Plenty of eyes are on the banking space as the majors get a taste for Tyro Payments Ltd (ASX: TYR). Though, it hasn't yet been confirmed whether the Commonwealth Bank of Australia (ASX: CBA) shares an interest in acquiring the payment terminal provider.
While CBA's interest remains unconfirmed, it might be worthwhile exploring what Australia's biggest bank could stand to gain if it made a beeline toward Tyro.
Let's take a closer look.
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Beefing up business banking
Rising interest rates might be boosting the net interest margin of ASX bank shares, but it also means a smaller appetite for home loans. As rates are expected to rise into next year, banks have the difficult task of determining how to increase profits as fewer loans to buy a home are signed off.
According to CBA's 2022 annual report, around 51% of the company's cash net profit after tax (NPAT) was derived from retail banking services. That means CBA shares hold a large exposure to the mortgage market and will likely need to look to other lending areas to maintain growth.
That's where good ole' business lending comes in. In FY22, business banking made up approximately 31% of CBA's cash NPAT. No doubt, the banking giant will look to go toe-to-toe with the likes of National Australia Bank (ASX: NAB) and gain market share… enter scene Tyro Payments.
Tyro could make or break CBA's market share
Tyro has grown to be a formidable competitor to the major incumbents over the years. According to its FY22 investor presentation, the fintech company now has 109,000 EFTPOS terminals across the country.
Importantly, the humble payment terminal is considered to be the 'foot in the door' for landing a business's banking needs. Tyro proved this to be the case in FY22, growing its loan originations by a whopping 283.4% to $99.07 million.
This figure is rather paltry compared to the Commonwealth Bank's last recorded $14.1 billion in business lending. Though, the market opportunity is what might have the major bank licking its lips.
As depicted above, CBA is currently the market leader in EFTPOS terminals in Australia. However, if Westpac Banking Corp (ASX: WBC) or NAB were to get ahold of Tyro, this would quickly change.
In the case of NAB, an additional 109,000 terminals from Tyro would take its total to 264,000 — dethroning CBA's leading market share with 244,000.
Potential hurdles
Finally, if CBA does throw its hat in the ring for Tyro Payments, it might gain the attention of the Australian Competition and Consumer Commission (ACCC).
Despite the competitive payments landscape, with the entrance of international tech companies such as Block Inc (ASX: SQ2), the corporate watchdog may not be impressed with CBA owning a ~37% share of EFTPOS terminals in Australia.
For now, we will have to wait and see what offers arise. However, we know that it will need to be more than $1.52 — as per Mike Cannon-Brookes' arrangement — if it is to be considered.
The CBA share price is down 4% compared to a year ago, currently residing at $99.30.
