Andreas Eriksson & Johan Widmark | 2023-01-24 11:30
Offline the next frontier in digital payments
The payment industry’s shift online and towards the cloud has left a gap for retail customers with limited internet connectivity, primarily in emerging markets. IMF as well as Swedish Riksbanken address the issue of financial inclusion as central banks worldwide rush to develop Central Bank Digital Currencies (CBDC), highlighting a global demand for a payment system that could ”verify availability of funds and validate transactions without the need to check with an online ledger”.
Crunchfish offers a proprietary platform that enable offline payments as an extension of any payment system regardless of type of payment rail. It now has an ongoing initial pilot with two banks in India, of which one is HDFC Bank, India’s leading commercial bank with over 60m customers, and overseen by the Indian Central Bank, RBI. The company has also entered a development agreement with the Nigerian Central Bank CBN, for an offline digital currency solution, as well as partnered up with leading payment platform providers Wibmo, setting the stage for an imminent global rollout. In the midst of a partnership with Danish Socio ApS, who is putting together a conglomerate to provide affordable infrastructure in Africa, Crunchfish and Socio have signed an MoU regarding a direct equity investment of 3 million shares at market price in Q1´23, which would secure the runway to profitability.
Enabling offline payments in an online world
Digital payment ecosystems are built upon either an account-based (Swish and UPI) or token-based (Cryptocurrency) payment rail. Crunchfish’s solution applies to both. Nor does it matter if the security protocol is native or non-native or if the end solution is based on a hardware (card, bracelet etc) or software (smartphone application). The versatility of Crunchfish’s platform and solution makes it a suitable provider to all choices of design, making the potential addressable market enormous.
Reaching 100 million users by 2026 in our Base case
We expect Crunchfish to sign an initial deal with a major bank like HDFC Bank already in 2023, which will ignite a slow-burning snowball effect. While the potential is considerable, we note that the company operates in a sensitive ecosystem, where customers are slow to change. Since no deal has been signed yet, we can only speculate on what an agreement will look like.
To be prudent, our Base Case estimates the solution to be rolled-out via customer banks to 100 million users by 2026, translating to annual sales just shy of SEK 300m, based on a license of SEK 3 per user, charged to the banks in tranches. In a Bull Case, we estimate a more rapid implementation rate and a fee of SEK 5 per user, which translates to annual sales of SEK 225m in 2024 and SEK 725m in 2026. With a highly scalable platform offering, we expect >70% to trickle down to EBITDA long term. With a combined DCF and target multiple valuation approach we find support for a fair value of SEK 48-63 per share, in 12-24 months. However, the speed of implementation and fee per user, are two key variables that can significantly impact our forecast and valuation.
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