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Why Australia's answer to PayPal is trading up tenfold
Sep 10, 2019 — 12.00am
Payments company iSignthis is emerging as one of the small cap success stories of the year, with the value of its stock leaping more than tenfold in the eight months since January.iSignthis chief executive John Karantzis has created the country's equivalent of PayPal Supplied.
The share price of the business, which has created a patented payments network with strong fraud and identity checks that can be used by institutions that need to comply with anti-money laundering (AML) regulations, has increased from only 15¢ in January to $1.55, pushing its market capitalisation from $161 million to $1.7 billion.
The not-so-small cap stock, which is dual listed on the Frankfurt Stock Exchange, was pushed up another 13 per cent on Monday afternoon, after revealing that its annualised monthly gross processed turnover volume (the amount of money forecasted to be flowing through its network annually) had jumped 160 per cent since June to $1.1 billion.
Chief executive and co-founder John Karantzis told The Australian Financial Review the company's payment network was similar in many ways to PayPal, except that it targets different sectors of the market.
"We have gone a bit deeper into payments technology and agreements than PayPal, as we connect into central banks in Europe, the SEPA [single euro payments area] payment scheme, and we are a principal member institution of Visa, Mastercard, Diners, Discover, JCB, and ChinaUnionPay in Australia and the EU," he said.
"Where PayPal targets retail, we target AML regulated sector businesses, which offer financial services such as securities, foreign exchange, contract for differences or high value or cross-border goods, digital services and banking services.
"The company's rapid share price increase has been driven by constant news since it began operating in earnest in March. It has posted regular growth updates and had quarterly investor briefings and in August it also secured a deal with the local subsidiary of Visa which meant it could act as a principal merchant and process their payments in Australia and the Asia Pacific.
It's even more astounding given that the company, which also offers electronic money deposit taking, listed in 2015 at a price of 3¢ and in the six months to June 30 it only banked $7.5 million in revenue.Like PayPal, iSignthis is also an issuer of electronic money in the European Union and in Australia it is seeking to be granted the second purchased payment facility authorised deposit-taking institution (ADI) licence, with the first being given by APRA to PayPal.
Signthis has also applied for access to the Reserve Bank's payment infrastructure and when this is granted the company will be able to offer Australians BSB account style access, as it does in Europe with IBAN-based bank accounts. In contrast, PayPal utilises a person's email or mobile for reference to an account.
Currently iSignthis has 260 merchants in its "paydentity" ecosytem, making up a decent chunk of the financial services businesses industry.
Mr Karantzis said the payments platform took three years to build and tackles the issues retailers faced of high numbers of chargebacks for fraud."Knowing a person's identity reduces the opportunity for fraud, but it also allows us to perform Know Your Customer (KYC) [checks], which is the key to onboarding customers online and meeting AML regulations," he said."Paydentity brings in the KYC, KYCC [a deeper understanding of the customer] and the various payment methods, and allows us to onboard a customer within 3-4 minutes of that customer being referred to us by one of our merchants in our network," he said.
"The network effect then kicks in, as more business customers want access to the already KYC’d retail customers to whom we’ve issued electronic money, and the retail customers want fast access to the businesses on our ecosystem."
Stephen Aboud and Marcus Hughes' strong performing hedge fund LHC Capital Partners is one of the largest shareholders in the company, owning 8.18 per cent.In the six months to June 30 the company substantially reduced its losses, narrowing its net loss by 75 per cent to $700,000.
In the second quarter of the calendar year it also achieved positive cash flow of $9.9 million.Mr Karantzis said investors had driven the company's price up based on its strong revenue trajectory and margins.
"I think our valuation, given our growth prospects and the fact that we achieved cashflow positive in four months, warrants a much better valuation than businesses that burn cash for years under the guise of promoting growth," he said.
"We are aiming to drive both growth and value, and take an ‘old school’ view that any product line we launch must be profitable at the gross profit level."Mr Karantzis said the company was also steering clear of areas dominated by the big four banks.
"We also don’t need a lot of capital, so unlike neobanks that are a cash sink as they need capital to offer loans, we have started our neobanking services by not getting into the loans and mortgages area," he said.
"We see the big four being dominant in that area, and we offer services where the Big 4 typically won't, can't or have already exited due to either brand issues, AML concerns or lack of technology to deliver."
Yolanda Redrup, Financial Review.
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