Novatti Group (ASX:NOV) - banking subsidiary receives major external funding, ready for licence and launch


by Rachael Jones

Novatti Group Limited (ASX:NOV) CEO, Peter Cook, discusses funding for the Novatti's banking subsidiary, its banking licences and its core customer acquisition proposition.

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Rachael Jones: Hello. It's Rachael Jones for the Finance News Network. Joining me from Novatti Group (ASX:NOV) is CEO Peter Cook. Peter, welcome back to FNN.

Peter Cook: Rachael, hello.

Rachael Jones: Now, Peter, for our viewers who are new to Novatti, could you give us a recap of what the company does?

Peter Cook: Rachael, Novatti is primarily a financial transaction payments processing company. We've got a number of revenue streams coming from cross-border payments and remittances, from some billing services, from processing WeChat Pay and Alipay payments, from the issuing of Visa card programs, and other payment services, so that overall we have a number of transaction streams for payment processing.

Rachael Jones: Now, you've recently announced that you've signed on two new investors for Novatti B Holding Company. What can you tell me about that?

Peter Cook: So, Novatti B Holding Company is currently a 100%-owned subsidiary, and it is the subsidiary that has been applying to APRA for a bank licence. So, initially, for what's called a restricted bank licence. And then once we achieve that, we would then follow on with an application for a full bank licence.

So, we have announced a series of investments where external parties have invested directly into that subsidiary. And so they'll become part-owners of the bank. And, equally importantly, Novatti is no longer responsible for the funding of that bank subsidiary.

So, based on the announced round of funding, Novatti's equity interest in the bank is currently about $20 million.

Rachael Jones: And what will the investment fund, and can you tell me about the authorised deposit-taking institution licence?

Peter Cook: The investment will fund the Tier 1 capital, the regulatory capital, which is required for the restricted licence of $4 million, and it will fund the first $6 million of working capital, which should see the launch of the bank and also all of the work undertaken to obtain the full licence, awaiting that final approval from APRA.

Rachael Jones: And what about the grant of the full ADI application?

Peter Cook: So, the full ADI, which, based on looking at a couple of prior comparable companies, could be 9 to 12 months, but certainly within two years of the restricted ADI. Once we have the full ADI, we can take on an unlimited amount of deposit funds, can be a major lender, we can apply for a range of other asset created licences to extend the services the bank can offer.

Primarily, the services that we will initially offer will be related to cross-border payments and providing services for new migrants to Australia.

Rachael Jones: So, let's talk a little more about banking solutions for migrants in Australia. What are you offering?

Peter Cook: The core proposition or the core customer acquisition proposition, is that we will seek to acquire customers for our bank before they even come to Australia. So, it might be a young person who's thinking of becoming an international student at one of our universities. It might be a new migrant who's coming through a traditional work-type visa program.

We hope to attract those prospective clients and sign them up for banking services before they come to Australia.

Once they've come to Australia, they have a transaction banking account, they have prepaid and postpaid credit cards, leading on to a full lifecycle of home loans and business loans as they mature as a customer in Australia.

Rachael Jones: And now, let's look at financials and strategy. How are you progressing?

Peter Cook: Looking at Novatti, the payments processing part of the business, we've been growing very strongly, half year on half year, year on year, and we are looking to continue that growth in the foreseeable future. A lot of our revenue trends have been incubated within the business, and some of those we've taken from small revenue streams to now increasingly significant revenue streams. And I hope our shareholders will see the benefits of that over the next couple of years.

The company has required cash over the last two years to fund the bank licence. Now that the bank division is funded via this investment, Novatti itself won't need to fund the bank, certainly in the foreseeable future. And so we really now see that Novatti is a strong high-growth payments business. And then the bank, as a new digital banking entry, will have its own strong growth strategy.

Rachael Jones: And to the last question now, Peter, what can investors look forward to from Novatti over the coming year?

Peter Cook: I think the first thing investors will see is the value that we have built in the bank subsidiary start to get shown by the willingness of external parties to invest in that subsidiary. And at the moment, as per our stock exchange announcement, Novatti has essentially $20 million of value in that subsidiary, and then that value should get further proven up as we get the restricted licence and full licence and launch the bank.

At the same time, the come raise pressure on Novatti should cease, as it no longer has to fund the banking subsidiary. From Novatti's own operations, we grew strongly from financial year 2018 of $6.3 million to about $8.9 million of revenue in FY19. We are aiming for strong growth this year, and we would hope that that strong growth in revenues also brings a much stronger performance of the EBITDA line.

So, investors, I guess would be looking at us for strong revenue growth, and consistent growth. Some of the incubated businesses, such as the China payments, these are program management, and the remittance is growing, and then the continued roll out and achievements of the banking division.

Rachael Jones: Peter Cook, thanks for the update.

Peter Cook: Thank you. Rachael.