Payoneer Global Inc. Q3 FY2023 Earnings Call

Good morning. Thank you for standing by. Welcome to Payoneer’s Third Quarter 2023 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Following the speakers’ remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. I would now like to turn this call over to Michelle Wang, Payoneer’s VP of Investor Relations.

Thank you, operator. With me on today’s call are Payoneer's Chief Executive Officer, John Caplan; and Payoneer's Chief Financial Officer, Bea Ordonez. Before we begin, I’d like to remind you that today’s call may contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those set forth in our filings with the SEC, which are available in the Investor Relations section of payoneer.com. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of today and the company does not assume any obligation or intent to update them, except as required by law. In addition, today’s call may include non-GAAP measures. These measures should be considered in addition to and not instead of GAAP financial measures. Reconciliation to the nearest GAAP measure can be found in today’s earnings press release, which is available on our website. Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on investor.payoneer.com. With that, I’d like to turn the call over to John to begin.

Good morning, everybody and thank you for joining us today. Before we begin, I just want to say how deeply saddened we all are about the terrorist attacks in Israel last month and the ongoing war. The violence and loss of innocent lives has been shocking and heartbreaking. Our thoughts go out to all who are suffering. We continue to monitor the situation and our focus on supporting our colleagues in the Payoneer community in the region. We’ve donated $1 million via the Payoneer Foundation to support humanitarian relief efforts. Bea will provide a more detailed update on our business operations during her remarks and I would be remiss, if I didn’t express how deeply and immensely proud I am of the determination and resilience our team has displayed in light of the current circumstances. Now turning to our third quarter earnings. Payoneer delivered 31% revenue growth year-over-year and a 28% adjusted EBITDA margin. We are making progress executing our strategy and are confident about the pace of our efforts. We are diversifying towards higher take rate geography, acquiring more high value ideal customer profile, or ICPs and enhancing our financial stack. As we shared at our inaugural Investor Day in September, Payoneer makes it easy for small and medium-size businesses to access the global economy by providing them with the financial tools to compete and win in the markets they want to do business in. We are positioned to capture this $6 trillion opportunity and are laying the foundation for durable, profitable growth. We are focusing on our ICPs, building more products to cross-sell into our base of 2 million customers and leveraging our scale, technology, and data to operate even more efficiently. Our comprehensive financial stack is a core driver of the opportunity ahead for Payoneer. We are penetrating the B2B in checkout markets, and cross-selling our card. As we highlighted at Investor Day, we remain confident about the long-term potential of our B2B business and continue to gain traction in our prioritized service-oriented markets. Third quarter total B2B volume growth accelerated versus the second quarter, and increased 1% year-over-year, or 6% excluding the impact of the customer terminations we made a year ago. We delivered improving B2B volume growth trends throughout the third quarter, and most recently generated 17% year-over-year volume growth in October. By region, in our priority, service-oriented market, we continue to see strong traction. APAC, SAMEA, Latin America B2B volume grew 23% year-over-year, and have an overall blended take rate of over 2%. In SAMEA, we've delivered year-over-year B2B volume growth of approximately 40% or greater each quarter of this year. We are penetrating the large programming tech support and consulting industry in the region. For example, we recently hosted a series of events in India with over 1,000 attendees to discuss the next decade of export growth and how our customers can build a brand as an entrepreneur looking to capture this full opportunity. In checkout, we grew volume by 50% quarter-over-quarter. Checkout is emerging as a part of our value proposition to increase ARPU, grow ICP and enable our customers to scale. As of the end of September, checkout was generating over $1 million in daily volume. We expect further momentum as we continue to enhance checkout's features and capabilities. For example, we launched our Shopify native capabilities for checkout, which should improve customers' payment conversion rates by providing a more seamless consumer shopping experience. We are also cross-selling our product stack to our existing customer base. Our customers are using Payoneer cards to manage their accounts payable. Card usage was nearly $1 billion in the third quarter, up 31% year-over-year. This represented 6% of total usage, and we believe there is significant room to grow that further. Let's turn now to our ICPs. Payoneer grew total active ICPs by 5% year-over-year in the third quarter. By region, we saw double-digit growth in our higher take rate regions. 13% ICP growth in APAC, 11% in SAMEA, and 10% in Latin America. We grew our largest ICPs, or those who do more than $10,000 a month on average in volume by 17% year-over-year. This segment represents approximately 10% of our overall ICPs. It contributes to over 50% of total Payoneer revenues. We continue to add new marketplace relationships to grow our ICP. I'm excited to announce that we recently partnered with Etsy to service sellers in emerging markets. Our marketplace relationships are a key differentiator for Payoneer and contribute to the significant scale we've built in our banking infrastructure. The customers we acquire from marketplaces frequently expand to use our full financial stack, underscoring the significant value behind our focus on ICP. We continue to invest in our platform and product capabilities to drive greater ease, trust, and convenience for all of our customers. I'd like to highlight just a few of the new features we launched recently, which we believe will drive greater retention, volume, and AP usage. We expanded the ecosystem of integrations of our financial stack, and launched bank feed integrations with QuickBooks. This will reduce manual processes and improve AR collection efforts for our customers. We now enable customers to receive funds locally in New Zealand. We offer 10 local collection accounts for our customers, which helps remove the borders and complexities of doing business globally. We are integrating generative AI into our operations to improve our customers' experience and increase efficiency. To accelerate our B2B growth, we are enhancing our AP tools to better meet the needs of large service customers. Our customers can now add funds from their bank to their Payoneer account. This significant enhancement positions us to drive growth in our accounts payable tool independent of a customer's AR flow. We believe this is an important value proposition for customers who have global business expenses and payroll. We also enhanced functionality around scheduling recurring payments, and sending large groups of batch payments. These are features our largest, most sophisticated customers ask for, and we're pleased that they can now make their workflows even more efficient, leveraging the Payoneer stack. I'm also happy to announce that we have begun the rollout of a Payoneer Life Account for customers who have simple AP and AR needs. For example, those who use Payoneer only for receiving funds from a marketplace and withdrawing those funds to their local bank account. By limiting their eligibility for our full stack, we can reduce our costs to serve and work towards our long-term ambition of profitably serving every entrepreneur and business seeking to tap into the global economy. This is a part of our phased approach to implementing our customer segment-specific service and pricing strategy that we've spoken frequently about. In closing, we are executing against the strategic priorities that we articulated at the beginning of the year and in our recent Investor Day. We are enhancing our customers' value proposition, delivering strong growth and significant profitability, while investing in strategic long-term initiatives. Our strong results are a testament to our global team and their tireless efforts and dedication to our customers and our mission. They inspire me every day. And I'm proud of what Payoneer has achieved so far this year, and excited about what's ahead. I'll now hand it over to Bea to discuss financial results and forward guidance in more detail.

Thank you, John, and thank you to everyone for joining us. First, I want to echo John's opening remarks. We are all deeply saddened by the ongoing conflict in Israel and Gaza and by the tremendous loss of life. Our thoughts are with our colleagues in Israel and with everyone affected during this extraordinarily challenging time. I'd like now to turn the discussion to our third-quarter results. All comparisons are on a year-over-year basis unless otherwise noted. We continue to execute on our strategy. We grew ICPs by 5%, generated 31% revenue growth, and delivered a 28% adjusted EBITDA margin. Third-quarter revenue of $208 million was up 31%, driven by interest income on customer funds, accelerating growth in our B2B and checkout businesses, higher card usage, and improved monetization from ongoing pricing and other initiatives. Q3 revenue growth also included the impact of a $7.5 million decline in revenues earned from the provision of onboarding services to enterprise clients, something we announced when we provided 2023 guidance. In line with a more customer-centric approach to monetization that we talked about at our Investor Day, we continue to implement changes to our product bundling and pricing strategies. We are expanding the rollout of initiatives we began testing earlier this year. For example, we recently introduced additional fees with small transaction sizes. We are also expanding our testing of account registration fees, as well as potential strategies to monetize our significant cross-border in-network payment bands. So far, we have not seen any unexpected or unintended changes to customer behavior or retention. We believe there is significant opportunity to drive improved acquisition and retention, as well as share-of-wallet gains from a more nuanced approach to our pricing, bundling, and service model, one that is better aligned to our diversified customer base. Volume increased 11% to $16.8 billion, reflecting strong year-over-year volume trends with our large eCommerce marketplaces, continued strength in travel spend, and growth in B2B volumes. B2B volume growth of 1% accelerated throughout the third quarter with volumes in September 2023 up 5% versus the prior year period. Growth was driven by the services-oriented economy that John spoke about earlier. Our volume per customer has also remained stable year-over-year. We are seeing positive momentum with new industry verticals launched earlier this year. Our Q3 take rate of 124 basis points increased 19 basis points. The expansion was driven by higher levels of interest income and the benefits of our various pricing initiatives. Customer funds held by Payoneer increased 7% to $5.4 billion, and we earned $60 million in interest income from these balances in the third quarter. Our financial stack delivers real utility to our customers, the ability to hold balances in multiple currencies, and to manage the cross-border AR and AP needs from a single account. The balances our customers hold with us demonstrate the utility we deliver and the trust our customers have in us. Over the past several years, we have seen robust growth in customer funds. We believe that as volumes into our platform grow and as we add more utility and features to the platform, we should see customer balances grow. We continue to expect long-term balance growth to be broadly in line with volumes, while seasonality and macro factors can influence short-term balance performance. For 2023, we expect approximately 25% of interest income earned will be used to fund investments in our platform and infrastructure, including in our compliance infrastructure. We also expect to utilize approximately 25% of revenues generated from interest income to return capital to shareholders via our stock repurchase plan, which is designed to substantially offset dilution from a stock-based equity compensation program. Total operating expenses of $179 million were up 9% or $15 million. Higher sales and marketing expenses represented approximately half of the increase with higher G&A, transaction costs, and other operating expenses driving the balance. Transaction costs were $30 million and increased 9%. Transaction costs represented 14.6% of revenue, a 300 basis point improvement from the prior year period. The decrease is driven by higher interest income cost savings impacting our bank and processor fees and mix shift towards lower-cost markets. This was partially offset by increasing card usage and growth in our B2B and checkout businesses, all of which drive relatively high transaction costs as B2B, checkout, and card volumes grow faster than our aggregate business, we would expect some upward pressure on transaction costs going forward. Sales and marketing expenses increased $8 million reflecting higher commissions paid to certain enterprise partners. Excluding those partner commissions, sales and marketing expenses were broadly flat year-over-year and declined modestly sequentially, a result of our previously announced workforce reductions and in line with continued efforts to streamline our go-to-market organization. G&A expenses increased $3 million primarily driven by M&A and legal expenses. Other operating expenses were up $3 million, primarily driven by an increase in third-party consulting expenses related to our ongoing spend to enhance our regulatory and compliance capabilities. These increases were offset by the impact earlier this year of various initiatives designed to streamline, regionalize, and outsource aspects of our operations function. These assets have allowed us to reduce our labor-related operations expense by 5% year-over-year, and to meaningfully drive down our cost to serve. For example, we have reduced the average cost of a customer service ticket by 25% since the end of 2022. By optimizing workflow so we can resolve more tickets in a single interaction, by automating processes, and by implementing certain generative AI-based tools. R&D expense declined $3 million as a result of an increase in capitalization due to shifting of resources towards the investments in our platform, partially offset by additional hiring in our platform organization. We continue to take a disciplined approach to operating our business in order to drive greater efficiency, while ensuring we invest to drive long-term and sustainable revenue growth. Adjusted EBITDA was $58 million compared to roughly $13 million in the third quarter of last year and $56 million in the second quarter of this year. This represents a 28% adjusted EBITDA margin. Net income was $13 million compared to a net loss of $26 million in the third quarter of last year. Q3 basic earnings per share was $0.04 and diluted earnings per share was $0.03. We ended the quarter with cash and cash equivalents of $591 million, up $83 million or 16% year-over-year. Our business continues to generate positive free cash flows, and our free cash flow conversion rate is well above 100% year-to-date. We have been actively returning capital to shareholders since the inception of our share buyback program in May. We have repurchased approximately $35 million of Payoneer shares, including $15 million in the third quarter. We expect to repurchase approximately $55 million of shares for the full year. Turning to our outlook. We are reiterating our 2023 revenue guidance and raising our 2023 adjusted EBITDA guidance. For the full year, we expect revenues to be between $820 million and $830 million, transaction costs as a percentage of revenue to be approximately 14.5% and adjusted EBITDA to be between $195 million and $205 million. Before I dive into the drivers of our updated guidance, I'd like to note that our critical business operations have not been impacted by the ongoing war in Israel, and based on the current situation, we don't anticipate any material impact or disruption to our operations or business. This is a testament to the resilience of both our infrastructure and platform and to our incredible teams on the ground. We continue to prioritize the safety, health, and well-being of our employees, while ensuring that we continue to serve our customers. Our latest guidance includes approximately $3 million in one-time expenses in the fourth quarter related to our response to the ongoing conflict in Israel, including relocation costs, financial assistance, and programs to support mental and physical well-being. Approximately 50% of our employees are based in Israel. While a majority, approximately 81% of our research and development teams are based there. To date, less than 10% of our Israeli employees have been called into military reserve duty, and we have contingencies in place to cover impacted roles and responsibilities. A broad geographic footprint and outsourced operations model enable us to continue to operate our business and serve our customers. As we have noted, we are reiterating our revenue guidance at this time. We continue to have conviction in our long-term strategy and key growth opportunities. They are generating strong growth in our checkout business and driving increased adoption and usage of our commercial card product. We see improving trends in our B2B business, where volume growth was 17% in October, and we expect to see the ongoing benefit of our customer-focused monetization strategy. We are increasing our guidance for interest income by $10 million, reflecting current consensus rate forecasts and balanced performance. We now expect interest income to be $220 million for the full year. We expect this increase in interest income to be offset by near-term headwinds from increasing macroeconomic and geopolitical uncertainty impacting our business as we begin the fourth quarter. As a result, we are reducing our revenue ex-interest income guide by $10 million. We anticipate software revenues from our customers in Israel, where we expect economic activity will be impacted in the near term. Revenues from our customers in Israel represent approximately 3% of our total revenue. Additionally, in the immediate aftermath of the conflict, we proactively delayed the implementation of certain monetization initiatives that were scheduled for early October, but launched in early November instead. And lastly, in the broader environment, we see increasing macro uncertainty around consumer and business spending from elevated inflation and higher for longer interest in long-term borrowing rates. We expect 2023 free cash OpEx less transaction costs to be approximately $505 million. Cash OpEx represents our guidance for revenue, less adjusted EBITDA. We continue to focus on operating efficiency in order to maximize resources available for high-growth areas of our business and for opportunities to deepen our competitive moat. We are on track to deliver on our commitment of ending the year with lower headcount than where we started. We expect fourth-quarter operating expense to be higher than in the third quarter, primarily reflecting higher R&D spend, seasonal expenses, including seasonally higher marketing spend, as well as the impact of the previously mentioned spend related to our response to the conflict in Israel. We are raising our guidance for 2023 adjusted EBITDA to be between $195 million and $205 million. This guidance reflects a four-fold increase in adjusted EBITDA versus 2022 and a 24% adjusted EBITDA margin for 2024. In September, we hosted our first Investor Day where we had the opportunity to reintroduce Payoneer to the investor community. Since going public in 2021, we've delivered exceptional financial performance, and we plan to continue expanding our product offerings, growing in high-growth and high-take-rate regions, and increasing the number of ICPs on our platform. Our third-quarter results underscore our consistent execution against these strategic priorities and our unique value proposition for customers. We are pleased to see that our focus on operating efficiency is driving lower costs and higher adjusted EBITDA margin. We are well-positioned to capture additional market share and to generate long-term value for our shareholders. We are now happy to answer any questions you may have. Operator, please open the line.

Our first question comes from Sanjay Sakhrani of KBW. Sanjay, please go ahead.

Thank you. Good morning and good quarter. I'm just trying to think about the acceleration that happened across the different segments that you've highlighted. Can you just walk us through what the trends were there across those different segments?

Hi, Sanjay. Thank you for your question. We've observed acceleration both sequentially compared to Q2 and within Q3. The fundamentals of the business align with our ongoing strategy. We're successfully acquiring ICPs, our card is gaining adoption, and we're experiencing strong growth in our B2B sector. John mentioned some key statistics. In Q2, we noted a slowdown in volumes, but we've turned that around in Q3 with 1% growth. In October, we've recorded a month-to-date volume increase of 17%. Overall, we're witnessing encouraging trends and growth in our B2B sector. Excluding China, we've been analyzing these trends and continue to see robust growth in B2B volumes. Overall, fundamentals are performing as expected, with e-commerce volumes aligning or slightly exceeding our projections, anticipated in the high single-digit to low double-digit range. The travel segment is outperforming expectations, despite being a lower-yield business, showing strong volume performance. Our B2B segment is also accelerating, reaching a significant milestone with our checkout business achieving $1 million a day in transaction volume. We're experiencing strong trends in volume throughout the quarter and moving into the fourth quarter.

Okay, great. And then to follow-up on like take rates ex float, those declined both on a year-over-year basis and a quarter-over-quarter. What were the drivers of that take rate and how should we think about that on a go-forward basis?

Yes, absolutely. Look, the top line inclusive of float we obviously grew take rate by about 19 basis points. That's interest income driven, but also acceleration as we've noted in B2B and card and checkout, partially offset by mix shift and some of that volume to those larger eCommerce buckets that come with lower yield. As we disaggregate that interest out of that, look, we talked at Investor Day about roughly 80% of our revenues being attributable to customers that are active on our platform and that generally speaking have an account on that platform. And on an apples-to-apples basis, if I look at 80%, the take rate on that business year-over-year expanded fractionally, but expanded its interest income, sorry, by about a basis point. The balance of that 20% revenue that we talked about at Investor Day includes some account fees for inactive customers. But mostly it relates to services that we provide the enterprises who use our payment rails to facilitate transfers to pay if you do not have an account on our platform. So we are not cross-selling into those payees, and the yield on that business is understandably much lower, right. So a lot of that travel volume that we've highlighted, that has outperformed and grown very meaningfully, it's that kind of volume where those enterprises are using our payment rails. And so the disproportionate growth in that travel volume has really had sort of a negative impact in the aggregate take rate overall. But I think the main message we're driving out here is that core customer led business, our take rate is expanding that other business that is important to us, yes, but a smaller part of our overall revenue, there we're seeing sort of a disproportionate growth which is impacting the aggregate.

Okay, very helpful. Thank you.

Our next question comes from Mayank Tandon of Needham & Co. Mayank, please go ahead.

Thanks. Hey, guys. This is Sam on Mayank today. Thanks for taking the questions here and nice results this quarter. I wanted to start off on revenue in North America, which came in pretty soft this quarter. Can you guys just talk a bit more about what you're seeing here? And what's different than the rest of the markets that you're seeing?

Yes, look, the main impact there is what we highlighted coming into 2023 in our full year guide that beginning in the third quarter, we had that headwind from non-volume fees. So these are fees that we earned historically from enterprise clients with certain onboarding services. And those fees about $7.5 million in a quarter, those came out in Q3, effective Q3. So it's really disproportionately skewing that North America performance where they were booked.

Got it. Got it. Okay. Yes, that's helpful. Sorry about that. I missed that. And then just for a quick follow-up, I wanted to see if there was any update on the recent acquisition of Spott in any kind of new developments since you guys announced that?

We closed it, as we said, on the last call, we're really sort of happy to be integrating that great team. As we said, when we announced the deal, they bring real sort of data expertise, that's going to help us really enhance our underwriting, enhance our risk framework, and that's going to allow us to originate more because we'll have a better handle sort of on that overall underwriting and to just better manage that book of business. But I think it's part of the broader strategy to really sort of integrate real-time data capabilities and real-time data insights into how we manage and grow the business.

Okay. Thanks.

Our next question comes from Trevor Williams of Jefferies. Trevor, the line is yours.

Great. Thanks a lot. Good morning. I wanted to go back to B2B for a second. If you could walk us through some of the moving pieces within the volume mix there, the chart, I think it's on Slide 18. That's helpful. And you guys have hit on some of this in both your prepared remarks. But if you can unpack some of those diverging growth rates you're seeing across the two buckets of geographies that you've laid out, and how that ultimately feeds into the medium-term volume growth expectations and kind of take rate trajectory potential for B2B. Thanks.

Thank you, Trevor. We are very pleased with the overall acceleration in our business, which we've been discussing as we move into the latter half of the year. This acceleration is driven by strong acquisition metrics, stable spending per customer in service-oriented economies, and a reduction in terminations since our Q3 2022 discussions. In Q2, we experienced a volume contraction, but this quarter we achieved 1% volume growth, excluding terminations, with growth accelerating over the period. Performance in October was particularly strong, with a 17% increase. When we analyze our markets, we observe different trends. Excluding China, which now accounts for less than 20% of our total volume, specifically around 17%, we are focusing our efforts on service-oriented economies where we see robust growth. These markets now represent almost half of our total B2B volume, which increased by approximately 23% this quarter. The take rate dynamics in these regions are favorable compared to our business in China, where the blended take rate in markets like LatAm, APAC, and SAMEA is over 2%, whereas the take rate in China hovers around 50 basis points. As we enhance our growth in these other regions, we anticipate positive take rate dynamics that will benefit our revenue. While we regard China as a long-term opportunity, it is not a significant short-term driver. In 2024, it will not hinder growth for B2B revenue. We remain focused on service-oriented economies, driving ICP acquisition with strong product markets and favorable take rate dynamics. We are excited about our ability to continue expanding this business and, as noted during Investor Day, we believe we can grow this volume by 25% or more next year.

That's great. Thanks. And then any more detail you can give on how volume growth has trended throughout Q3, and then what you're seeing in October month to date? I'm just trying to square, I mean, it sounds like a B2B you're seeing nice acceleration, Q4 versus Q3, but you're taking down kind of the implied Q4 ex-interest income revenue. So I'm curious if you're seeing any pockets of sequential weakness in volumes, so it's quarter-to-date that's kind of driving the more cautious outlook for the fourth quarter. Thanks so much.

No, as you've noted, we're seeing accelerating trends. We observed this throughout the third quarter and into October. Again, third-quarter volumes increased by 11%, which is an acceleration from the 8% volume growth we experienced in Q2. We have pointed out the B2B figures for October. Overall, volumes in October rose by approximately 20%. We're experiencing solid growth again. The primary contributors have been a strong performance in the travel sector along with significant e-commerce activity. Regarding the softness we mentioned for Q4, we are primarily referring to external factors highlighted in our prepared remarks. Some of the softness in revenues comes from customers in Israel, but that segment is not a major part of our total revenue. In the short term, we do anticipate some revenue softness in Q4. We've incorporated the expected delays into our projections. Following the crisis in Israel, we paused all code releases to assess the situation, which delayed some monetization into the future. We've taken that into account. Additionally, like many of our peers, we've considered a bit more macroeconomic softness. We might be more cautious in our outlook for Q4 as we continue to see pressures emerging in the broader economy and in the geopolitical environment, impacting consumer and business spending.

Okay. That's helpful. Thank you guys.

Our next question comes from Cris Kennedy of William Blair. Cris, please go ahead.

Great. Thanks for taking the questions. Just going back to the Investor Day, you mentioned targeting mid-teens revenue growth for 2024. Can you discuss the expectations for that considering some of the macro uncertainties?

Yes, sure. Look, we obviously gave guidance in February, which would be consistent with prior years. But as you notice, we set our Investor Day in September, medium-term targets for revenue growth in the mid-teens and medium-term targets for adjusted EBITDA margin at around 25%. Look at our latest guidance, we have great conviction that our strategy is working and that we're executing on it. And our '23 guidance calls for a significant acceleration, which is in line with what we've seen through the third quarter and into October. We would exit Q4 based on that implied guidance at roughly 19% of organic, I will say, X interest income revenue growth, when you take it apples-to-apples, right. So excluding those non-volume fees, excluding Russia, and it's worth noting, look, we lack the impact of our exit from Russia at the end of this year. We will fully lap those non-volume fees, again, $7.5 million per quarter at the end of the first half of '24. So with all of that in mind, that acceleration through Q3 and into Q4, the lapping of those significant headwinds that we've highlighted, accelerating volumes in our B2B and our checkout business, we're very confident over the medium term that we're going to hit those revenue growth targets.

Great. Thank you. And then on the prepared remarks, John talked about the Payoneer of Light Account. Is there any way you can frame the potential yield associated with that product? Thanks for taking the questions.

Sure. Payoneer Light is currently in its initial rollout phase, and I'm very pleased with the efforts of our go-to-market, product, R&D, and business analytics teams. We haven't fully sized the opportunity yet since it’s still in the early stages. However, you can anticipate a higher take-rate product for smaller customers in geographies with higher take rates, which also allows us to lower our service costs. Notably, we've seen a 25% reduction in our cost per ticket year-to-date. We're focused on our strategy for ICP growth, increasing cross-sell opportunities to enhance ARPU, and reducing service costs. We aim for every entrepreneur engaged in cross-border business, of which we currently have 2 million customers, to effectively use and appreciate the Payoneer account. Launching Payoneer Light is part of our strategy to create a product portfolio that helps us efficiently capture this market. As Bea and I have mentioned previously, we receive 6 million applications annually from individuals wanting to use Payoneer, and we're organizing ourselves to serve them profitably. We are on the right path to achieve this.

Right. Thanks for taking the questions.

Our next question comes from Mike Grondahl of Northland Securities. Mike, please go ahead.

Hey, guys. Thanks. I wanted to ask about the pricing increases and initiatives that you've been doing. Does the third quarter represent sort of a full quarter of those price increases? And is there any way you can kind of break that out and see what that contributed to revenue? And do you expect further benefit in future quarters?

Thanks for the question, Mike. Look, we're not really sort of viewing it as sizing of particular in-quarter impact or not, certainly the third quarter has impacted the fourth quarter too. But as John was sort of getting at, we view our pricing strategy and our progress towards that as really a multi-phase rollout of just a much more customer-centric and segmented approach, right. And it has a number of prongs. One, it's around sort of bundling products that better serve needs, which has sort of the benefits of driving kind of shared wallet gains and adoption, while also potentially reducing our cost to serve because we're not offering customers products they don't need that potentially have higher kind of costs associated with them. It's around kind of driving adoption of some of those higher-value products that we've talked about by bundling and taking a more nuanced approach to pricing. So overall, we view this as a multi-phase rollout, frankly, over many quarters. We've seen tremendous success. I think already we launched as we talked about in Q2. Account fees that we waive at certain volume levels and they've been very successful in monetizing some of those smaller or long-tail customers. And as we said, we really haven't seen meaningful churn there. We've launched in Q3, as John noted in his prepared remarks, fees for small transactions, which have also been very effective. We're looking at our FX pricing. As an example, we talked a little bit about that customer-specific light account offering. So it's part as I say, that kind of multi-step approach. And we're going to continue to kind of roll out and test sort of different pricing models and bundling models to ensure that what we're doing makes sense for the business that we don't see any unintended frictional, or impact to customer behavior. So that includes registration fees, which we've been testing, that includes fees related to volume that we see in our platform. We talked at Investor Day about the almost $10 billion of intranet workflow that we see coming through our platform. And that close to half of that is cross-border today. We don't monetize that. So we're looking at all sorts of aspects, and really ensuring that we do that with the customer segment and their needs in mind.

Okay. That's helpful. Thank you.

Our final question comes from Josh Siegler of Cantor Fitzgerald. Josh, the line is yours.

Yes. Hi, guys. Good morning. Thanks for taking my questions today. First and foremost, with the increased free cash flow flowing into the business, I was wondering if there's any updates to how you're thinking about capital allocation moving forward?

Sure. Look, I mean, we see a tremendous opportunity in front of us, as we outlined at Investor Day, to capture and grow in a very significant market opportunity that serves SMBs in the markets in which we operate. So first and foremost, we're going to continue to invest in that opportunity and our go-to-market apparatus, in our platform to position us to best capture that organic opportunity. We talked about M&A, and that's certainly part of the long-term trajectory. We think given our distribution, given our unique assets, given our brand and our positioning in these local markets, that there are more services and more products that we can integrate into our financial stack to drive revenue overall. And then, of course, look, we've allocated 25% this year of our overall interest income to close to $55 million or $60 million to returning capital to investors. That's our target for this year. And I think it's fair to say that over the long-term, we would look to add a minimum offset dilution from our stock-based comp plan by using that share buyback plan. But overall, look, we're really excited. This is a strong cash flow generating business. We see tremendous opportunity, both to grow organically, drive more leverage, drive more efficiency and capture more opportunities while being balanced and returning capital to investors as well.

Great. That's very helpful. And then Bea, I think you mentioned that eCommerce volumes performed better than expectations. I was wondering if that tailwind might continue into Q4, especially given this collaboration with Etsy going live?

We are very excited about the deal with Etsy that has been signed, and we are looking forward to onboarding it. However, we do not anticipate any significant revenue from it initially as these relationships take time to develop, with a more meaningful impact expected in 2024. From an overall e-commerce perspective, we entered this year believing that high single digits would be a solid growth estimate, and it seems e-commerce has exceeded that expectation. So far in October, the performance aligns with this trend, showing continued outperformance in the e-commerce segment. I see no reason to think this won't continue. However, we are noticing a shift in the mix towards larger sellers, which seems to reflect a trend mentioned by Amazon regarding consumers becoming more price-conscious and preferring larger sellers. Consequently, while overall revenue may not be as robust compared to the strong volume performance, we are encouraged by the increased volume entering the platform.

Great. That's very helpful. Thanks again, and congratulations on the execution this quarter.

With that, I'll hand back to John Caplan, Chief Executive Officer for closing remarks.

Thank you, everybody for your questions and for joining us this morning. I'm confident about Payoneer's opportunity, and we appreciate our shareholders' continued support. We look forward to speaking with all of you again next quarter. And with that, thank you.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.