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Two Aussie fintechs that aren’t Afterpay

There’s more to the Australian fintech sector than buy-now-pay-later.

Mentioned: Tyro Payments Ltd (TYR), EML Payments Ltd (EML), Block Inc (SQ)


Afterpay may snag headlines but it isn’t the only Australian fintech worth a look. Since September, Morningstar has initiated coverage on two Australian fintech firms working in the payments space.

EML Payments (ASX: EML) facilitates payments via pre-paid cards or in real time. Tyro Payments (ASX: TYR) runs the country’s fifth largest network of EFTPOS terminals. You’ve probably paid for coffee on one of their terminals.

Both firms have carved out niches and are expanding into adjacent products and services. Our analysts think they have the potential to succeed and scale.

But that potential comes with caveats. Cashed-up competitors could swoop into EML’s and Tyro’s niches. Despite early successes, neither company qualifies for a Morningstar Economic Moat—which is awarded to firms with competitive advantages expected to persist for a decade or more.

In other words, they’re promising growth stories with a dose of uncertainty. For those looking to add some higher risk names to their portfolio, we spoke with equity analyst Shaun Ler about these two newcomers to the Morningstar coverage universe.

EML Payments

What do they do?

EML builds the infrastructure to allow payments via prepaid cards or in real time. They’re the world’s largest provider of shopping mall gift cards and if you’ve ever redeemed a store card, EML was probably involved. Prepaid cards extend to uses such as welfare cards for governments and EML helped facilitate stimulus payments during the pandemic.

What does our analyst like about the business?

Ler likes EML’s efforts to diversify into new businesses and its potential to scale.

The company is expanding from pre-paid cards into digital banking and real-time payments. It’s also now the primary prepaid card supplier in the Australian salary packing market.

“A strong trait of EML has been its ability to extend the capabilities from one product to many. This helps it diversify and grow steadily in the burgeoning digital payments market,” says Ler.

The firm’s business is highly scalable. The costs of facilitating digital payments are relatively fixed—a digital solution only needs to be built once. If the firm can grow revenue, it will be doing so against stable fixed costs, a potential recipe for strong earnings.

What should investors keep in mind

EML is a “strong contender” in the payments space, but Ler says it doesn’t yet merit an economic moat because of limited switching costs and deep-pocketed competitors.

First, switching costs. EML’s payments solutions are nice-to-haves. They solve problems but aren’t critical to client businesses, says Ler. That raises the risk customers could swap to a competitor or ditch the service altogether.

“Its cards are substitutable… a BNPL firm can still finance a transaction without EML's digital card solution. Governments or gambling operators can still make disbursements without prepaid cards. Retailers are free to accept money from a variety of payment forms,” he says.

Then, there’s the competitors. Ler thinks there’s the risk that new entrants undercut EML on pricing or new payments methods make their core business irrelevant.

“Competition risks exist. We see the potential for larger, well-resourced incumbents to prevent EML from building a sustainable competitive advantage.”

Ler initiated coverage at $4, a 27% discount to Tuesday’s $2.92 closing price.

Tyro Payments

What do they do?

Tyro is Australia’s fifth largest provider of EFTPOS terminals after the big four banks. The firm uses its terminals as a gateway for selling customers additional features, such as banking and commercial loans.

What does our analyst like?

Tyro is building market share even as it adds new features and products that increase the likelihood customers stay with the firm.

The firm has doubled its share of the Australian card payments market in the last five years, with close to 4% share in fiscal 2021 versus 1.6% in fiscal 2016. The firm has proved adept at building in features that appeal to its niche merchant cohorts, says Ler, for example making it possible for restaurants to split bills.

Ler expects the firm to pursue acquisitions to broaden the services it offers clients. He forecasts Tyro will grow its market share to 9% over the next decade.

What should investors keep in mind

Similar to EML, competitors are a major spoiler for the Tyro growth story.

The big four banks still dominate the merchant payments business and guard those relationships jealously. Tyro has made inroads at the expense of small non-bank players and by focusing on niche merchant segments.

In addition to the big banks, foreign competitors such as Square (SQ), could decide to move into their niche, says Ler.

“We think Tyro's offerings are replicable by larger firms with existing and bigger payment networks,” he says.

“The major banks have reinvigorated their focus on banking and global merchant acquirers are contending for a slice of the overall payments market.

“Both these dynamics point to intensifying competition and are the key reasons why we believe Tyro does not have an economic moat.”

Morningstar initiated coverage on Tyro Payments at $3.4, a 21% premium to Tuesday’s closing price of $4.06



© 2023 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This report has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or New Zealand wholesale clients of Morningstar Research Ltd, subsidiaries of Morningstar, Inc. Any general advice has been provided without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782.

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