Corpay Inc: Cross-Border Teach-In Reinforces Our View on Underlying Corporate Payments Unit Economics

Research evidence excerpt

Corpay Inc: Cross-Border Teach-In Reinforces Our View on Underlying Corporate Payments Unit Economics

UpdateMExhibit 1: Illustrative Spread Decomposition for a $20K Cross-Border Payment

Source: Corpay

The perceived on-chain FX risk also seems overstated. Similar to stablecoin

sandwich transactions that have little to no cost advantage in liquid markets once

the off-ramp costs are factored in, on-chain liquidity pools are also much thinner vs.

traditional FX markets, which implies on-chain FX is likely to be more expensive than

traditional FX in G20 pairs, limiting adoption. Additionally, even if on-chain liquidity

and adoption improves, we still believe corporates and suppliers will need fiat, and

thus, don't view on-chain FX as a credible near- to medium-term bear case.

Middle market is a big TAM with limited competition and plenty of room for

share gain. Tier 1 banks serve the largest multinationals well and have shown little

desire to come down-market, despite potentially bumping up against Corpay in

select situations. Tier 2 to Tier 4 banks—which Corpay sized at a $160bn TAM,

which implies <1% penetration—own the middle-market relationships but generally

lack the global reach, FX depth, modern technology, and licensing footprint required

to support customers as they become more international.

Retention improvement in Corporate Payments could represent an opportunity

for Corporate Payments acceleration. Management suggested the potential for

further Corporate Payments net retention improvement (which was in the low- to

mid-90s several years ago and is at 97% today) on the back of adoption of its bank

account product, most notably in its private capital markets business where

investment funds / fund complexes tend to initially land with a bank account and