Ingo Uytdehaage, Adyen | All-In Summit 2024
Table of contents
- Revolutionizing payments isn't just about transactions; it's about transforming the entire financial landscape with innovative technology.
- Building a successful business means thinking global from day one, especially when you're in a small market.
- Proximity to customers fuels success; being local isn't just an option, it's essential.
- Stable coins are reshaping cross-border transactions, proving their worth where traditional systems falter.
- Combining advanced technology with regulatory expertise creates a powerful solution for tackling financial crime on a global scale.
- Success is all about smart execution and finding the right balance between cost and efficiency, especially in a rapidly changing market.
- In a world where financial power is shifting, the future of money may not rely on traditional systems like SWIFT, but rather on innovative technologies and partnerships that redefine economic dynamics.
Revolutionizing payments isn't just about transactions; it's about transforming the entire financial landscape with innovative technology.
This has been one of the hottest growing areas of financial services. Adan is not just a normal payment provider; while payments usually are a very unsexy piece of our industry, you guys made it sexy. The growth in our Ona platform has been very significant. We are investing for the future. If you work with newer technology, you get better quality. We completely rebuilt the infrastructure that is typically run by banks, and by doing that, we achieve much better conversion rates for our customers.
Ladies and gentlemen, please welcome the co-CEO of Adan, Ingo. Hi, good to see you! Let me give just a little brief overview for a second. Ingo has been with Adan since 2011, first as the CFO and now as co-CEO since May of 2023. Adan is based in the Netherlands, founded in 2006, and is one of the largest payment processors in the world today. In 2023, Adan processed nearly a trillion Euros in payment volume. They had net revenue of 1.6 billion Euros and an EBIT of 743 million Euros, with a 46% EBITDA margin—incredible!
It's a capitalist conference; we applaud for that! Oh my God, can you just say it one more time? The company reported a 24% year-on-year revenue growth in H1 2024. They just expanded into India, which is really interesting, and we want to talk to you about that. Your market cap is today, actually, I just checked, about 45 billion American dollars. So it's one of the most successful, not just European tech companies of all time, but frankly, tech companies of all time.
Welcome, Ingo! Thank you for having me today. You're the former CFO, and I'm going to put you on the spot. You're no longer the CFO nor the co-CEO of Adan; you're an analyst at an investment bank. Your managing director says, "Put together a spread trade; you can be long or short one of Adan and Stripe." How do we construct the business case?
That's a really good question. Just the parameters of how we construct the case: I would say if you look at this industry, for ourselves and Stripe, there is a lot to win because I think we are the only two companies globally that are investing in technology in financial technology. If you look at where most of the business currently is, it is with the traditional players—it's the banks and incumbent players. So, I would certainly go long for both of us because I believe that together we are going to change this industry.
That's how I look at Adan versus Stripe. We come from different angles, but what I really appreciate about them is the fact that they also innovate. Competition is good. We're a company of a lot of athletes; we like to compete.
When you do compete in the marketplace, are you competing then with Stripe, or are you competing more with incumbents where traditional players are looking for payments? I would say, of course, there are areas where we compete with Stripe, but if you see where we win most of our business, it's with the traditional businesses—indeed, the incumbents, the banks. That's where the volume comes from.
What do they find? They find both that the cost is too high and that the technology is too brittle for what they need to do today. Exactly. If you look at this industry, banks and incumbents haven't invested for ages. We built everything from the ground up, so we have a single platform globally. What we can do is lower the total cost of payments and increase authorization rates. That combination is very powerful.
The reason why we can do that is that we have lots of data in a single platform. Now, at the end of the day, you guys still sit on top of these fundamental rails, right? Meaning, is there a way where we are in a world where the traditional payment infrastructure and the traditional credit card rails disappear? Or will there be enough, like specifically the networks like SWIFT and the banks themselves? What role do these people play, and why do they exist?
Well, it's a good question. I think indeed what we try to replace is the fundamental infrastructure.
Building a successful business means thinking global from day one, especially when you're in a small market.
Payments and increasing your authorization rates is a very powerful combination. The reason we can achieve this is that we have lots of data in a single platform. At the end of the day, you guys still sit on top of these fundamental rails. This raises the question: is there a way where we are in a world where the traditional payment infrastructure, specifically the networks like SWIFT, and the banks themselves, will disappear? What role do these entities play, and why do they still exist?
That's a good question. Indeed, what we try to replace is the fundamental infrastructure. In the US, we have our own access to the Federal Reserve; we have a banking license in the US, so we don't need commercial banks to be successful. This is crucial for our development. If you look at the long term, many small businesses struggle to work with banks. A lot of the software service providers build banking as a service, but there are only a few companies globally that can offer this. We want to be that player, that partner for these types of companies, to help them sell financial products. This is also why we have expanded from payments to broader financial technology.
Have you ever had a conversation internally that went something like this: "Ah, 46% DEA, that's a lot. We don't need that. How much of that 743 million would grow the business if we just took it to zero for our investors for the next few years? Could I grow twice as fast? Is that better in the long run? Why be this profitable?" I think profit is, for me, the same as value. If we deliver value and have premium pricing, merchants are willing to pay a premium for the value we bring. I would be afraid that if we just went for the lowest price—which we potentially could, as we run at the lowest cost as an infrastructure—we would destroy a lot of value that still exists. I'm not sure that if you just go for price, you would have the right conversations about the value you bring. That's the reason we haven't done that so far. However, it's a question that you should always ask yourself: can you invest more in the business to accelerate growth? That's still the trade-off we are making every day. Our main focus is on revenue growth. If we can invest and see an opportunity, we will, but we have a long-term view.
What’s it like building a company based in the Netherlands? What is it like hiring people? Do you make them come to the office? How has the culture changed? Building a company in the Netherlands, or starting in the Netherlands at least, makes you aware that you need to go international from day one. The Netherlands is a super small country; you can never build a very successful business just based on the population there. So, we immediately went international. In the beginning, we hired mostly in Amsterdam, focusing our operations there. This shifted about ten years ago when we expanded to the US and started building our team here.
Now, there is a significant base in the US, with more than 800 people working here. The US is our largest market outside of Europe, and it is growing fastest, already accounting for one-third of our total revenues. I find it very interesting to see how this has changed our company. We have a different perspective on how we should serve merchants. Not being local in the beginning did not help us solve the real problems. You need to have product and engineering very close to where customers are. When we made that shift, we gained more traction. With the current setup, where over a third of our revenues are already in the US, we see that we win a lot of domestic brands.
I think we are also proving that payments is not a commodity. Do you find there are differences in employee issues and employee quality between America and Europe? I think there are very talented people in both markets. Honestly, the technology market in the US is way more advanced.
Proximity to customers fuels success; being local isn't just an option, it's essential.
In discussing the different perspective on how we should serve merchants, it is clear that not being local in the beginning did not help to solve the real problem. To effectively address customer needs, it is essential to have product and engineering teams very close to where customers are located. When we made that shift, we experienced more traction. With the current setup, where over a third of our revenues are already in the US, we see that we are winning a lot of domestic brands. This success also proves that payments is not a commodity.
When comparing employee issues and quality between America and Europe, I believe there are very talented people in both markets. However, the technology market in the US is significantly more competitive than in Europe. We benefit from being one of the few companies in Europe, which makes it relatively easier for us. Our brand awareness in Europe is higher than in the US, and this is one of the areas we are currently working on to ensure that more people become familiar with our offerings. Ultimately, we are a business-to-business brand, which requires an additional push to showcase what we do.
We work with some of the largest companies globally, including online giants like Google, Meta, and Microsoft, as well as retail leaders such as H&M, Nike, and Gap. Having these companies as referral customers enhances our ability to enter markets like the US. However, there are challenges associated with being based in Europe, particularly regarding shareholder interest. American investors, both public and private, tend to invest primarily in American companies. This situation raises the question of whether it is hard to attract a shareholder base and how this affects our valuation.
There is indeed a valuation gap when comparing private market valuations, such as Stripe, to our public valuation. This gap can be attributed to the challenges of building a shareholder base and generating interest as a European company. Our biggest private round occurred in 2014, during which we recognized the need for a global investor base. This realization led us to partner with firms like Iconic, General Atlantic, and TASC from Singapore, who have been very supportive over the years leading up to our listing in 2018.
Initially, we were convinced that we would list in the US, given that most technology stocks do so. However, when we evaluated valuation and index inclusion, we found that listing in Europe was as easy, if not easier, than in the US. In fact, we received a premium for listing in Europe because we had a significant US investor base—approximately 60-65% at the time of listing. This combination worked well for us.
There is a notable difference between public and private markets, which explains some of the valuation discrepancies. I believe that this will eventually rationalize over time. If we are both public, the comparison will be based on the same numbers, focusing on growth rates and profitability. If liquidity were lacking in Europe, I would consider listing in the US. However, there is sufficient liquidity in Europe, and we have the size to support it.
In conclusion, while there are challenges, I am confident that these valuations will converge over time as the market differentiates between promise and performance. The public market emphasizes performance, while private market valuations often reflect potential. If we were sitting here ten years ago, this entire conference would likely have centered around crypto and its perceived impact, with concerns about how our business would be affected by it.
Stable coins are reshaping cross-border transactions, proving their worth where traditional systems falter.
Profitability is a key consideration when discussing potential deals. If I were to list in the US, it would only be if there were no liquidity in Europe. However, there is sufficient liquidity in Europe, and we have the necessary size to operate effectively there. Therefore, it is not a pressing issue at this time.
Valuations in the market will eventually converge, especially as the public market focuses more on performance, while private markets are still betting on promise. The EIT margins are currently exceptional, which is fantastic for our business.
Reflecting on the past, if we were sitting here 10 years ago, this entire conference would have revolved around crypto and its supposed transformative impact. There was a belief that crypto would eliminate the need for banks, countries, and nation-states, with everything being resolved through blockchain technology. However, that has not materialized. One promising development in this landscape is the rise of stable coins. For instance, Circle in the United States is performing well and is on track to go public. In contrast, Tether has faced bans in several countries and has been associated with illegal activities.
I am curious about your thoughts on the concept of stable coins and their impact on the industry. They seem to be functioning effectively, especially in international markets. While we do not see much of this in the United States, in other countries, Tether and Circle are being utilized for numerous transactions, and there is a belief that they will eventually be used for business transactions on a larger scale.
In response to this, I think the question revolves around whether we are looking at domestic payment flows. In well-developed markets, I do not see a high demand for stable coins, as we are currently processing transactions in these markets. However, for cross-border transactions, we still rely on relatively outdated systems like SWIFT, which has its own challenges. This is where I believe there is potential for stable coins.
Would you ever consider launching a stable coin? No, I think we would prefer to work with existing stable coins. Partnering with established entities has always been our model. We aim to bring financial technology to our customers while collaborating with our partners, as they contribute significantly to our success.
One of the topics we frequently discuss is censorship. Beyond the idea of censorship, there is a more concerning issue: financial censorship and deplatforming. A notable example that brought this to our attention was the situation with truckers in Canada who protested a few years ago and were effectively deplatformed from financial services.
How do you balance this as a company that serves as a critical artery for processing money for millions of people? One approach we take is to collaborate with platforms that have these truckers as customers. These platforms possess valuable knowledge about their clientele. By combining that knowledge with our financial technology, we can create a strong outcome. They understand the industry and the business data of these individuals, while we bring expertise in areas such as money laundering prevention and terrorism financing.
This collaborative approach positions us well against traditional players like banks, which may lack the necessary knowledge to operate at scale. From the outset, we have emphasized the importance of anti-money laundering (AML) measures and have heavily invested in machine learning to develop scalable solutions. Our goal is to provide these capabilities to our partner companies.
Is it complicated being a European company compared to an American company in this context? There are certainly challenges, especially given the regulatory landscape and the need for compliance across different jurisdictions.
Combining advanced technology with regulatory expertise creates a powerful solution for tackling financial crime on a global scale.
The business data of these people, combined with what we know is needed in the financial industry, particularly around money laundering prevention and terrorism financing, creates a very strong proposition. I believe this is the answer to the more traditional players like the banks, which often lack the knowledge to execute these tasks at scale. From the start, we have been focusing on everything related to AML (Anti-Money Laundering) and machine learning. We have invested heavily in this area to build something very scalable, which is what we aim to offer to our companies.
When asked if it is complicated being a European company compared to an American company, I responded that we have really shifted from being a European company to a global company. We need to comply with local regulations everywhere, and we see ourselves as much a US company as a European company. Our operations are built to ensure that we can compete with every competitor in the US on the same level, which necessitates compliance with local regulations.
Regarding our expansion to India, the exposure in that market is incredibly dynamic, with many varying regulations. Our journey in India began in 2018-2019, and one of the most challenging aspects has been the data localization rules. For a global platform with a distributed database, we realized that we couldn't store data of Indian citizens outside of India. Consequently, we had to re-platform our data infrastructure, and now we have local data centers in India. We have obtained all the necessary licenses and are one of the few international companies—possibly the only one—that can offer services to international companies wanting to operate domestically or cross-border in India. Although this is a relatively niche play in India today, it meets a high need for our biggest customers.
We have always focused on following our customers; if they want to enter a new country, we ensure that we are prepared for it. This is a long-term investment that has been ongoing for six years. To me, India resembles China circa 2005. If you had simply closed your eyes and invested in the entire country index back then, you would have seen significant returns by now. I believe India is on the verge of a multi-decade renaissance with less regulatory risk on the back end. The regulatory rules are now clearer from the start, which we appreciate. Ultimately, our company is a combination of technology, regulatory knowledge, and the right banking licenses. If we execute this well, we will be in a unique position.
As the conversation shifted towards AI, I noted that while everyone is discussing AI and the need for an AI solution, the real on-the-ground experience of building with machine learning and AI is crucial. There are indeed significant developments in production that matter. For instance, we have optimized transaction routing using AI. We recently launched a new method for US debit routing, where AI helps us make the best trade-offs for merchants, resulting in over 20% lower costs. This optimization involves intelligently determining which processing rails are cheaper at any given moment, balancing that with the authorization rate.
We work with major companies like eBay and Microsoft to implement this, and the results have been very promising. This system is currently in production. Additionally, we focus on internal applications for our support functions, which are more centered on general AI. We have always built our company around open source principles, and we are open-sourcing our models as well. We have a wealth of data that supports these initiatives.
Success is all about smart execution and finding the right balance between cost and efficiency, especially in a rapidly changing market.
In our efforts to make the best tradeoff for merchants, we aim to lower the cost significantly. By routing transactions intelligently, we can achieve a 20% plus lower cost. This involves understanding which rails are cheaper at any given moment, while also considering the trade-off with the authorization rate. We collaborate with major companies such as eBay and Microsoft to launch these initiatives, and we have seen very good results. This system is currently in production.
Another aspect of our operations involves our internal support functions. We have always built our company around open source principles, and we are now open sourcing our models. Our extensive internal data allows us to enhance these efforts. When it comes to the question of whether we have found enough motivation to displace the humans currently performing equivalent work, the answer is nuanced. While we have not displaced anyone yet, it is possible that this will happen in the future. However, we believe that the business will continue to grow, allowing everyone to thrive.
Our focus on automation has always been high. If you ask where our IDA margin comes from, it is clear that our volumes relative to the number of employees are quite low. We plan to continue this trend, with AI helping us to further scale our operations.
When considering the American companies that are burning money on businesses smaller than ours, I often find myself scratching my head. We are closely monitoring these huge investments to see where we can benefit, but we prefer to be smart followers. Our strategy has always been about execution. We started the company with Enterprise Merchants, and the only way to prove our capabilities to the largest merchants is through tangible results rather than mere discussions.
On the topic of operating in authoritarian countries, such as China, this is indeed a polarizing issue. Some companies have chosen not to operate in China due to human rights issues and the potential need to hand over dissidents. However, we have a significant team in China that successfully sells to Chinese merchants looking to enter the US market. We strive to be pragmatic in our approach. If we can comply with local rules, we will.
Our decision-making process is based on a country-by-country basis. There are countries where we have opted not to operate due to limited demand or instability. Regarding the anti-SWIFT movement, there is a growing sentiment that the West has too much influence over the movement of money, which can lead to sanctions. I believe there is a likelihood that alternatives to SWIFT will emerge, and stable coins could play a role in this transition.
In a world where financial power is shifting, the future of money may not rely on traditional systems like SWIFT, but rather on innovative technologies and partnerships that redefine economic dynamics.
The discussion revolves around the complexities of doing business in various countries, highlighting that it's a tradeoff. There are countries where the company has chosen not to operate, primarily due to limited demand or instability. The decision-making process is conducted on a country-by-country basis.
A significant topic raised is the anti-SWIFT movement, which suggests that America and the West exert too much influence over the movement of money. This influence allows them to impose sanctions, as discussed by David in previous podcasts. The question arises: Is there really going to be an alternative to SWIFT? The response indicates a likelihood of alternatives emerging, particularly in the form of stablecoins, which could serve as a long-term solution. Additionally, the alternative may not solely be legislative but could also be technological.
The conversation then shifts to the idea of companies striving to reduce their dependence on SWIFT, even within the Western world. A question is posed regarding whether sentiment analysis is conducted within payment flows to gauge the economic health of certain countries. The speaker acknowledges this as an interesting topic and expresses a desire to leverage their data for a more dynamic view of economies. However, they note that their current growth primarily stems from share of wallet wins, making it challenging to separate this from underlying growth. They mention having access to a dataset of over a billion unique shoppers, which presents potential for deeper insights in the future.
The discussion also touches on PayPal, which is viewed as an important partner rather than a competitor. The speaker highlights their collaboration, including a recent press release about their new Express Checkout feature.
Lastly, the conversation addresses the unique structure of having co-CEOs. The speaker explains that Peter, the founder, focuses on the culture of the company and engages with merchants frequently. They emphasize that their partnership has been established for 13 to 14 years, allowing for a natural working relationship. Each co-CEO has their strengths and weaknesses, which contributes to their successful collaboration. The speaker concludes by thanking the audience for their engagement.