IOUpay Relations (A response from the company)

Dear Ben,

Thanks for your email.

As you would no doubt be aware, we cannot provide specific price sensitive information (which has not otherwise been disclosed to the market) to individual shareholders as that would breach the ASX Listing Rules, compliance with which we take very seriously. Also, please note that we are unable to provide investment advice and recommend that if you do have questions regarding your personal investments and strategy that you seek advice from a professional accredited financial advisor.

1. Progress

The Company has made significant progress in the development of its businesses since the launch of the myIOU BNPL offering in June 2021 in the midst of very strict COVID-19 pandemic related Movement Control orders that were far more restrictive than what has been experienced in most of Australia to date. As the local Malaysian economy has opened up, there has been consistent growth in merchant acquisition right across the country, both in the KL/Selangor area and regional Malaysia. In particular, the successful implementation of our regional commercial development plan has resulted in myIOU BNPL product penetration into a number of quality chain store merchants with profitable business being written. We regularly report the status of merchant acquisition including numbers of relationships and outlets at which myIOU is available and also highlighting some of the notable merchants joining our expanding digital purchasing community.

The momentum established in merchant acquisition across industry verticals and throughout regional Malaysia has been an important foundation for building brand awareness and growing the myIOU user base. The Company continues to leverage its community of merchants into acquisition of new consumers utilising targeted community promotions and digital marketing and influencer campaigns.

We implemented a digital marketing strategy in H1 FY22 including the signing of international singer, Yuna, as our inaugural Brand Ambassador plus a stable of social media influencers to help drive consumer engagement which has continued on a significant growth trajectory with consumer downloads up 73% and consumer activated accounts up 85% during the March 2022 quarter, with that growth trend continuing into the first half of the June quarter. The strong consumer engagement story has continued through H2 FY22 with the myIOU 2.0 product launch to upgrade and enhance our product offering as well as announce our two new high profile brand ambassadors, Priscilla Wong and Syafiq Kyle, who are helping to further raise brand awareness and tap into new consumer communities.

We should point out that the Company's strategy is not to throw cash around in search of top-line growth. Rather, our approach is to build relationships with quality partners who manage large communities of creditworthy consumers and to write profitable transactions. We believe that we have demonstrated this during FY22 with, for example, Razer Merchant Services, IDSB and SOGO, as well as numerous quality merchants across Malaysia. In this way we are laying the foundations of what we believe will be a business that generates accounting profits and sustainable shareholder value over time. We believe this will position the Company to efficiently access low-cost capital at scale to achieve our growth objectives.

The Company's leadership team completed its second M&A transaction since the board was restructured (commencing July 2020) with the investment in IDSB settled during H1 FY22. This relationship and investment is entirely consistent with our strategy given IDSB's more than 50,000 civil servant customers who are proven, high quality credits with established appetites for (and track records servicing) instalment-based, unsecured consumer finance. Therefore, these consumers represent a 'sweet spot' for BNPL customer acquisition. We are currently developing a pilot marketing programme to cross-sell our myIOU BNPL offering into IDSB's customer base, which we are planning to roll out in the September quarter (Q1 FY23).

On top of the cross-sell marketing opportunities that we are pursuing, the shareholding in IDSB (currently 21%) means that the Company participates in any dividend distributions that are made. The Company reported in the March 2022 QAR having received ~$533k in IDSB dividends during the March quarter. The second tranche payment for the balance of the investment is expected to be completed in the current June quarter, which will double the Company's stake and share of any future dividends. Obviously, dividend policy and payments are at the discretion of the IDSB Board and subject to financial performance and outlook.

Our growing community of merchants and consumers is reflected in total transaction value ("TTV") written since launch mid-June 2021. The first 2 weeks following launch kicked off with around $0.5m TTV written and this has grown to now having written A$25.5m in TTV this financial year (as at 15th May). This has been achieved whilst maintaining profit margins within our target range (delivering FYTD $1.8m in net transaction revenue, "NTR") and with non-performing loans ("NPL") at a modest $133k (as at 15 May 2022) reinforcing our strong credit control strategy.

From a balance sheet perspective, we have been putting to work the capital raised to date. Four capital raisings were successfully completed in July 2020 ($1.5m), September 2020 ($2.1m), November 2020 ($10m) and February 2021 ($50m). The total $63.6m raised has been effectively put to work developing the BNPL capability (including technology, regulatory, brand, sales & marketing, accommodation & staffing, etc.), then launching the product suite and growing a portfolio of BNPL receivables.

In the Interim Report announced 28th February 2022, the Company reported trade receivables (including BNPL receivables) in excess of A$15m as at 31st December 2021. Given the volume of BNPL business written in calendar year 2022, the value of BNPL receivables has increased. Whilst we have not reported our receivables since the H1 FY22 Interim Report, it is apparent that significant capital is invested in the BNPL portfolio in transactions that have relatively short maturities (from 2 to 6 months) and so there is frequent cycling of the capital as consumer instalments are received and new BNPL transactions written, generating cash via the merchant discount rate (reported as Net Transaction Revenue) received as part of consumer instalments.

If you refer to the Interim Report for H1 FY22, you will also see the value of the Company's (current) 21% interest in IDSB as at 31st December 2021. As mentioned above, this is a highly strategic investment for the Company given the complementary nature of the two businesses, the valuable cross-sell opportunities currently being developed, and the potential for investment income via any dividend distributions from a business that generates a lot of cash and doesn't require large amounts of capital. Additionally, there are 'blue-sky' opportunities to grow revenue and asset values via expansion and marketing into the partner banks of each business.

So, the capital raised to date has been effectively applied consistent with our strategic objectives and there is much to show for it including a new premium BNPL business, a growing portfolio of BNPL receivables with low NPL and generating cash, and a valuable investment in a strategic partner generating cash and opportunities for growth.

We have also now reported two successive quarters of normalised positive net operating cash flow of $1m (after adjusting for payments to merchants). We believe this is a significant achievement, so soon after product launch, and an endorsement of our strategic approach to building the BNPL business.

Therefore, we believe that significant material progress has been made this financial year, all of which mentioned above has been reported in our various announcements to the ASX Announcements Platform.

With regard to our roadmap that was included in our last Investor Presentation in March 2021, we believe that we have been making significant progress executing on our strategic plan, as outlined above. Whilst we have not yet announced expansion into other SEA jurisdictions nor establishment of a wholesale funding facility, these certainly remain part of our strategy.

2. Communication

In terms of communication, the Company formally communicates to the market via announcements published on the ASX Announcements Platform to comply with its obligations under the ASX Listing Rules and disclosure laws. This involves certain regular scheduled announcements and also obligations to announce any material events and those that are price sensitive in nature.

Our most recent releases last week included a mid-quarter BNPL Business Offering & Operational Update on 1st June and the announcement on Friday 3rd June of the Company gaining PCI-DSS compliance certification, which we assume you have seen and read. The mid-quarter reports were introduced in August 2021 to provide more frequent reporting on the BNPL business and other operational matters as a supplement to the regular Quarterly Activities Reports required under the ASX Listing Rules. We expect to make these announcements on a regular basis and believe the frequency (quarterly & mid-quarter) is appropriate to keep the market informed.

Please note however, that not all submissions to the ASX are approved for publication to the platform. The ASX does not allow announcements to be made for the purposes of marketing or spruiking which are not otherwise required to be disclosed under the ASX Listing Rules (for example, if the information is not material or price sensitive in nature). The directors use their ultimate authority and discretion in the management of all announcements (having regard to disclosure laws) and are mindful not to misuse the ASX Announcements Platform for marketing / spruiking purposes.

Regarding announcements generally, we are mindful of our obligations under the ASX Listing Rules and disclosure laws. Any material events and those that are price sensitive in nature are certainly announced to the market as and when required.

In addition to formal market announcements, you can stay in touch with our activities by following our social media accounts (IOUpay & myIOU) on Facebook, Instagram, LinkedIn, Twitter and YouTube. You can also find links to media articles under the 'News' tab on our corporate website homepage at https://ioupay.com/.

3. Roadmap

In light of the easing of COVID-19 restrictions and the re-opening of the economy, as well as some of the initiatives being finalised in H2 FY22, we believe that it is now appropriate to be providing an Investor Presentation (including an updated roadmap & strategy) to the market. We are currently working on this and, whilst we are unable to provide you with a firm date, our expectation is to announce the new Investor Presentation by the end of the month (June).

We put a lot of work into the planning, development, presentation and execution of our roadmaps so clarity of our content and communication of the final release version is critical for us in terms of setting our strategy and goals for shareholders and all internal and external stakeholders. Rest assured, it is a major priority for the Company and we are looking forward to completing and releasing the next version subject to all the various approvals involved. We trust that you will find our forthcoming Investor Presentation informative and helpful in your understanding of the value proposition in IOUpay Limited.

Of course, the perspectives of the investor community are very important and help inform our communications and marketing. We regularly hear from shareholders like yourself and really appreciate you taking the time to write. Obviously it is difficult to respond with information that is not already in the public arena and we must respect the 'Chinese Wall' that is maintained between the Company and the trading of our securities.

Please look out for our forthcoming Investor Presentation. Additionally, any material events and those that are price sensitive in nature will certainly be announced to the market as and when required.

Thanks again for your continued support and interest in IOUpay Limited.

Best regards,

IOUpay Relations Team

E: [email protected]

IOUpay Limited (ASX:IOU)

Level 3, 35 Lime Street

Sydney NSW 2000

Australia