Hall of Shame
Tyro Payments Ltd (TYR AU)
Tyro Payments Limited is an Australia-based company that provides payment solutions and business banking products. The Company operates through three segments: Payments, Banking and Other. The Company enables credit and debit card acquiring, along with additional functions, such as Medicare Easyclaim and private health insurance claims acceptance. It supplies its merchants with terminals programmed with its software and enables acceptance of payments. Its Merchant Portal allows merchants to review terminal usage, transaction value by terminal, transaction types, charges and fees, and historical records in near real time. Merchants can also keep track of their card transactions in near real time via the Tyro App. It offers integrated health claiming capabilities to medical practitioners. It offers business banking products to its merchants, including loans in the form of merchant cash advances (Tyro Business Loan) and transaction bank accounts (Tyro Bank Account).
The Company listed on the Australian Stock Exchange (ASX) on December 6, 2019 and raised A$287.25M in its IPO.
January 7, 2021 Tyro announced it was having issues with terminal connectivity with respect to a limited number of its EFTPOS terminals. Tyro said the issue appeared to impact approximately 15% of its terminal fleet as active in January 2021. At that stage the issue had caused roughly a 5% reduction in expected transaction values.
January 13, 2021 Tyro issued an update on its terminal issue. The terminals affected lost connectivity with Tyro’s network meaning they could neither transact nor be updated remotely and needed to be returned to Tyro for repairing. 30% of clients were affected with 19% unable to use any terminals. Approximately 2,000 terminals a day were being collected for repair.
January 15, 2021 Viceroy Research issued a report on the company "Tyro By Name, Tyro By Nature". It believed Tyro presented a limited-risk short as customers churn in record numbers to vastly superior, non-archaic payment solutions providers, which were available in abundance, and immediately. Issues raised by Viceroy included:
- Viceroy's research suggested Tyro has “bricked”; made unusable, approximately 50% of its terminals across the country via a software patch, which required a recall and capital-intensive terminal repair/replacement. Tyro had no disaster recovery plan and had left businesses, including medical facilities, without any means to collect payment from customers.
- Viceroy believed that Tyro was the most underwhelming fintech in the ASX, and more closely resembled a bank. Tyro's major revenue driving activity was simply providing merchant terminals – which had remained largely unchanged for a decade – to SMEs.
- COVID-19 restrictions had encouraged venues to make many changes to the way they take orders and receive payments,
- It said that competitors like Mr. Yum had rolled out RFID docks which could be attached to any tables, and allowed users to scan and order drinks directly to their table via merchant terminals such as PayPal, Google Pay, Apple Pay, Square, or Shop. Not only did the orders sync with virtually any POS/venue management system, but they also reduced the need to hire excess employees to staff emptier venues.
- While more expensive (100bps merchant fee), the entire fee could be passed onto the customer. Even if it wasn’t passed on: it was still cheaper than hiring staff to take drinks orders at bars.
- Former Tyro customers appeared on Mr. Yum’s blogs, discussing how great their system was. Downtime was likely to churn customers away from Tyro.
- Square terminals were readily available from electronics retailers starting from $50. Most merchants interviewed by Viceroy had already switched to another provider. Tyro’s terminal solutions were provided without lock-in contracts meaning the cost of switching was minimal, or non-existent. In fact, with a 2-week turnaround looking possible, the cost of staying with Tyro far outweighed the cost of a Square terminal.
- Despite being in operation since 2003 Tyro was increasingly loss making and floated its operating cash flows through customer deposits in its banking division. Viceroy believed Tyro presented significant downside with no real catalyst to make a jump into profitability.
- The company’s financials were unappealing, and their undifferentiated and outdated product offering was in stark contrast to fresh market participants. The reputational and financial fallout from this outage would likely be severe and long-lasting.
Viceroy concluded that based on its research and interviews with affected merchants, it did not see any compelling bull thesis for Tyro. That between the loss of existing customers, reputational damages, and the market environment Tyro found itself in, Viceroy expected the company to decline significantly in the current quarter. Adding that as of the time of writing Tyro’s issues were ongoing. That given the poor visibility into the company’s response, the market’s reaction, and low cost of exit for customers Viceroy were unable to quantify the impact this would have on the company’s share price.
January 15, 2021 Trading in Tyro shares were halted at the request of the company. The reasons given for requesting the halt were:
- an update as to progress against its disclosed recovery plan;
- an update in relation to its transaction values; and
- a position statement in relation to the false assertions made in the third party report.
January 19, 2021 Tyro issued two press releases; an update on its terminal connectivity issue and a response to the Viceroy report. With regard to the Viceroy report, Tyro rejected the allegations in the report. It said it had intentionally not commented on each individual opinion of the authors but Tyro responded to the key factual misstatements in the report. It believed these covered the foundation for many of the opinions expressed in it. Share trading resumed.
January 19, 2021 Viceroy issued a seven page Update Report as a rebuttal to Tyro's response. It added that the situation at Tyro appeared to have gotten worse, according to further due diligence, conducted by Viceroy Research over the weekend. Viceroy said it stood by its original report and its financial analysis therein.
January 20, 2021 Viceroy released a full follow-up report to Tyros response; "Churn Baby Churn, Tyro". It believed that Tyro intentionally omitted the extent of the damage, understated the harm to its customers, and flat-out refused to provide any meaningful data for analysis. Viceroy, in this report delved into the maths behind its TTV calculations. It also reviewed Tyro’s status update, which it said omitted key figures and context to downplay the significance of the bricking event.
Tyro Payments: Announcement, 7 Jan 2021
Tyro Payments: Terminal Connectivity Issues Update, 13 Jan 2021
Viceroy Research: Tyro by name, Tyro by nature, 15 Jan 2021
Tyro Payments: Trading Halt Request, 15 Jan 2021
Australian Financial Review: Tyro prepares response to short report, 17 Jan 2021
Tyro Payments: Response To False Claims, 19 Jan 2021
Viceroy Research: Tyro Payments weekend update, 19 Jan 2021
Viceroy Research: Churn Baby Churn, Tyro, 20 Jan 2021
Tyro Payments: Annual Report YE - Jun. 2020
Tyro Payments: Annual Report YE - Jun. 2019
Tyro Payments: Prospectus - 18 Nov 2020