Technological change is sweeping the financial services industry at ever increasing speeds. From changing the way business is done to changing the very businesses customers choose to interact with, technology is shifting the foundation of financial services.
How is technology impacting the financial services sector?
According to PWC, the accelerating pace of technological change is the most creative force, but also one of the most destructive forces, in the financial services ecosystem today. For a long time large, well-established institutions benefited from their size. Strong compliance systems allowed these institutions to manage ever increasing regulations. Significant client bases and resources allow them to prosper even in difficult conditions. New market entrants found it difficult to break into the industry. Not any more.
Fintech start-ups are encroaching on established financial services and banking markets. Unencumbered by legacy IT systems, fintechs lead the way with customer-friendly interfaces and intuitive solutions developed from the ground up. Often focused on a particular market segment or innovative technology, these disrupters are attacking different parts of the financial services value chain.
Here we take a look at 3 ASX fintech shares to watch in 2020.
WISR Ltd (ASX: WZR)
Wisr advertises itself as Australia's first neo-lender and offers personal loans of $5,000 to $60,000 on 3, 5, and 7-year loan terms. Wisr's average loan size is $25,000 with a loan term of 4 years. Shares in Wisr are currently trading at 20 cents, up from 4 cents last January. Moelis Australia initiated coverage of the share in December with a buy rating and a 20 cent price target.
Outlook
According to Moelis, Wisr "is currently experiencing record growth as its innovative sales and marketing initiatives come to fruition and it transitions to a significantly more profitable loan funding model."
In November, Wisr marked its first $150 million of loans written. The first $50 million took 45 months to write, the second $50 million more than 8 months, and the most recent $50 million less than 6 months. Loan originations have shifted upwards in 2QFY20. Daily loan settlements in November were up 105% compared to the previous year. Wisr is now headed towards hitting a run rate of $150 million originations per year.
Market share
The personal loan market in Australia is estimated to be worth $50 billion in annual originations. It is currently dominated by the 'big four' banks, with digital lenders representing only 3% of the market. In 2018 digital lending held 38% of market share in the US and 25% in the UK. There is potentially scope for a similar take up rate in Australia. Moelis estimates that Wisr accounts for 0.27% of the market. Its key difference to competitors is its stated purpose of improving financial wellness, which opens up additional distribution channels. This will help Wisr capture 0.69% of the market by FY22, according to Moelis' estimates.
Branding
Wisr brands itself as having a vision of improving customers' financial wellness. As Moelis points out, this unique, trusted value proposition allows Wisr to access B2B2C channels such as employers, health insurers, and superannuation providers that can distribute Wisr products to members. Wisr@Work, a workplace financial wellness program, and Wisr App, a debt reduction tool, were launched in 2019. These allow for low-cost customer acquisition.
Money3 Corporation Limited (ASX: MNY)
Money3 provides personal loans up to $12,000 and car loans up to $50,000. The company originates over $1 million in loans every business day; currently 1 in 500 registered vehicles in Australia have a loan with Money3. Shares in Money3 are currently trading at $2.36, up from $1.57 last January. Morningstar Quantitative rates MNY shares as fairly valued, with a fair value of $2.15.
FY19 results
Revenue grew 24.6% to $91.7 million in FY19. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased 17.3% to $47.5 million and net profits after tax (NPAT) increased 14.2% to $24.2 million. Earnings per share were 13.48 cents and a dividend of 10 cents per share, fully franked, was paid.
Geographic Expansion
Money3 acquired Go Car Finance in New Zealand in 2H19, expanding the company's geographic footprint. Currently 1 in 800 registered vehicles in New Zealand have a loan with Go Car Finance. New Zealand has the fourth highest rate of vehicle ownership globally.
First quarter results
In 1Q20, Money3 delivered unaudited revenue of $30.5 million, up 48.8% on the prior corresponding period. EBITDA was up 41% to $14.8 million and NPAT was up 53.1% to $7.5 million.
FY20 forecast
In FY20, NPAT growth is forecast to exceed 25% from continuing operations. Money3 also plans to expand its addressable market by geography and product. Credit decisioning is to be streamlined and the application process simplified to reduce loan turnaround times. Money3 forecasts it will originate 26,000 loans in Australia and 5,000 loans in New Zealand in FY20.
EML Payments Ltd (ASX: EML)
EML is a payment solution provider that provides gift card and incentive programs, reloadable value cards, and virtual accounts for business payments. EML shares are currently trading at $4.61, up from $1.48 last January. Morningstar Quantitative rates EML shares as overvalued, with a fair value of $3.95.
FY19 results
In FY19, EML reported EBITDA of $29.1 million, up from $20.8 million in FY18. Of that, 68% was organic growth and 32% was attributable to an acquisition. Revenue of $97.2 million was reported, up 37% from the previous year. Net profit after tax (NPAT) increased 283% to $8.45 million.
Growth
In the 5 years to FY19, EML's EBITDA grew by 82% on a compound annual basis. EML has also made 6 acquisitions since 2014, including 2 in 2019. In November, EML agreed to acquire Prepaid Financial Services Ireland Limited (PFS), a provider of white label payments and banking-as-a-service technology. The acquisition is being funded via a $67 million placement, a $283 million entitlement offer, a $175 million debt facility ($130 million drawn), and scrip consideration.
FY20 outlook
EML reported revenue of $23.2 million for 1QFY20 up from $17.2 million for the prior corresponding period. Gross debts under the company's incentive programs, cards, and virtual accounts exceeded $3.2 billion, an increase of 74% over 1QFY19. The group expects EBITDA to be in the range of $38.5 million to $42.5 million in FY20 which would represent growth of 28–43% over FY19 (excluding acquisition costs).
