The ASX continues to be a hub for fintech innovation, with digital payments playing a crucial role in reshaping financial transactions and business operations. As businesses transition toward cashless transactions, demand for seamless, efficient payment solutions continues to rise. Tyro Payments (ASX: TYR) has positioned itself at the forefront of this transformation, providing tailored solutions for small and medium-sized enterprises (SMEs). With a focus on technology-driven growth and financial discipline, the company seems well-placed to capitalise on the evolving payments landscape.

Strong Financial Performance

Tyro Payments (ASX: TYR) has solidified its position as a leading fintech player, reshaping payment solutions for small and medium-sized enterprises (SMEs) through technological innovation, strategic market expansion, and disciplined financial execution.

Tyro’s financial turnaround has been remarkable. The first half of FY25 marked its most profitable period to date, underscoring the company’s focus on operational efficiency and strategic growth. Since its IPO, Tyro has achieved an 18% compound annual growth in gross profit, rising from $68 million to $112 million, alongside 12x EBITDA growth, reaching $33 million. The company has also transitioned from an $11 million loss to a $10.5 million profit. These results highlight a well-executed strategy centered on disciplined cost management and targeted expansion into high-growth sectors.

Beyond these financial metrics, Tyro’s disciplined approach to cost control and margin improvement demonstrates a sustainable growth trajectory. The company has successfully optimised transaction processing costs, renegotiated key supplier agreements, and enhanced merchant retention, further strengthening its bottom line. This ability to drive profitable growth, even in a highly competitive market, reinforces Tyro’s position as a leading payments provider for SMEs.

Healthcare Payments as a Growth Engine

The healthcare sector is a key growth engine for Tyro. With Australia’s healthcare payments market expected to reach $100 billion annually, Tyro processes $7 billion, capturing a 7% market share. The company has outpaced industry growth with a 24% compound annual growth rate in healthcare transactions. Tyro’s edge lies in its omni-channel capabilities, seamlessly integrating online and in-person payment solutions. The company’s proprietary technology connects with over 120 payment providers, including private health insurers and Medicare.

In key healthcare segments, Tyro has established a strong presence, holding a 30% market share in general practitioners, 2% in allied health, and 1% in dental. These figures highlight a significant growth opportunity, particularly in underpenetrated sectors such as allied health and dental. Given the ongoing digital transformation in healthcare, Tyro’s ability to offer seamless payment solutions tailored to industry needs positions it for further expansion.

Additionally, as healthcare providers increasingly adopt integrated payment and billing systems, Tyro’s technology enables a frictionless experience for both practitioners and patients. By leveraging its deep integration capabilities, Tyro can continue to capture market share in this highly resilient and growing industry.

Expansion into High-Growth Verticals

Tyro is entering a new, high-potential vertical with a total addressable market of $5-10 billion. In collaboration with a market leader holding over 50% market share, the company aims to automate manual processes and enhance merchant value. This initiative is expected to generate $2-3 billion in transaction value over three years, with a gross profit potential of approximately $39 million and a target market penetration of 30-40%.

The decision to expand into this sector aligns with Tyro’s broader strategy of targeting industries where payments are still largely fragmented or inefficient. By providing a streamlined, automated solution, Tyro not only enhances the merchant experience but also unlocks significant long-term revenue potential.

Another key advantage of this vertical expansion is the opportunity for cross-selling. Tyro can leverage its existing merchant base to introduce new products and services, such as embedded finance solutions and working capital lending. This not only deepens customer relationships but also increases transaction volumes and recurring revenue streams.

Banking Services Growth Strategy

Tyro’s banking division is another significant growth opportunity. Currently contributing 7% of gross profit, the company aims to increase this to 20% through its partnership with Constantinople, an Australian fintech platform. The banking expansion strategy includes transaction accounts, cash flow lending solutions, term deposits, and the potential to settle $44 billion in processed payments through Tyro bank accounts.

Banking services represent a natural extension of Tyro’s core business. By integrating financial products with its payment solutions, Tyro can enhance merchant stickiness and generate higher-margin revenue streams. The company’s strong merchant relationships provide a unique advantage in cross-selling banking services, positioning it as a trusted financial partner for SMEs.

Moreover, as traditional banks continue to scale back their SME offerings, Tyro’s ability to provide fast, tailored financial solutions will become increasingly valuable. Whether through cash flow lending, deposit accounts, or transaction banking, Tyro has a significant opportunity to disrupt the SME banking landscape.

Competitive Advantage Through Technology

Tyro’s proprietary switch infrastructure gives it a cost advantage over outsourced solutions, enabling more efficient transaction processing. Unlike many competitors that rely on third-party processors, Tyro controls its entire payments stack, allowing for greater flexibility, cost efficiency, and improved service delivery. The company prioritises industry-specific payment solutions over generic offerings, ensuring a differentiated market position.

Additionally, Tyro’s focus on automation and AI-driven analytics further strengthens its competitive advantage. By leveraging data insights, Tyro can help merchants optimise their payment operations, reduce fraud risks, and improve transaction approval rates. These capabilities not only enhance the merchant experience but also contribute to higher customer retention and long-term profitability.

Financial Strength and Acquisition Strategy

With $155 million in cash and a robust balance sheet, Tyro is exploring capital management strategies, including potential share buybacks, subject to APRA approval. The company is also evaluating strategic acquisitions to enhance its technological infrastructure and market reach. One compelling opportunity is the acquisition of Smartpay (SMP). By processing SMP transactions on its in-house switch instead of through Cuscal, Tyro could unlock significant cost synergies, potentially adding $40 million in EBITDA.

The acquisition of Smartpay (ASX: SMP) would not only be accretive from a financial standpoint but also strategically beneficial. It would allow Tyro to consolidate market share, expand into new customer segments, and further strengthen its industry position. Additionally, by bringing Smartpay’s transaction volume onto its in-house platform, Tyro can drive additional cost efficiencies and revenue synergies.

Future Outlook

CEO, John David has outlined a clear roadmap focused on further penetration in the healthcare sector, expansion into new industry verticals, leveraging macroeconomic recovery in hospitality and retail, and advancing banking services to drive long-term revenue growth. With a combination of organic growth initiatives and potential strategic acquisitions, Tyro is well-positioned to capitalise on evolving market dynamics.

Looking ahead, the broader payments landscape continues to shift towards integrated solutions that offer greater convenience, security, and efficiency. Tyro’s ability to stay ahead of these trends by developing industry-specific payment and financial solutions will be critical in maintaining its growth trajectory. By continuously investing in innovation and merchant-centric offerings, Tyro can reinforce its position as a leader in the fintech space.

TAMIM Takeaway

The evolving payments landscape presents substantial opportunities for companies that offer tailored, technology-driven solutions. Tyro’s strategic focus on solving specific merchant challenges positions it well for sustained growth and potential market leadership. Trading at 5.3x EBITDA, Tyro appears significantly undervalued, with considerable upside potential. Given its previous takeover bids at $1.50+ per share in 2022, it remains an attractive acquisition target. From an investment standpoint, Tyro’s strong financial performance, technological advantage, and market expansion strategies suggest significant potential for long-term value creation.