Company Overview: Change Financial Limited is a fintech, banking software and blockchain investment company. The Company has three core business units, such as Consumer, Enterprise and Blockchain. The Consumer unit is underpinned by ChimpChange, the Company’s digital bank account and mobile application. ChimpChange makes free retail banking available to Americans who typically pay fees in order to have a bank account and provides money management tools to help its customers. The Enterprise unit provides a turn-key, MasterCard certified Software-as-a-service solution for United States banks which is PCI compliant and capable of authenticating transactions. The Blockchain unit pursues value-accretive investments in the burgeoning blockchain space. It has has invested in ivyKoin, a blockchain-based cryptocurrency that comes embedded with significant Know Your Transaction (KYT) and Know your customer (KYC) information to encourage the use of cyrptocurrency in traditional banks and financial institutions.


CCA Details

Change Financial Limited (ASX: CCA) is a US-based award-winning fintech, banking software, and blockchain investment company consisting of three core business units: Consumer, Enterprise and Blockchain. The Consumer unit is underpinned by ChimpChange, the Company’s award-winning digital bank account and mobile app. The Enterprise unit provides a turn-key, Software-as-a-Service solution for US banks which is PCI compliant and capable of authenticating transactions. The Blockchain unit pursues value-accretive investments in the burgeoning blockchain space. Change Financial has invested in ivyKoin, a blockchain-based cryptocurrency that comes embedded with significant Know Your Transaction (KYT) and Know Your Customer (KYC) information to encourage the use of cryptocurrency in traditional banks and financial institutions. The 2017 financial year has been a seminal one for Change Financial. The Company has continued to strongly grow its customer base whilst improving its product and technology offering. New agreements in place are expected to pave the path for industry leading mobile banking experience.
 

Company Overview (Source: Company Reports)

Secured Three Major Enterprise Agreements: Lately, the Group secured three agreements for its burgeoning Enterprise Division ahead of the full launch of its enterprise Software-as-a-Service (SaaS) solution. These include:

1. Mastercard - Change Financial has selected the Mastercard network gateway for the transaction connection to link the Change Financial processing engine to its partner bank, Central Bank of Kansas City (CBKC). The arrangement with Central Bank of Kansas City and Mastercard will significantly improve the Company’s processing capabilities and will allow it to aggressively pursue expansion plans for its Enterprise Division.

2. Central Bank of Kansas City - Change Financial has signed a Letter of Intent (LOI) for a Processing Agreement with Central Bank of Kansas City, the issuing bank of the Company's ChimpChange Prepaid Mastercard. The LOI positioned CBKC as the first enterprise customer for the transactions processed by Change Financial. The agreement with CBKC supports continued innovation and product development for Change Financial's enterprise SaaS processing solution and indicates the bank's willingness for Change Financial to expand beyond its current program manager role into transaction processing and other enterprise services.

3. Pulse - Change Financial signed a process agreement with Pulse, a subsidiary of Discover Financial Services (NYSE: DFS) to provide processing services for transactions routed through its vast network. Pulse, which is the third largest debit/ATM network in the US, provides transaction, routing, and settlement services for thousands of US banks. The agreement with Pulse will allow the Company to provide a holistic enterprise offering to its banking clients.


Trend of Total Transaction Volume (Source: Company Reports)

Financial and Operational Performance: The Group released its results for the half year ending December 2017. It has been an exciting, high growth half-year for the Company and reported an increase of 166 per cent in revenue (US$428,891) as compared to half year ending December 2016. However, loss from ordinary activities was (US$5,314,631) against (US$3,964,338) of prior corresponding period (pcp); and Diluted EPS was (US$7.4) as compared to (US$6.9) of pcp. At 31 December 2017, the Group had net current assets of US$4,582,450 including US$4,835,682 of cash and cash equivalents. For the half-year ended 31 December 2017, the Group incurred an operating cash outflow of US$4,958,084 and as compared to US$3,554,166 of the earlier period. The group is now looking to undertake funding alternatives and cash preservation initiatives.

In its customer division, the Transaction volumes increased to US$71.7 million for the 6 months ending December 31, 2017, an increase of 378% from the previous half-year (6 months ending December 31, 2016 of US$15.0 million). During the month of December 2017, customers deposited US$7.0 million onto the ChimpChange platform, up 192% from a total of US$2.4 million in December 2016. During the half-year, the number of live customer accounts increased by approximately 53,000. Digital channels, namely Facebook and Instagram, have been the most successful customer acquisition channels for the Company. By the end of the period, CCA achieved an organic customer acquisition rate of nearly 33% and a blended cost of acquiring customers of less than US$14, which was a pleasing outcome given the rapid rate of customer acquisition through its paid digital channels.


Customer Acquisition Trend (Source: Company Reports)

Investment in Ivy, a Blockchain-based payment company: Change Financial made a seed investment in Ivy Koin (Ivy) in October 2017. As a result of this investment, Change Financial has a 33% equity holding in Ivy and now holds 130 million ivyKoin tokens. In February, Ivy completed its most recent funding round by raising US$16.5 million (A$21.4 million), via a private placement at a price of US$0.10 per token. Although the IvyKoin tokens are not currently being traded on a public exchange, based on the last private placement price of ivyKoin tokens, this implies a value of US$13 million (A$16.9 million) for Change Financial’s direct holding of 130 million of tokens. Ivy has generated 1.6 billion tokens and will hold 742 million tokens in reserve for future growth, business development and treasury function. This will result in a reserve value of US$74.2 million (A$96.3 million) which will be based on a price of US$0.10 per token as per the February 2018 private placement.
 

Investment in ivyKoin (Source: Company Reports)

Outlook: Change Financial’s entry into transaction processing ensures that its infrastructure will keep a pace with its product roadmap and award-winning mobile experience for cardholders. This new endeavour will also enable CBKC to provide issuing services to additional companies signing on with Change Financial and their vision for payments technology. With this series of agreements, Change Financial continues its momentum towards the launch of its enterprise SaaS solution that combines innovative processing functionality and flexibility with its award-winning smartphone app consumer interface. This combination provides an end-to-end solution for banks and program managers seeking to provide customers an industry-leading mobile banking experience.

Stock Performance: Change Financial’s track record of acquiring millennial customers at a low-cost as compared to banking industry standards makes the Change Financial enterprise SaaS offering a compelling value proposition for enterprise customers. Change Financial’s Enterprise Division is rapidly expanding and is now close to a full launch of its SaaS solution. With 65% of ChimpChange’s customers being millennials, Change Financial has a proven ability to capture this valuable market segment. One can get the SaaS offering that is highly attractive to the enterprise market by combining its increasingly sophisticated processing capabilities and widening reach. CCA is experiencing several synergistic benefits as Ivy’s mission is in line with the Group’s vision of using innovative technology to improve banking and payment systems and the Board believes that the ivyKoin token has significant potential to disrupt the global payments industry.

The Group recently announced the issue of 1,00,000 shares for $0.49 per share. Acorn Capital Limited, its substantial holder changed its substantial holding since 19 April 2018 and now it holds 5.61 per cent of the voting power from 6.73 per cent in the Company. On the other hand, the Company made an investment in innovative blockchain and cryptocurrency technology to provide solutions for the US$1,250 trillion global payments market. ROE for 2017 was (80.7 per cent) as compared to (128.0 per cent) in 2016. Since the stock is in a growing stage, so it has jumped up by 22.9 per cent in the last six months, followed by a 15% drop in three months given the market volatility. The stock has been initially up 2.3% on April 24, 2018 and later dropped by 1.7%. We give a “Buy” recommendation for this stock at the current market price of $0.870, by looking at the global landscape for the blockchain and cryptocurrency industry trend and drivers based on the recently secured agreements.
 

CCA Daily Chart (Source: Thomson Reuters)

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