Fintech Novatti gets green light for banking licence

A week after launching an A$-backed staplecoin (AUDD), multi-channel payments smallcap Novatti (ASX: NOV) has announced plans to launch its International Bank of Australia.

While the announcement wasn’t entirely unexpected, the market made no secret of what it felt about the news with the share price up 72% at the open to $0.135.

Novatti, which holds a major stake in International Bank of Australia, entered a trading halt last Thursday after advising the market that the regulator (APRA) has granted the subsidiary a restricted authorised deposit-taking institution licence (RADI).

APRA granted approval to IBOA Group Holdings – the new name of a Novatti subsidiary formed five years ago to pursue a banking licence - to form up as a non-operating holding company.

International Bank of Australia now has two years, or until November 2024 to progress to a full banking licence.

Simplified payment options

IBOA expects the new bank to capitalise on the difficulties traditional banks have keeping pace with the requirements of the disruptive business models of fintechs, especially 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,” the company noted.

"A key focus for the bank will be partnering with fintechs, such as Novatti, who need an innovative and nimble banking partner."

Significant milestone

Novatti’s managing director Peter Cook considers the restricted banking licence a "very significant milestone" in Novatti's long term strategy and is the culmination of several years of investment and development.

“We see banking services as significant across card issuing, merchant acquiring, billing and cross-border payments as it underpins the infrastructure and capability to Novatti’s core payments business while also giving us the ability to increase margins,” Cook notes.

“… the bank has the strong advantage of being able to leverage Novatti’s existing payments ecosystem and global footprint to help win customers quickly.”

Funding

Novotti, which prior to the market opening today, had a market cap of $62.3m - has used an additional $5m of its own cash to invest further into the International Bank of Australia (IBOA), hence taking its stake to 91%.

Commitments under the Series A round were first announced to ASX in October 2021 and have since evolved with Novatti taking the opportunity to increase its interest in lieu of a portion of the third-party commitments.

The aggregate $8m in new funding under this round will enable the International Bank of Australia to launch and build the banking business.

While launching International Bank of Australia has proven a capital hungry exercise for Novatti, Cook notes the company was able to make this further investment in the International Bank of Australia by leveraging its strong balance sheet.

This includes a cash balance at the end of the September quarter of $14.5m, with a further $12.8m expected as a special dividend from Reckon Limited on 21 November.

Novatti’s recent growth achievements

• Five-year average annual revenue growth reaching 76% in FY22

• 98% year-on-year increase in September quarter sales revenue

• 53% reduction in cash used across past two quarters

Consensus does not cover Novatti.

Based on Morningstar’s fair value of $0.44 the stock appears to be undervalued.