, it's Scott. I'll start and if Michael Levine has some specific numbers to share, I'll ask him to chime in at the end. I'd say a few things. One, I mean, we've consistently been looking to highlight B2B AP/AR, which this quarter re-accelerated from the first quarter and delivered 66% volume growth year over year. We do expect that to continue to grow at a faster pace than the business overall. As I was just touching on a minute ago, when we kind of the most consistent themes that we're hearing from our teams around the world right now is the excitement around B2B AP/AR and the excitement around Card.
Those are both in a position where they are contributing positively, the B2B AP/AR, to bringing in additional customers and additional volume. The Card, in essentially enabling our customers to do more and also us to generate a higher take rate from the existing flows that we have. We are seeing faster growth in certain geographies, and so we're excited to highlight areas like Latin America, and South Asia, Middle East, North Africa, both of which are also growing quite a bit faster than the rest of the world overall. We've been making investments. We hired a new regional lead in the Middle East and North Africa.
our teams there, again, it's really big geographies in terms of the population, in terms of the digital adoption, and we're still pretty early days there, and so a lot of room to continue to grow. When we look forward, I think, the growth of the higher growth markets, the growth of the higher value services, in particular B2B AP/AR and Card, will continue to be the drivers in the next
Got it. You know, just based on what you said, if I said that your payback period should continue to shrink, would you agree with that? Would that, you know, I mean, is it possible to kind of say, you know, is it heading down into the few, you know, couple of quarters time zone as opposed to roughly a year that it used to be, because you now have a fuller range of products and faster adoption and so on?
Yeah. What I would say is we continue to feel good about our in general low customer acquisition costs based on the strength of our brand, and that we have a healthy return on the investments that we make to drive additional customer acquisition. We're not modeling in anything specific as it relates to payback period.
Okay. Got it. Thank you.
Thank you for your question. Our next question comes from the line of Mayank Tandon with Needham & Company. Mayank, your line is now open.
Hey, guys. This is actually Sam Salveson for Mayank today. Thanks for taking the questions, and congrats on another really strong quarter here. Really nice growth in the emerging markets segment. I was wondering if you guys could unpack some of the drivers behind the strength there in Latin America, Middle East, North Africa, et cetera. Maybe, you know, also how you guys are thinking about growth in these markets through the remainder of 2022, given, you know, the tough macro environment today.
Yeah. Just I'll briefly give you kind of the playbook. I mean, these are regions that are large. They're actually more recent for us in terms of actually putting regional managers on the ground in those areas and starting to build out local teams on the ground. We think we still have a lot of room to go here. The most consistent themes that we're getting from those regions are the real excitement about customers using our B2B AP/AR services and the opportunity to capitalize on our ability to help them really grow and accelerate their business globally. We would expect that these regions are still in the relatively early stages of growth, lots of room to run. They'll continue to grow at a premium to the business overall.
When you see things like the continued growth of things like remote work, when you see actually there's some interesting trends as companies in Asia are looking to diversify and broaden the geographies that they're selling into, regions like Latin America are really high on their list, actually Middle East as well. Again, big populations, rapid acceleration of digital adoption. We really think there's a lot of exciting opportunities there.
Got it. That's super helpful. Thank you for that. Just a quick follow-up from me. Most of my questions have been answered. You know, given the more challenging macro backdrop today, are you guys seeing any changes in the pace of adoption, you know, specifically within those higher take rate products?
No. We, in general, you know, we see healthy customer acquisition trends. We see healthy adoption of these higher value services. No, overall, we're continuing to see positive customer demand for growing global businesses and for working with Payoneer to do it.
Great. Sounds good. Thanks, guys. Congrats again.
Thank you, Sam.
Thank you for your question. Our next question comes from the line of Mike Grondahl with Northland Securities. Mike, your line is now open.
Hey, thanks, guys. I'll pass on congratulations, too. Two maybe quick questions. One, in your B2B AP/AR offering, roughly how penetrated that is across your customers? Maybe secondly, it sounds like travel came back some, but we know Asia and the emerging markets are a little slow. How is travel-related revenue maybe compared to pre-pandemic levels overall?
Yeah. First, Mike, thanks, and good to talk again. B2B AP/AR, we are, as we touched on, 12% now of the volume of the business overall. Directionally, about a third of that is with customers that are using us for B2B AP/AR and something else, meaning they're selling through some other channel and using Payoneer. Two-thirds are using us really almost exclusively just for the B2B AP/AR. It is something that we do have a number of customers that are using it. We believe there are many more opportunities for us with existing customers. Actually, I would say the bigger opportunity there overall is expanding the universe of potential customers for us.
We are seeing more and bigger opportunities around the world for B2B AP/AR with larger customers. On travel, overall general themes, and then Michael can size it. Travel, it is still down from where we were pre-pandemic. The routes that we support at scale tend to be routes that are kind of more, again, emerging markets or markets that are a little further afield, and those have been recovering more slowly. We are not back to parity versus pre-pandemic. Michael, you wanted to talk briefly about the sizing?
Yeah. I would say that it's really more the mix, Mike. Really it's the you know what we saw from the pandemic is that the mix of countries changed. As a result, as you know, volumes started to increase, we didn't see the same revenue benefit, and we had a lower take rate. That take rate started to come back, but it's lower than the overall take rate.
Got it. Okay. Hey, thank you.
Thank you for your question. Our next question is a follow-up question from Bob Napoli with William Blair. Bob, your line is now open.
Thank you. I think you serve over 5 million SMBs, and you talked about, I think, Scott, last quarter, or Michael, 200,000 apps per month. Can you give an update on the growth of the SMBs that you're serving, and are you still seeing, you know, what type of demand as far as apps per month or, you know, engagement are you seeing? I guess, related to that, I guess, I mean, what percentage of your customers that you bring on are self-onboarded?
All right, I'll go through a couple of points. One, we continue to see very healthy application volume. It continues to exceed the 300,000 a month. We acquired more customers in Q2 than we did in Q1, and we continue to have positive customer acquisition trends overall. In terms of how they kind of onboard, the vast majority of those are customers that sign up themselves directly at Payoneer.com. On average, those customers are smaller customers than the average customer at Payoneer. When our sales teams around the world go engage with prospects, on average, those are customers that are quite a bit larger.
A way to think about it is kind of the supermajority of the applications are smaller customers that are self-serve and signing up on Payoneer platform. The majority of the customers that our sales teams are acquiring, which is a smaller percentage overall, although growing in its importance in our business overall, on average are quite a bit larger.
Thank you. Just on the merchant services business, can you give any update on the growth of that business?
Yeah. Still very, very small and early days. Again, we're still earlier on and excited, but a long way to go.
Thank you. Appreciate it.
Thanks, Bob.
Our next question is a follow-up question from Ashwin Shirvaikar with Citi. Ashwin, your line is now open.
Thank you. Question is on transaction costs. If you don't mind going through the dynamics there with regards to what happened the quarter with capital advance and collections. I didn't quite follow that part of it.
Sure. So a year ago in Q2, we had higher amounts of write-offs. Really there are two things when you look into the components of transaction costs. As when you identify the biggest delta, was really looking at the change for our capital advance costs, which came down, you know, roughly by about $5 million. That's because we had higher write-offs last year. The market has improved or our credit concerns have improved. The second thing I wanna highlight is just that the biggest component of transaction costs, which are bank and processor fees, you know, continues to grow at a significantly lower rate than our revenues. This is really reflective of the fact that we continue to get benefit from our scale.
We continue to negotiate low rates. This has been, you know, one of the big drivers that's really helped us continue to improve over time, and will continue to help us manage, is the ability to leverage our scale.
Understood. On that, I guess the second point you were talking about payment network incentives and stuff like that, do you also benefit from when networks sort of increase pricing?
You're talking about in terms of Mastercard? Is that when you say networks?
Yeah. Yeah. Exactly.
Yeah. The incentives are part of a relationship related to the Mastercard commercial cards that we offer. That is actually something that's just a consistent part of the way we're managing the P&L. Nothing of any great note there.
Understood. Got it. Thank you for the clarifications. Appreciate it.
Okay.
Thank you for your question. That concludes today's Q&A session. I would like to turn the conference back over to John Caplan to conclude the call.
Thank you everybody for joining us today and for the great questions. I'm excited about the sizable growth we have in front of us. We have a diversified cross-border business that will continue to benefit from the secular shifts towards digitalization and globalization. Our brand is strong. We are increasingly seeing momentum in our business, and we are focused on executing so we can continue delivering revenue growth and future profitability. I wanna thank all of our incredible employees for their dedication and passion every day, and their focus on our customers. Thank you to all of our shareholders for their support. We are looking forward to talking with you again soon.
Concludes today's Payoneer Q2 2022 earnings conference call. Thank you for your participation. You may now disconnect your line.