Info on payment and card issuing platform

As new user to this forum I will just state that the intent of this post is not to be taken as investment advice and the following info was obtained from publicly disclosed documents and contains my interpretations and opinions of that information. Please do your own due diligence. I’m a US based investor that currently owns positions in the companies listed in this post.

Here is some info on the technology behind the payment and card issuing platform that Change Financial acquired (is using) from the collapse of Wirecard. I’m only going to provide a high level of details to get across the key points. I will post several links at the bottom of this post that will help anyone interested in doing further research. IMO the platform technology is a key piece of what hopefully will provide Change Financial with a product offering that will lead to a path of profitable growth.

Change Financial acquired certain assets and people from Wirecard last year. I’m not sure exactly what the scope of those assets entailed. I know of one piece of the platform is related to their card issuing side of the business, which I will discuss below. The recent licensing agreement between Pi Pay and Change appears to highlight other functions acquired that expand on the scope of Change’s payment platform beyond just the card issuing piece that I have knowledge of.

Wirecard provided solutions for supporting payment functions throughout the world. One piece of technology used by Wirecard was provided by a company called CoreCard Software. Wirecard was using software provided by CoreCard to keep track of various debit/prepaid card programs that they supported throughout the world. This software was used on the card issuing side of their business.

The software service provided by CoreCard is the underlying system of record that keeps track of the various card programs that have been implemented. There is other software and interfaces that are needed to fully support any card program, but CoreCard Software provides a key building block that supports all of the complex features of keeping track of all the transactional data. Corecard software also supports other credit programs, like credit cards, loans, and other installment payment plans.

Wirecard first started as a customer of CoreCard in the 4^th qtr. of 2015. I think the initial instance of using CoreCard Software was to support the Aus/NZ division of Wirecard and the cards that were issued.

During the fiscal years of 2016 and 2017 Wirecard was CoreCard’s largest customer. They ended up with multiple sites within Wirecard using the CoreCard software. Wirecard’s revenue to CoreCard was $2 million to $3.8 million per year from 2016 through 2019. In 2020 as Wirecard’s problems got worse, the revenue declined as customers left for other providers and a general decline because of Covid. I don’t know the CoreCard revenue associated with the Aus/NZ division, but generally Wirecard was growing their overall spend with CoreCard during that initial 4 year period of working with CoreCard as they added additional software licenses and paid for professional services and ongoing maintenance fees.

Wirecard was a license customer of CoreCard, which means for an initial license fee, they can use the software to support X number of accounts. As they increase the number of active accounts they then pay additional license fees. I’m not sure if Change Financial was able to continue that license arrangement or if they became a “processing” customer. CoreCard also offers a processing service, which is more of “a pay as you go” for the number of active accounts.

When Wirecard imploded, various pieces of the card issuing side of the business were sold and many of their customers sought out other payment processing businesses to take over their card issuing programs.

Change Financial purchased Wirecard’s Aus/NZ assets and also picked up some of their operational and support staff. Change Financial ended up with 120+ customers in 35+ countries that Wirecard was supporting through their card programs. These card programs were mainly debt/prepaid cards.

Another piece of Wirecard’s card issuing business and personnel based in the UK was acquired by Railsbank.

An office in Dubai and some of the technical personnel based in both Dubai and India were acquired by Corecard itself.

I will make a general statement that management of the companies mentioned generally do not disclose customer relationships because of various contract terms. The company/customer relationships identified in this post were all obtained from publicly released documents like press releases, earnings call transcripts, and SEC filings. Current management of the companies mentioned will probably not want to confirm any details that are listed in this post, such as customer names, contract terms, etc..

The only reason I make the link of Change Financial being a customer of Corecard is because they acquired part of Wirecard and then issued press releases that detailed their new payment platform direction and the functions it would support. Those functions mirror directly what the Corecard Software platform is capable of supporting on the card issuing side.

CoreCard Software is 100% owned by Intelligent Systems and currently is the primary and only operating business of Intelligent Systems. Intelligent Systems trades on NYSE under the ticker symbol INS. I have been a long time shareholder of INS and have followed the company since they were very small with a market cap of less than $30 million USD back in the early 2000’s. At one point during the financial crisis their market cap was less than $5 million USD. Today their market cap is around $300 million USD.

The key change in the valuation of INS/CoreCard started in 2018, when they signed a new unknown customer at the time. Later in 2019 it was revealed that the key customer was Goldman Sachs and they were using Corecard Software to support the issuing of the Apple credit card that launched in August of 2019.

You can find more details of the history of Intelligent Systems and CoreCard in the links at the bottom of this post. You can also find various analysis and news articles at the Seeking Alpha site. Be sure to read the associated comments posted by investors of INS under the individual articles. That will help you understand more on what CoreCard software platform is being used for and it’s capabilities. I have been a poster on that website under the same user id “wthdibn” for the last 3 years.

INS is still a very small player in the card processing software business. It has around 40 customers, most of them smaller in size like Change Financial. Goldman Sachs currently provides around 70% of their revenue. INS is competing with very large companies like Global Payments (TSYS), Fiserv (First Data), FIS (Worldpay) in the credit card space and numerous companies that offer debit/prepaid card processing.

CoreCard Software has a few other customers that are known publicly. More information on some of these companies is discussed in comments on the Seeking Alpha board. I will list of a couple of them here.

Kabbage was using the Corecard Software technology to provide small business loans. Amex acquired Kabbage last year for $850 million.

Deserve is a startup company using CoreCard Software to provide credit cards as a service. They have a few smaller credit card programs that have started up or are in beta for various companies. The Blockfi credit card that earns rewards in Bitcoin is one of them is scheduled to launch soon.

One caution is that new customer relationships both for INS/CoreCard and CCA can take time to be fully developed, especially in the more complex area of offering credit cards. Credit card processing is very complex and it takes time to fully launch any new card program. From start to launch of the Apple Card, Goldman Sachs and CoreCard spent almost two years to prepare. That timeline was probably extended because of the scope and size of the program and that it was Goldman Sachs first entry into the credit card business as an issuing bank. Goldman Sachs announced last year that they will be taking over the GM credit card program from Capital One. That card program is scheduled to go live in the second half of 2021.

Another caution is that the share price of INS has been very volatile since the initial news of Goldman Sachs and Apple was announced in 2019. There was a short seller attack and there is still around 14% of the public float sold short.

Prepaid/debit card programs are less complex and have a much shorter time to market. So I expect the initial focus of CCA will be in that area to expand their customer base.

CCA is a very new and small player in providing its services to financial companies. Hopefully they will have much success and growth in the following years.

Here are a few links to get you started with additional research.

https://www.corecard.com/

https://intelsys.com/websites/intelligent-systems/English/0/home.html

https://seekingalpha.com/symbol/INS