In January the Swedish gambling market regulated, having a huge effect on the operators active in the market and, in many cases, we saw drastic results — like stock values crashing. By reducing payment costs you can turn that ship around.
Problem gamblers have blocked themselves or turned to unlicensed operators. Which, in turn, have led to loss of volumes. Couple this with 18% tax and you have a recipe for plummeting profitability. We can see the same effect in other regulated markets. Long term regulations will be good for the iGaming industry, making it sustainable and sound. Short term, however, it hurts profitability for serious companies.
As operators try to recoup from tax costs and lost volumes they have started looking at cost reductions. In our experience companies keeps missing one area — cutting payment costs!
Bank payments dominate the Swedish market with many companies paying up to 2% in payment costs. When you consider all fees that’s approximately 15% of GGR. In a regulated market, that’s utterly unreasonable. Realistically, most companies should have the potential to cut their payment costs by 50%. Maybe more.
In the example above that would mean a cost saving of 17,5 mSEK — directly improving the bottom line and increasing EBIT from 32,5 to 50 mSEK. By applying a reasonable multiple (P/E 10), it would mean an increased value of the company with 175 mSEK or 54%.
Many companies have gone after marketing, content or operations to try to cut costs. As a result they might have saved the odd cent, but most likely they have also hampered growth and lagged behind in competetivnes. Payments, on the other hand, fall directly to the bottom line without hurting growth.
Three keys to start reducing your payment costs
- Know your actual price of payments! Many suppliers hide the real cost with hidden fees, minimum fees and other tricks. If you do the math, you’ll be surprised by how much you actually spend.
- Make it a priority from management! “What gets measured gets done” is an old but true statement. Include cutting payment costs as a KPI that you follow at C-level.
- Put pressure on your suppliers! As more payment suppliers offer instant deposit and withdrawals. You can’t be dependent on just one supplier! It’s costly and increases the risk of operations.
Do you want to know your potential? We have put together an easy to use excel template, contact email@example.com to get your hands on it and start realizing your potential today!
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