Up Spain pulls out of EML Payments partnership without explanation

In a short statement released to the market this morning, Brisbane-based EML says Up Spain ‘no longer intends to proceed with the agreement’, noting it will engage with the now-former partner regarding an ‘orderly dissolution of the relationship’.

Announced in March 2022, the Up Spain deal was to give the firm a foothold in the employee benefits market in Europe, covering meal vouchers and other employee benefits and potentially access to a global network if things went well.

Proposed as a multi-year deal, the partnership would have granted EML access to more than one million users across 4,700 corporate clients in Spain.

At the time, former CEO Tom Cregan - who has since been replaced by former Nasdaq executive Emma Shand - was upbeat about the company’s entrance into the Spanish employee benefits market.

“This contract with Up Spain is a milestone agreement for us given the size of the EBM and the continued transition of meal voucher programs transitioning from physical vouchers to digital payment solutions,” Cregan said at the time.

“Up Spain is a proven market leader and we look forward to launching this program with them and continuing to build out our presence in the EBM industry, following on from the success we have had with Salary Packaging solutions in Australia and opportunities that we are targeting in the evolving Earned Wage Access industry.”

The company has today downplayed the significance of the collapsed partnership, noting that it “did not expect the deal to make a material contribution to the group’s revenue or earnings in FY23” - something that was also initially highlighted by EML at the time of the announcement in March.

“However, the win validates EML's strategy of focusing on this segment and it provides an opportunity for material future growth,” EML said in relation to the agreement in March last year.

Today’s announcement is yet another setback for EML which has seen consistent deterioration of its share price since mid-2021 - dropping from a peak of close to $6 in April of that year to just 67 cents at the time of writing.

The initial collapse was largely driven by an announcement from the Central Bank of Ireland (CBI) which has been investigating EML subsidiary PFS Card Services (Ireland) Limited (PCSIL) over anti-money laundering and counter-terrorism financing matters.

PCSIL accounts for more than a quarter of EML's global revenue, but the regulatory concerns do not relate to EML's Australian or North American business, and nor do they affect PFS' UK subsidiary or EML's other European businesses Sentenial Limited and Nuapay.

In July last year, the CBI announced more work was required to allay significant regulatory concerns it has over PCSIL, with the Irish body confirming that although the subsidiary had undertaken significant work to clean up shop it had identified shortcomings in components of the remediation programme, principally the sequencing and approach taken to the risk assessment of its distributors, corporates and customers.

Since then, the company was thrown into further turmoil when it revealed that it had experienced up to $7.9 million in losses from fraudulent activity within the direct debit processing division of its Irish subsidiary Sentenial.

The CBI matter is not the only regulatory debacle EML has found itself in; in October the firm temporarily ceased onboarding new customers, agents and distributors in relation to its UK subsidiary Prepaid Financial Services Limited (PFS UK) following concerns raised by the UK regulator the Financial Conduct Authority (FCA).

EML said at the time the financial impact of the ‘temporary measure’ was expected to reduce group revenue by less than $5 million in FY23.

According to the card payments services firm, the concerns highlighted by FCA were of a similar nature to those raised by the CBI.

EML is also facing a class action from Shine Lawyers on behalf of shareholders alleging the company made misleading representations regarding its corporate governance and regulatory compliance, launched in the wake of CBI’s concerns.

In December 2022, Shine amended its class action to increase its total number of allegations from four to 20, and expanded the claim period from 19 December 2020 - 18 May 2021 to 19 December 2020 - 25 July 2022.

The company set aside a $10.5 million provision for legal costs to cover the potential fallout from this class action.

Beyond the resignation of Cregan, other leadership changes at EML include the departure of CFO Robert Short who was replaced by EML’s European CFO Jonathan Gatt on an interim basis.

Last week, the firm announced that it was searching for new independent directors to join the company’s board, and noted that David Liddy, Melanie Wilson and Tony Adcock will resign from the board on or before the 2023 AGM once the new directors have been appointed.

Shares in EML are stable at 67 cents per share at 11.50am AEDT.

Update 15 February 2023: An earlier version of this article incorrectly stated that EML Payments pulled out of the partnership, when in fact Up Spain pulled out of the deal.