Offline the next frontier in digital payments
The payments industry’s shift online and towards the cloud has left a gap for retail customers with limited internet connectivity, primarily in emerging markets. IMF as well as Sweden’s Riksbank addressing the issue of financial inclusion as central banks around the world rush to develop Central Bank Digital Currency (CBDC), highlighting a global need for a payment system that can “verify the availability of funds and validate transactions without having to check with an online book”.
Crunchfish offers a proprietary platform that enables offline payments as an extension of any payment system regardless of the type of payment rail. It now has an ongoing initial pilot with two banks in it Indiaof which one is HDFC BankIndia’s leading commercial bank with over 60 million customers, and overseen by central bank of india, RBI. The company has also entered into a development agreement with the Nigerian Central Bank, CBN, for an offline digital currency solution, as well as partnering with leading payment platform provider Wibmo, laying the groundwork for an imminent global rollout. In the middle of a collaboration with Danske Socio ApSwhich puts together a conglomerate to provide affordable infrastructure i Africa, Crunchfish and Socio have signed an MoU on a direct equity investment of 3 million shares at market price in Q1´23, which will secure the runway to profitability.
Enabling offline payments in an online world
Digital payment ecosystems are built on either an account-based (Swish and UPI) or token-based (Cryptocurrency) payment rail. Crunchfish’s solution applies to both. It also does not matter if the security protocol is native or non-native or if the end solution is based on hardware (card, wristband etc) or software (smartphone application). The versatility of Crunchfish’s platform and solution makes it a suitable supplier for all design choices, making the potential addressable market huge.
Reach 100 million users by 2026 in our base case
We expect Crunchfish to sign an initial agreement with a major bank which HDFC Bank as early as 2023, which will ignite a slow-burning snowball effect. While the potential is significant, we note that the company operates in a sensitive ecosystem, where customers are slow to change. Since no deal has been signed yet, we can only speculate on what a deal would look like.
To be cautious, our Base Case estimates that the solution will be rolled out via customer banks to 100 million users by 2026, which translates into annual sales that are just a long way off. SEK 300 millionbased on a license of NOK 3 per user, charged to the banks in tranches. In a Bull Casewe estimate a faster implementation rate and a fee of NOK 5 per user, which translates into annual sales of SEK 225 million in 2024 and SEK 725 million in 2026. With a highly scalable platform offering, we expect >70% to trickle down to EBITDA in the long term. With a combined DCF and target multiple valuation method, we find support for a fair value of NOK 48-63 per share in 12-24 months. However, the speed of implementation and fee per user are two key variables that can significantly affect our forecast and valuation.
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