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[Audio Gap] and I'm joined on the webinar by Splitit's CEO, Nandan Sheth; and CFO, Ben Malone. [Operator Instructions] This call is being recorded. I will now turn the conference over to Nandan Sheth.
Thank you. Good morning, and thank you for joining the Splitit Q1 2023 Investor Update. Our pivot towards becoming the industry's first embedded card-attached installment service is starting to pay off. Q1 results show that we're on track to meet our target run rate of $700 million to $800 million in MSV by the end of 2023. Our progress with large partners, large merchants and our ability to deliver on innovation validates that we're breaking away from the legacy BNPL providers. I will start by providing a few financial highlights for Q1 2023.
Number one, we achieved $136 million in MSV, which is 34% growth year-over-year. Number two, our revenues of $2.8 million delivered $1.1 million in net transaction margin contribution, despite escalating interest rates and a shift towards unfunded plans. We reduced operating expenses by 15% year-over-year, further supporting our pathway to profitability. And finally, we have available cash of $21.4 million, of which $14.6 million is available for operating needs.
Now I will provide a few commercial highlights. Number one, we continue to be the first choice to partners looking for a next-generation installment service. In Q1 2023, we secured distribution deals with Ingenico, one of the largest and most admired point-of-sale terminal providers in the world; and APPS, an acquirer that processes $10 billion in charge volume for over 100 ISVs.
We also delivered on our large merchant promise by signing and implementing AliExpress all in Q1. AliExpress is one of the largest e-commerce marketplaces in the world with an estimated annual volume of $30 billion. We're already live in 4 key markets, including United Kingdom, Germany, Spain and yes, Australia, with a pay-on-delivery installment solution. We also plan to add our pay in 3 and pay in 6 monthly installment service to 2 of the above 4 markets in this quarter. We estimate that we will generate between $50 million and $60 million in MSV from this relationship in 2023.
Additionally, we delivered a white-label plug-in for SAP Commerce Cloud, formerly Hybris, which will be available to all merchants via the SAP Partner Portal. SAP Commerce Cloud is one of the largest and most feature-rich e-commerce platforms in the world used by large merchants such as Samsung, Adidas and Levi's. Our plug-in will allow any merchant using SAP Commerce Cloud to implement Splitit in less than 24 hours.
The cross-border global e-commerce volume is estimated to reach $1 trillion in 2023. The risk of non-delivery or delayed delivery is one of the most significant impediments for shopper adoption. Splitit launched a one-of-a-kind pay-on-delivery installment service which allows consumers to make cross-border e-commerce purchases with confidence.
With my initial remarks, I will now pass over to Ben Malone, our CFO, to provide some additional financial details. Ben, over to you.
Thank you, Nandan. So overall, when looking at our top line metric of MSV, we delivered very strong 34% year-over-year growth, USD 136 million for the quarter. Whilst the revenue growth rate was not quite as high as that same level, primarily due to our funded and non-funded mix, we delivered $2.8 million of revenue, reflecting 4% year-over-year growth.
Also, late in the quarter, we saw further growth in our funded fees after the execution of further repricing efforts, and it's important to note that we did not see a full quarter's impact from these efforts within these numbers. From the $2.8 million of revenue, we delivered $1.1 million of transaction margin, aided by the repricing I just mentioned, along with continued minimal bad debts.
And finally, as we look to the right of the screen, we reiterate our projected end of the year MSV exit run rate of $700 million plus, which we expect to deliver as merchants and partnerships scale up further, particularly throughout H2. If we can just move on to the next slide, please. So as we move past the top line and focus on unit economics now, our Q1 net transaction margins as a percentage of MSV were 0.9% and that reflected a slight drop year-on-year as we signaled to the market last quarter. However, despite the rapid rises in interest rates, in profitability terms, the $1.1 million of margin delivered was in line with prior year. And as previously mentioned, we did not see a full quarter of repricing efforts within these numbers.
It should also be noted that our March margins were higher than January and February, and that further highlights the point of the repricing coming through. In the longer term, as the portfolio expands and diversifies with new merchants on both with our funded and our non-funded products, we remain confident of transaction margin rates returning to be in line with 2022.
It's important to reiterate also our structural advantages in this area, being largely shielded from the defaults impacting the rest of the industry and that a material percentage of our portfolio on a non-funded model. And finally, from an OpEx perspective, we know the continuation of our rebates and lower cost base with the 15% year-over-year reduction. With that, I'll now hand back over to Nandan, who's going to talk a little further about some of our recent partnerships.
Thank you, Ben. The Ingenico partnership is very special because we'll be able to target a very large underserved market, the face-to-face purchasing universe. What makes this partnership even more special is we're fully embedded in the Ingenico experience, which means that there are no out-of-band experiences or out-of-band processes for the shopper, eliminating any kind of delays at the line as the consumer is checking out.
We believe that we will have our first pilot customer for Ingenico and Splitit within the second half of the year. And we also want to reinforce that Ingenico is the one of the largest point-of-sale providers in the world, having 30% market share and being available in almost 40 countries. So we see this relationship as being very large, being very meaningful, and there is a global nature to it, allowing us to compete more effectively than the other providers in the market.
Next slide, please. As I mentioned, we enabled the first white-label installment plug-in for SAP Commerce Cloud. SAP Commerce Cloud has multiple enterprise global merchants that use the platform for their e-commerce website. Our ability to be a plug-in involve the combination of our product organization, our technology organization, working in concert with SAP.
By delivering this plug-in, merchants will be able to very quickly enable our installment service with minimal technical effort. We also believe this is going to be a meaningful partnership, and our ability to drive growth this year will see contribution from this particular channel.
Next slide, please. As we stated last year, we provided very clear guidance on our objectives with regards to our large merchant and distribution partner relationships and signing these relationships in 2023. I'm delighted to inform you that of the target that we gave ourselves with 3 large enterprise merchants, we've closed 2 of the 3.
With regards to 2 new distribution partners, one, we have achieved that goal through the signing of Checkout and Ingenico. And with regards to 2 new acquiring partners, one small, one large, we've also achieved that objective, one in Worldline, one of the largest acquirers in the world; and APPS, an acquirer that we signed up in this quarter. We are very, very confident that by the next investor update, we'll be able to provide the details on our pending partnership with a large global network.
Next slide, please. In summary, very strong start. Achieving $136 million in MSV gave us a validation for our model in the market. Number two, we continue to execute and build a foundation of distribution partnerships. These distribution partnerships are important. They will take some time to drive meaningful MSV through our partner pull-through programs. However, the fact that we are being selected by these very large payment processors and payment platforms validates that we're breaking away from the pack.
Number three, we launched the most recent plug-in with SAP as I mentioned. This, in addition to the 6 other plug-ins that we have with other shopping cards, will allow us to leverage this technology asset to drive meaningful MSV value this year and in future years. AliExpress is a banner deal for us. The ability to deliver and implement that deal within the same quarter it's closing or executing on the contract is a significant achievement for the company.
It showcases the simplification and the automation efforts of our implementation process, but more importantly, the diligence of our sales and business development team in securing this very large marketplace. We also believe that there are meaningful opportunities within the Ali family, including such platforms is Alibaba.
Based on our cost trajectory and based on our top line growth, we feel very good that we have a strong pathway to profitability in the coming years. In summary, we are very confident that we will hit our $700 million to $800 million in projected MSV annualized run rate by the end of 2023. Our model is being validated further in the market. Our ability to drive conversion from merchants to our white-label product is turning into case studies. And last but not least, as we drive pull-through from the partners that we've secured, there will be an inflection point, and we will scale more significantly in the coming quarters. Thank you very much, and I open up the floor for questions.
[Operator Instructions] Our first question is can you talk to the impact of the white-label conversion from the merchant's perspective, please?
Great question. We had a thesis that an embedded white-label solution within the checkout will drive better economic return for the merchant. Based on the 30 or so white-label implementations that we've done, we're seeing the reality of that vision come to fruition. I'll give you some data points to make the point. I'll give you some data points to highlight what we're seeing with merchants.
Number one, we're seeing approval rates as high as 85% to 90%. This is unheard of in the industry. With other BNPL providers that have to originate a new loan and underwrite the consumer, at best, the approval rate's around 40%. Number two, the conversion, which is at checkout, the consumers that select the option to do pay later is almost 60% because we're right underneath the credit card input field, and we're way above the other alternative payment methods and BNPL providers.
So there is a strong validation with the merchants that we have live using our white-label product. And you will see some additional case studies that validate the economic return to our merchants come out in the following quarters.
Our next question comes from [ Adam Hernandez ] regarding net transaction margins. Can we have a bit more of a breakdown on the net transaction margin decline? Is it purely based on funding mix? Or are there clients on all the pricing models that are yet to be switched over to higher rates?
Great question. I'll let Ben take that. Ben, over to you.
Yes. Great question, [ Adam ]. Look, it's important to note that the numbers that you're referring to are as a percentage of MSV. As we said, in raw dollar terms, those numbers haven't declined. However, I would say that they are largely due to mix, and there is a limited amount, as I mentioned in the presentation, where the repricing efforts on the funded model, because they're the ones that are impacted by the cost of funds changing, have come through later in the quarter. There's always a little bit of a lag impact there, and there'll be some more that will come through in the next quarter as well. So a little bit of both, but predominantly more so to fund the mix of products.
Our next question is from [ Dean Rassios ]. Can you explain the difference between the funded model and the non-funded model base?
Absolutely. Great question. Within our funded model, we prefund in advance the merchant and then we collect the installment from the consumer. The unfunded model, we do not prefund the merchant upfront but we fund the merchant as the installments come in. The difference between an unfunded plan and a funded plan to the merchant is, A, they get their money over time with the unfunded model. And because there is no cost of capital to the fee structure, typically, the unfunded plans are less expensive.
The next question is from [ Ross Taylor ]. Great Q1, guys. Can you confirm if Google USA will be live by the time of the Pixel 8 release, which is expected in October?
I very much hope so. As you can imagine, Google has had some turmoil internally as the company restructures and as the cost reduction actions kind of pan out. So with that said, our goal with Google is to implement in Q3, and the implementation is targeted to be early Q3. With that said, we are very, very hopeful that we'll benefit from the launch of the new Pixel phone, as you mentioned.
The next question is from [ Vincent Bailey ]. How close are you to signing a third large merchant as per the set goal?
We are close. We have multiple conversations that are active. And we are cautiously optimistic that we'll sign not only a third but hopefully a few more.
Another question then from [ Adam Hernandez ]. Where are March transaction margins and April's net transaction margins?
Ben, I'll let you take that.
Yes. We don't publicly disclose by month, [ Adam ], due to the fact that they can [ skew up ] based on merchant mix. I can give you an indication that the March ones were back over 1% and April hasn't finished as yet. So I won't comment on that one.
The next question is MSV is projected to be between $0.7 billion and $0.8 billion by the end of this year. What is the projection on costs, which appear to be running at $5 million per quarter at the moment?
Good question. Ben, I'll let you take that.
Yes. So we don't put public projections out there, but I would say that we don't expect any material change in costs at the moment. But we're always looking at it, and we'll do things in the most efficient way possible.
Another question from [ Rod Taylor ]. Is there any update on the Australian bank partnership?
I don't have a specific update on an Australian bank partnership. We are in conversations with multiple bank partners, not just in Australia, but in other markets outside of the United States. Our focus has been on the larger markets such as the U.K., as you've seen, United States, and other large European and APAC regions. If we get to a point where we can find the right deal to execute with an Australian bank, we will do it. As of today, we were not at a place where I can tell you any more over and above that we continue to strive to do deals, not just in Australia, but also in multiple regions outside of the U.S.
I have a question from [ Dean Rassios ]. Do you think that the non-funded model is less appealing to merchants? How does this compare to other BNPL providers?
I think our entire value proposition, [ Dean ], is attractive to merchants. It's going to take time for merchants to digest and absorb how powerful of a tool and a product and a platform we are. However, as we start to deliver on such merchants as AliExpress and others, we'll have very powerful case studies. So to answer your question specifically, we put on the benefits rather than the [ position ]. However, the attractiveness of the unfunded plan is definitely the combination of the conversion that the merchant will get, which will drive net new sales, complemented with a lower fee. And the balance of the 2 are much more superior than many, if not any, other product that they can get from another BNPL provider.
We don't know any other BNPL provider that offers an unfunded model. Most of the BNPL providers are focused on driving and underwriting net new loans and charging the consumer. I hope that answers your question.
Next question is where will Splitit's Ingenico solution be delivered first?
In Europe. So the first market that we're going after is Europe. We're hopeful that it's going to be the U.K., but I cannot guarantee that. There is a sizable level of interest from that market. If you're not aware, Ingenico is the largest point-of-sale provider in Europe. And we also have an acquiring partner or a payment processing partner in Europe, so the combination of the 2, if the stars align, we will see our first merchant come out of Europe.
The level of interest has been very, very high from segments that range all the way from general and/or luxury retail to auto body parts and auto service. So we feel that there is a tremendous opportunity. This is an underserved market, as you know, so the TAM is very large. And we have a unique advantage in the market, so we hope to capitalize on this with our first merchant being in Europe.
What color can you provide in terms of the Checkout.com rollout?
The Checkout.com relationship was seeded with AliExpress. Checkout.com is AliExpress's payment processor and acquirer. The fact that we closed Checkout.com and then very quickly closed and implemented AliExpress really embodies the power of the relationship. Not only is the relationship strong from a business development and sales standpoint, we have a very maturing pipeline with Checkout.com. But more importantly, the payment operations elements of an implementation that can be hard for a merchant have been simplified. I'm super excited about this partnership and very hopeful that it will be accretive for both companies.
How big is the B2B opportunity for Splitit?
We believe that we have a unique advantage in B2B. We believe that because at least in the United States, it's very, very hard to underwrite a business that's buying goods or services from another business. In our model, we don't need to underwrite, and we base our installments on available credit on a purchasing card or a consumer credit card. We are in active discussions with a variety of B2B platforms and a variety of B2B merchants. And we would like to pilot a large merchant in this category. Right now, we have some B2B volume. But in my estimation, this will be a very large category for Splitit over the next 2 to 3 years.
One more question here on, how do you track that your partners are actively marketing the white-label solution product to their end users?
Each partner has a partner development or a partner pull-through executive at Splitit. That individual's remuneration and compensation is based on the success at that partner. That's number one. Number two, each partner goes through a very, very -- a very structured go-to-market process, where we think through the merchants, the verticals. We do very, very specific marketing to those merchants with the partner. So we have a very structured go-to-market. That's number two. And number three, after that, we have a dedicated individual that, that partner is going to lean on. And that individual on the Splitit side is incented to grow that partnership. So this is not a situation where we are going to do a partnership or execute a partnership and hope for the best. We have very active engagement.
And the last point I'll make is because we have multiple partnerships, we know very clearly that some of them are going to be extremely productive. Some of them may not be as productive. We based our numbers on a partial set of our partners being very productive. So that's our thought process on ensuring that we have the right level of pull-through from our partners.
One last question. Based on current cash burn, why would more cash be required? What options is the company exploring to fund the company moving forward?
We have about $21 million of cash. We are, on an ongoing basis, evaluating our cash needs. And we'll make the right decision for the shareholders. Those options are a combination of a variety of options that you would typically see a publicly traded company explore. Ben, I don't know if you want to add anything more.
No, I think that's right. We can't just [ install ] options. We have debt, equity, cost plus, so on and so forth. And we'll always do what's in the best interest for the shareholders.
Thank you, everyone. That's our last question, so I will now hand back to Nandan for some closing remarks.
I very much appreciate you joining our update today. We are very excited about the progress that we're making at Splitit. There is a tremendous opportunity for the company based on the uniqueness of our solution and our services. The key is to execute on our mission, which is what we're focused on. We believe that our capabilities not only resonates with partners but also are starting to resonate with very large merchants. And the more proof points we have, the more we'll be able to scale our business. We very much appreciate your confidence in the Splitit team, including myself and Ben, and look forward to engaging with you in another quarter. Thank you very much.
That concludes our webinar for today. Thank you, everyone, for participating. You may now disconnect.