Company Overview: iSignthis Ltd provides identification and payment authentication services. The Company is engaged in anti-money laundering (AML)/counter terrorist funding (CTF) know your customer (KYC) identity proofing. It provides online payment security, Internet identity, e-mandates and e-contract validation services to e-Commerce operators, and assists AML and CTF. The Company's solutions include Evidence of Identity (EOI), e-Know Your Customer (eKYC) and Strong Customer Authentication (SCA). Its Paydentity solution incorporates real time electronic verification to converge remote payment authentication and KYC identification. Its eKYC offers a range of online services, including digital banking, card issuers, loan providers, insurance, bitcoin and crypto currency exchange, financial services, and person to person remittance/money service businesses. It also has partnerships with various card schemes and payment processors, as well as direct connect to a number of acquiring institutions.


ISX Details

Australian Securities and Frankfurt Stock Exchange cross listed company iSignthis Ltd (ASX: ISX) is a well-known leading company in RegTech that makes identity verification and transactional banking/payments, quite easy for the customers. iSignthis primarily provides identification and payment authentication services and is engaged in anti-money laundering (AML)/counter terrorist funding (CTF) know your customer (KYC) identity proofing. The group’s latest quarterly result with a stupendous increase in revenue and significant rise in cash receipts favoured the stock and the group also witnessed an enhanced value of its contracted Gross Processing Turnover Value (GPTV). ISX half yearly result also entailed positive catalysts that set a good growth trajectory. Its key SaaS based product, Paydentity, which enables customers save their time and money in fulfilling requirements, aims to lower the credit card fraud through online platforms and the business model does proffer opportunities through the rising need of Know Your Client (KYC) verification. Its card acquiring service, ISXPay also provides the feature for merchants to accept multiple credit cards and alternate payment methods for different currencies. iSignthis, through its wholly-owned subsidiary iSignthis eMoney, has bagged a deal to become a payments aggregator for American Express (AMEX), which is one of the world’s largest credit card providers. The company is working on its Intellectual Property portfolio and has recently indicated for the acceptance of Chinese patent while it aims to file further patents for new inventions. Overall, the group seems to have many revenue drivers in place for future performance and finds support from rising book value.

Strong Third Quarter FY 18 Performance: iSignthis Ltd.’s (ASX: ISX) stock moved up 2.86% on May 18, 2018 with the rise in positive sentiments looking at its growth prospects. The company in the third quarter FY18 has delivered strong quarter on quarter growth of 267% for the unaudited revenue to A$1.48m. The total unaudited revenue for the first three quarters of FY18 accounted to A$2.28m. Moreover, in the third quarter, the cash receipts had risen to A$1.571m, which represents a rise of approximately 400% compared to the December quarter (A$392k). At the end of the third quarter 2018, the consolidated group cash balance is of $7.1million (excluding cash deposits held as security and Customer Segregated Funds). The cash usage for the third quarter was within the projected usage for business growth, development, marketing and service deployment. Further, the cash position continues to improve, the gap between outflows and inflows is reducing as revenues grew and additional funds were gained by the placement completed to institutional investors in the December quarter.
 

Total Operating Revenue (Source: Company Reports)

Business Positioning: For the third quarter ending 31^st March 2018, the company has continued growth of transaction volume quarter on quarter and flagged for the generation of revenue of approximately $1.5m. The company is getting revenues from a relatively low number of integrated customers, but the strong numbers are now being delivered across each of the industry verticals (Identity verification, processing and card acquiring settlement services). The ongoing focus will be to continue to build on these numbers in order to reach a break-even position as fast as possible. Additionally, the business development division is looking at completing contracts for new customers and at the same time, the merchant support team is finalising integration of services to contracted clients. Overall, the quarter on quarter transaction and revenue growth is due to the new business, new integrations and growth of existing customers.

Merchant Update: ISX provides transactional banking services (for instance, payments) by enabling supply side payment solutions to the contracted merchants so that the customers are given greater choices of payment methods, whilst contemporaneously verifying the customer’s identity to increase the merchant’s global reach and simultaneously meet compliance requirements. Moreover, the ISXPay contracted book value has continued to grow, and the contracted value is now in excess of AUD$500m GPTV per annum. The GPTV processed by the company did not experience the growth expected by ISX, due to a number of unforeseeable events. These events included litigation between two of the merchants and ASIC, which had resulted in processing for those two merchants witnessing a decline. As a result, the GPTV attributable to these merchants has been discounted from the above ‘contracted’ GPTV. Further, ISX is also resolving an upstream technical issue with one of the key suppliers. This short-term supply side technical issue has affected the processing of payments to some of the merchants in the EEA area. Moreover, this technical issue prevents the company from processing the volumes of some of its contracted merchants at maximum capacity, as well as crystallizing the full potential gross profit from each contracted merchant. ISX is therefore diverting its traffic in the short term from these merchants to higher cost suppliers until the company resolves the issue, which is expected to be done in 2-3 months. The revenues will continue to increase, but may be at a slightly lower pace and at a lower gross profit margin than what was hoped by management during the period. The ability to divert traffic to other suppliers, even at a higher cost, is an essential design feature of the resilient ISX network, to ensure that the company can offer maximum processing uptime to the merchants in the event of upstream supply issues.

Strengthening Intellectual Property Foothold: ISX continuously does research and development of new services, and files for patent protection actively to protect its position in the market. ISX Chinese patent application relating to “Methods and systems for verifying transactions” has been accepted and was slated to proceed to formal grant of Letters Patent. The USPTO have determined that the US patent application 15/536219 “Assurance of identity information” has fulfilled the formal requirements and is accepted for examination along with US Patent Application 15/575 767 on “Secure Payment”. These patents were filed in a number of other jurisdictions contemporaneously. The Company has also extended its trademark scope and registration with the USPTO for Paydentity and iSignthis in the USA.


Half Year Performance (Source: Company Reports)

AMEX and ISXPay execute aggregator agreement: iSignthis eMoney (AU) Pty Ltd, which is a subsidiary of ISX has executed a payment aggregation agreement with American Express Australia (AMEX). The AMEX service will compliment ISXPay offerings to merchants in Australia, and will allow ISXPay to onboard merchants directly. Further, as per the agreement, ISX will purchase AMEX processing at a pre-agreed wholesale Merchant Services Fee (MSF) rate, and then is able to on-sell to merchants under its usual Merchant Services Fee (MSF) plus flat fee structure. This agreement includes the provisions for AMEX direct MSF management of larger or preexisting merchants enabled through the ISXPay network. Overall, the addition of AMEX Is highly complementary to the ISX core payment services. Additionally, the integration commenced on AMEX immediately, with approximately a 3-4 month integration and certification window before it can be made live to merchants. However, in the meantime until full integration is completed, ISXPay will be able to process AMEX transactions for a flat fee, but will not receive any MSF contribution.

XM.com expands with Paydentity for China eKYC: ISX has extended the scope of its Paydentity solution to XM.com to contain the provision of Chinese identity verification services, as a standalone service. Electronic Know Your Customer (eKYC) services are provided to XM by the company. Moreover, ISX is identifying Chinese, as well as UK and EU based customers, on behalf of various XM trading entities, to meet AML/CFT Know Your Customer (KYC) requirements.

Stock Recommendation and Outlook: ISX stock has risen 20.69% in last three months as on May 17, 2018, and is benefitting from various strategic partnerships and financial performance. ISX is focusing to deliver multiple services into the company’s existing service customers, integration of new customers and getting additional business development opportunities across an expanding range of core KYC, merchant and banking services. ISX had planned to provide forecasts to the market in recent quarters, however the surging and unpredictable nature of the growth experienced by the company in recent quarters has led to significant variation from those guidance estimates. Meanwhile, ISX currently has a strong pipeline of merchants on-boarding, which will in turn impact both operational core services revenue and the contracted book value for settlement services over the coming quarters. Further, a growing number of requests for other fiduciary and transactional banking services are already provided to the existing customers on a small scale, and these present good opportunities. The company’s continued research and development, new product platforms and partnerships are expected to unveil good value in the upcoming period. Recently, Deutsche Bank AG and its related bodies corporate became a substantial holder with an interest of about 5% in ISX. We give a “Speculative Buy” recommendation on the stock at the current price of $ 0.180.
 

ISX Daily Chart (Source: Thomson Reuters)

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