Visa’s Australian arm has acquired a large portion of the liabilities of the global card company’s underperforming UK subsidiary known as Fraedom Holdings.
Disclosures in Visa’s latest financial accounts lodged with ASIC last week show that the Australian business – Visa AP Australia Pty Ltd – suffered a sharp slide in its net asset position after it acquired the local operations of Fraedom, a software-as-a-service business solutions provider.
London-based Fraedom was acquired by Visa in 2018 but its operations are now being integrated into the regional businesses of the global company ahead of a planned liquidation of the UK entity.
While Fraedom’s technology is being used by banks across the world to improve their commercial credit card offers, the business has been posting operating losses according to financial returns lodged with the UK companies registry.
The decision to consolidate Fraedom’s Australian operations within Visa AP Australia had a big impact on the local entity’s balance sheet in 2022.
Disclosures in the Australian arm’s accounts show that the acquisition added more than A$32 million of net liabilities to the local entity’s balance sheet.
Visa AP Australia paid A$1000 for the Fraedom business.
The net asset position of Visa AP Australia consequently tumbled to $15.5 million at the end of September 2022 from $42.2 million a year before.
The Fraedom acquisition adds another odd dimension to the business mix of Visa’s Australian arm following the addition of a Colombian entity in August 2015.
Visa AP Australia gave muddled disclosures in its 2022 accounts about the operating status of the Colombian business.
In note 1 of the 2022 accounts the directors of the Australian entity state that the Colombian subsidiary began trading as a business in December 2019.
However, in note 17 they state that the Colombian arm started trading in September 2021.
The accounts provide no specific guidance about the financial impact last year of the Colombian arm on the Australian entity’s profit performance.
Visa AP Australia’s bottom line earnings more than halved to $2.5 million in the 12 months to the end of September 2022.
While top-line revenue grew by 18 per cent to $75.6 million, blowouts in staff costs, rent and administrative overheads undermined the local entity’s performance.
Visa AP Australia’s tax bill also doubled to $2.2 million mainly due to a sharp fall in the amount of tax the company was able to defer.
Payments industry expert Grant Halverson described Visa’s financial performance as disappointing and the relationship with Colombian business as “strange”.
“Visa has shown the strain of card issuing in Australia and New Zealand during 2022, with revenue only up 18 per cent,” he said.
“Cost control has clearly failed within Visa as revenue increased by 18 per cent, while staff costs increased by 22 per cent and property rents were up 192 per cent.
“The onboarding of B2B company Fraedom, a corporate virtual account payments company founded in UK in 1999, has adversely impacted the balance sheet,” Halverson said.
In their commentary on significant changes in the state of the company’s affairs, Visa’s local directors revealed that the first independent audit of its merchant pricing activities was submitted to the Australian Competition and Consumer Commission last April.
Visa is required to commission independent audits of its merchant pricing after giving the competition regulator an enforceable undertaking in March 2021.
At the time the ACCC raised concerns that Visa tied or sought to tie its offer of credit strategic merchant rates to secure a merchant’s commitment to also route Visa branded dual network debit card transactions via the Visa network.
Visa has acknowledged but made no admissions in respect of the ACCC’s allegations.