GH Capital Inc. (OTCBB: GHHC)
Technology; FinTech; Buy - Risky
Online banking electronic payments are set to grow.
Exposure can be achieved through GH Capital Inc. Online
payments are set to evolve over time. OBeP is expected to witness double digit
growth. Europe is the current playground for OBeP companies. Investing is
problematic given Sofort and iDEAL are currently private. However, exposure can
be achieved in OTC market through GH Capital Inc, which has one of the key
advantages, cost.
Internet and online businesses continue
to thrive. Timely investments resulted in sizable gains for investors in the
near past. Frequent innovations provide new opportunities for investors every
now and then. Speaking of internet businesses, payment systems are one of
critical success factor for businesses to capture more customers. Online
retailers are keen to invest in payment methods as it directly results in
expanded customer acquisition. On the other hand, customers like to have more
options for a payment method. Growth of payment systems are connected to the
growth of online businesses and tapping payment systems market can prove
beneficial for investors. According to ATKearney, non-cash payments are
expected to grow 8% per annum until 2020. This piece is focused on one specific
payment system known as Online Banking Electronic Payment, or OBeP.
What is OBeP?
OBeP relies on the online banking
of the customer to enable payments thereby eliminating the need for signing up
for cards or electronic signup.
According to Paypers, In an OBeP scheme, the consumer is authenticated
in real-time by the consumer's financial institution. The availability of funds
is validated in real-time and the consumer’s financial institution provides
guarantee of the payment to the merchant in case the payment is made as a
credit transfer that is the consumer initiates the payment.
Why Invest?
The reasons for OBeP adoption
seem very compelling. Firstly, consumers don’t like to sign up for multiple
payment options in case one option can be used for all purposes. And, bank
accounts are most certainly a must in the current financial system. Using
online banking details to purchase online is convenient as compared to sign-up
for new cards. For retailers, chargeback risk is eliminated and also, the
security is enhanced given that banking details are used. Other benefits are
the relatively low transaction cost compared to card, wallet, or other
alternative payments.
However, the key thing is that
this type of payment system suits regions with strong online banking infrastructure.
The payment system may lag in adoption in emerging markets for now but is
getting traction in Europe. In the Netherlands, for example, iDeal, an OBeP, is
much famous as compared to credit cards. As 93% of the Europeans use their bank
accounts regularly, there is clearly a market for innovative payment system
like OBeP. Finally, not everyone can sign up for credit cards given the risk
analysis carried out by the companies to issue cards. However, payment system
tied to bank accounts and real-time balance doesn’t require that kind of
scrutiny, which indicates a healthy adoption of such payment methods going
forward. Online banking payment is already a method of choice in countries like
Netherlands and Poland followed by strong adoption in Finland and Germany.
According to global payment report, total
e-commerce payment through online bank transfers including real-time transfers
is set to reach $440 billion by 2020 translating to CAGR of 12% p.a. Credit
cards will become less dominant going forward, according to global payment
report 2016. The info graphic below depicts the increase in market share of
bank transfers going forward while eWallet, credit cards and debit cards are
set to lose or maintain market share.
Source: World Payment Report, 2016
All in all, payment market is set
to witness a minor shift during the next few years, and online banking
transfers including OBeP will become more common.
Where to Invest?
Regarding the companies, iDEAL in
Netherlands and SOFORT in Germany are leading the way for OBeP. Sofort, a
Klarna group company, has signed up almost half of the all online merchants of
Germany. Overall, Klarna Group cooperates with 65,000 online merchants and
offers its solutions in 15 European countries. iDEAL, in Netherlands, is the go
to payment service provider for Dutch people. The challenge for investors,
however, is the private nature of both these companies. There is no option for
retail investors to invest in the growth of OBeP on the mainstream market.
There is another company,
ClickDirectPay, a subsidiary of GH Capital Inc (GHHC: OTCBB), which is trying
to set a foothold in European market. As
the company is a start up, it recently IPO’d on the OTC market QB. The company
provides the OBeP for the European merchants and customers. The company is not
as established as Sofort GmbH but may challenge Sofort going forward given the
cost advantage. Secondly, CPD is trying to cater the needs of the market not
tapped by the likes of Sofort.
According to the management, they
have a cost advantage as compared to Sofort. Sofort charges 0.95% as compared
to 0.75% charged by CDP from e-commerce merchants. For high risk merchants, CDP
fees are 2% as compared to 3% charged by Sofort. Cost is a critical success
factor as merchants are keen in choosing payment service providers with low
costs.
Secondly, ClickDirectPay is not
directly competing with Sofort as it is focusing on a completely different
industry, high risk merchants. The company is planning to target such as adult
merchants, online casinos, digital goods, FX brokerages, e-wallet providers etc.
The company has just around 350 merchants but most of these merchants switched
from Sofort amid reasonable pricing. Further, switching is also instant using
REST API leading to reduced switching barriers. The management of the company
also claims to have more developed and secured technology as compared to Sofort
GmbH. For instance, data transfers are performed via AES 256-bit secure
connections, and sensitive customer information is inaccessible to
ClickDirectPay or any merchant. Given that management’s claims hold true, GH
Capital Inc is an interesting option to tap into OBeP market. However, it is
suited for investors with high appetite for risk amid the liquidity concerns of
OTC markets. Note that GH Capital Inc is
also involved in capital market IPO advisory services.
Bottom line
Online payments are set to evolve
over time. OBeP is expected to witness double digit growth. Europe is the
current playground for OBeP companies. Investing is problematic given Sofort
and iDEAL are currently private. However, exposure can be achieved in OTC
market through GH Capital Inc, which has one of the key advantages, cost.
Disclosure: This publication is for informational purpose only and
reflects the opinion of Focus Equity’s analysts. This opinion doesn’t
constitute a professional investment advice. We have no positions in any stocks
mentioned, and no plans to initiate any positions within the next 72 hours. Our
technology analyst compiled this research piece. Focus Equity is a team of
analysts that strives to provide investment ideas to the U.S. equity investors.
This research piece is sponsored by a third party.
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