Dutch payments company Adyen (OTC:ADYYF) is rolling out an entirely new functionality – it now enables its merchants to issue debit and prepaid cards. Based on advanced Application Programming Interface (API), such cards allow Adyen clients – which include eBay, Uber and Netflix to name just a few-to provide virtual and physical cards to their customers. 

Adyen is also advancing into new territories, as it works on winning new business in Asia and the U.S. So will the current set of Adyen functionalities allow this fintech venture to continue its rapid expansion?

Woman holding credit card and smartphone.

Image Source: Getty Images

From e-commerce to mobile orders

Adyen functions as a middleman between merchants and payment groups such as Visa. Its main strength lies in solving clients' complex payments problems of combining multiple currencies and multiple payment methods in different regions. It helps them offer payments via diverse sales channels – online shops, mobile payments, and terminals. This can be done in a variety of methods-credit cards, Apple Pay and Alipay. In a way, Adyen has disrupted the payments market as most firms provide solutions attached to separate payments channels.

Adyen's services are particularly popular among growing companies expanding internationally. Issuing cards makes international payments more flexible, reconciliation of funds easier, and the timeline for payouts quicker. Now, clients have better control over cash flow.

Entering new regions via local payments systems

Though Adyen's revenue base is concentrated in Europe and among international internet businesses, Adyen has also started winning business among U.S.-based physical retailers, such as Restoration Hardware and McDonald's. As more businesses go omnichannel (meaning they're present in both the physical and digital space) Adyen's international expansion faces strong tailwind.

Adyen's most recent numbers show it is now in the midst of increasing its revenue share from regions other than Europe. In H1 2019, North America and Asia lead the revenue increase for Adyen – up by 46% and 43% respectively. That said, Europe remains the largest contributor to net revenue, comprising 65% of total net revenue for the first half of 2019, followed by North America (15%), Latin America (10%) and Asia-Pacific (9%).

This expansion comes at a cost, however. During the first half of 2019, investments in growth drove operating expenses up by 17% year-on-year, at $119 million. They represented 48% of H1 2019 net revenue. Yet EBITDA margin was quite healthy-at 57%-well above the 25% average in the fintech industry.

Is further expansion feasible?

Uniqueness of Adyen's services is about making payments more efficient and less complex. With payment volume having increased from $10 billion in 2012 to $117 billion in the first half of 2019 alone, investors clearly expect rapid growth.

Yet, the competition in the payments industry continues to intensify. Online and mobile payments are now offered by Stripe, PayPal, GoCardless, Worldpay and other players -- an increasingly competitive field that will force companies to consolidate.

Added to that, Adyen stock is now fairly overvalued with the P/E ratio of 123.27. It was focusing on top-notch clients, ignoring mid-market which offers a more stable and secure route, particularly in times of uncertainty and during talks of recession. Promising story as it is, Adyen is an early stage company for which boosting a share of mid-market clients would be paramount.