This ASX fintech just got a banking license, and its share price surged 54%

The wait is finally over…

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Key points

  • After years of waiting, Novatti has been granted a restricted banking license
  • It will launch its business banking aspirations through its subsidiary, International Bank of Australia
  • The bank will prioritise focus on fintechs and migrants

The Novatti Group Ltd (ASX: NOV) share price is lighting up today after the ASX fintech share revealed it's been granted a restricted banking license.

The Novatti share price emerged from a trading halt to rocket 54% higher this morning. At the time of writing, Novatti shares are trading at 28 cents apiece, up 49%, giving the company a market capitalisation of $94.2 million.

Novatti granted its banking wish

The ASX fintech share has been trying to get its hands on a banking license for some time now. It first submitted an application to the Australian Prudential Regulation Authority (APRA) in November 2019.

This morning, Novatti revealed that this license finally has been granted after years of waiting.

Specifically, Novatti's dedicated banking subsidiary, International Bank of Australia, has been granted a restricted authorised deposit-taking institution (RADI) license. This license allows holders to conduct limited business banking in Australia before meeting the requirements of the full prudential framework. 

Part of this restriction phase comes with the expectation that a RADI will progress to an authorised deposit-taking institution (ADI) license. As a result, the restricted phase is for a maximum of two years. After that, the RADI will either progress to an ADI license or the holder will exit banking.

Other ASX shares currently holding an ADI license include Commonwealth Bank of Australia (ASX: CBA), Macquarie Group Ltd (ASX: MQG), AMP Ltd (ASX: AMP), and Tyro Payments Ltd (ASX: TYR).

Novatti holds a 91% interest in International Bank of Australia and will tip in a further $5 million as part of a series A funding round to launch the banking business.

What does Novatti have planned for banking?

Novatti's managing director, Peter Cook, sees banking services as significant across card issuing, merchant acquiring, billing, and cross-border payments.

It underpins the infrastructure and capability of Novatti's core payments business. So, in turn, it brings the opportunity to increase margins.

What's more, Cook noted that International Bank of Australia has the advantage of leveraging Novatti's existing payments ecosystem and global footprint to help win customers quickly.

International Bank of Australia has its sights set on fintech customers, believing this market segment has been underserved by traditional banks.

Guy Carvalho, CEO of International Bank of Australia, commented:

For a long time, we have known that traditional banks have not been able to keep up with the requirements of the disruptive business models of fintechs, particularly those offering alternative ways to make or accept payments, domestically or internationally. IBOA will overcome this challenge, leveraging technology to enable the seamless end-to-end movement of money.

International Bank of Australia also sees significant potential in the underserved migrant sector. Commenting on the opportunity, Carvalho said:

The bank will have the advantage of being able to leverage Novatti's existing payments ecosystem and global operating base to reach potential customers overseas and enable them to set-up bank accounts and transact before they even set foot in Australia.

In its investor presentation, the company noted it would be the first bank in Australia to offer a service of this kind.

As an example, with a borderless bank account, it says customers would be able to pay for their university fees and apartment bond instantly before arriving in Australia, avoiding costly foreign exchange and international transaction fees.

Novatti share price snapshot

While ultra-competitive, payments and banking are big business, so it's no surprise to see the Novatti share price race higher today.

Today's surge has almost erased all of Novatti's share price losses this year. At 28 cents, Novatti shares are now sitting just 5% below where they ended 2021. But they're still far from the lofty heights achieved in mid-2021 when shares catapulted to around 80 cents.

In FY22, Novatti doubled its sales revenue to $32.5 million but extended its net loss to $16.6 million.

Motley Fool contributor Cathryn Goh has positions in Tyro Payments. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Tyro Payments. The Motley Fool Australia has recommended Macquarie Group Limited and Tyro Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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