Past Mistakes Impacting Today's Price

Hi All,

Quick write up from a former (pre-IPO) employee lending my opinions as to why the Tyro share price is where it currently is.

Disclosure: I do not currently hold any shares in Tyro. I held shares which I sold >1 year prior to IPO upon leaving the company. I re-entered a position following the outage fiasco in 2021, and exited at $3.96. As of ladt week, Tyro share price officially dropped below the vesting grants I was offered in 2017 (of which I left before exercise date). That is the cause of interest for this post.

Discussion: My opinion as to why the share price is at is current state, is the pre-IPO growth strategy deployed by the business in 2017, 2018 & 2019 (which may have continued post-IPO). Upon joining Tyro, they had a unique selling point, an upstart "tech-bank" that offered integrated payments and busines banking accounts (deposits and business lending). They technology and agility provided a point of difference to the big banks for small and medium businesses.

The questionable approach taken during this time however was a pure focus on "growing our footprint" which was constantly reiterated in every meeting. Sales staff were targeted and commissioned purely on the amount of sales they made (1 business = 1 sale), with no account taken for the size of the business. Businesses turnover was recorded, however it was of little consequence, and disregard. For example, new sales were assigned a "average monthly transaction volume" determined by industry.
- Hospitality: $17,000 transacted through terminal per month
- Medical: $18,000 transacted through terminal per month
- Retail: $21,000 transacted through terminal per month

The problem came as Tyro ramped up marketing efforts, and was inundated with inbound phone calls from small businesses. Market stalls, travelling graduate health care providers (e.g physios, naturopaths) hairdressers renting a single chair in a salon etc. I would hazard an estimate that 90% of merchants on-boarded were from inbound enquiries. As the user base grew, the average size per industry was significantly lower than the numbers stated above but were never recalculted.

This led to such sales numbers as 1,000 new businesses onboarded for a value of $19,000,000 in transaction value per month. When in reality those 1,000 merchants would never come close to those numbers.

Once Tyro began running free rental offerings, as a flat "0.99%" promotion, this problem only worsened. A market stall transacted $2,000 p/m in transaction volume is going to generate $20 p/m in revenue. The business would never recoup the cost of onboarding.

All while this happened, the sales team completely disregarded the banking product. The banking loans is were Tyro had an opportunity for a high-yield return product. Sales staff were never even trained to pitch the banking product, and none ever did. The "banking" team was simply rolled into existing account management which was essentially an extension of customer support and each account manager would have up to 5,000 accounts each.

Conclusion: To sum this all up as I could go on forever. The business prioritised growing a footprint with extremely low-yield customers, who were much better serviced by Square. They promised a dongle, or change to the terminal for years, which never happened. More than 6 years now since I joined the company, and all the big banks technology has completely caught up. Tyro has no unique selling point to grapple larger businesses away from the big banks, and cannot compete on price. Instead they have a customer base of low transacting users, who are extremely price sensitive and will flip to the next deal they see advertised. The customer churn during my time at the company continually increased quarter on quarter.

Still keeping a close eye on this moving forward. They were obviously hit hard by COVID, but my point is the writing was on the wall a long time beforehand. I struggle to see what they can now offer of interest to carve a place within the market and fear they will be left behind.

Happy to answer any questions the best I can!