MoneyOnMobile’s Strategic Shift Towards the Under-Banked and NASDAQ…Announces Rights Offering

This week, MoneyOnMobile (MOMT) filed a rights offering. If my reading of the tea leaves is correct, this deal, with RHK Capital acting as their banker, is significant for the Company.

MOMT has long talked about uplisting to a major exchange. RHK Capital has a history of helping companies accomplish this, frequently using a rights offering as the preferred methodology. It works like this, current investors get the chance to participate pro-rata (or, if it’s not fully subscribed, to upsize their position) when the deal closes. This typically happens simultaneous to a reverse split and a new exchange listing.

In most cases, the Company will go on a roadshow and look for institutional investors to add to the shareholder base and “backstop” the deal. With an exchange listing at closing, along with an incredible growth rate in a potentially huge market, finding institutional backing shouldn’t be a herculean task for RHK, a firm with a track record of success.

If I’m correct, this will leave the Company in a great position for investors to benefit. Not only will it be on a major exchange, but it will have institutional shareholder support and additional capital to further accelerate their growth plans.

MoneyOnMobile does indeed have big plans for growth as it further penetrates their target market. With over 1.2 billion citizens, India has been considered the next big growth area when it comes to mobile payment platforms. The players in the space are numerous and well-funded. Companies such as Google’s Tez and Paytm are investing heavily in trying to win over the Indian consumer, a potentially huge opportunity.

The problem most of these companies face, however, is their model. Entrants in India are all going after the same higher-end consumers, trying to get them to tie an app into their bank account or credit card. This model worked well in China, which is almost all mobile payments these days. The common thinking is that India will follow down the same path. However, it is not so simple there, as doing business is quite different and brings a unique set of challengs.

There are two main issues slowing down the growth of digital payment platforms in India.

  1. It’s still primarily a cash economy. Many retailers require cash and many consumers don’t have bank accounts or, if they have one, ready access to a branch or ATM.
  2. A large portion of the transactions are miniscule in size. This makes it too expensive to profitably process a number of these transactions when there’s a bank or credit card involved.

MoneyOnMobile has built their business with these two issues squarely in mind. Their payment platform is unique in that consumers do not require a bank account to become customers. Instead, they deal directly with the merchants, empowering them to help bring the digital world to the un-banked Indian consumers. And, they do it in a cost effective manner, where they can be profitable in all but the smallest transactions, which virtually eliminates competition at the low end of the market.

However, the government in India is pushing for change. They recently installed the AADHAAR biometric ID program, which is like a fingerprint and iris enhanced version of our social security number. Through use of AADHAAR, the government is looking to monitor many things in the country, including bank accounts and spending of money.

The result of this is that the days of the unbanked are numbered and the country, with few physical bank branches and ATMS, is going to shift towards being one of hundreds of millions of underbanked; consumers with bank accounts and no way to conveniently access them through the banking system itself.

To stay ahead of this change when it starts taking place, MoneyOnMobile is shifting its R&D spending and growth initiatives towards dealing with the underbanked population. To learn more about this, I caught up with Will Dawson, company COO, for an update this week.

“We are looking to become the Square of India,” said Will. The strength of MoneyOnMobile is its 350,000 retail locations and the ability to process payments at a fraction of the cost of competition. By becoming like Square, an aggregator of payment platforms at the retailer, MOMT is positioning themselves to be a winner no matter which payment platform(s) becomes the most popular.

COO Dawson also ran me through a number of the other initiatives upon which the Company is focusing at this time. MoneyOnMobile is spending more R&D on digital to digital transactions, positioning themselves in the hottest part of the market.

The area continues to consolidate; EBIX buying ItzCash and Axis Bank buying FreeCharge as the two most recent examples. As they build out their platform, MOMT is putting themselves in a position as someone to be watched in this consolidation.

The Company will soon be launching MOM ATMs using Bank of India as their payment processor. This is important as it gives them a second partner in this space, to compliment Axis Bank. Having redundancy is a critical risk reduction element in their strategy, from an operational standpoint. It’s also very good to have a deep relationship with a state bank, of which Bank of India is one.

By partnering with Bank of India, they also have entered the biometric ID space. As their new MOM ATMs roll out, they are including fingerprint scanners. This is significant as it puts them in compliance with AADHAAR standards; this enables them to do 5X larger domestic remittances as India tightens KYC rules around remittances.

Having the biometric system in place also lays the groundwork for interoperability between digital networks. As I said, “The Square of India.” This system will help enable that. MOMT has started working with 3rd party wallets already and it’s easy to see them partnering up as the cash partner for these groups. Expect to hear something about that in the future.

Meanwhile, while they gear up to start rolling out MOM ATMs in association with the Bank of India and positioning themselves as an enabler of all platforms at the retailer, the Company is seeing a rebound in their other businesses, which took a hit around the new year on what basically amounts to “fake news”.

After my conversation with Will Dawson, I was more excited than ever about the opportunity in front of MoneyOnMobile. Most importantly, the leadership is seasoned and knows where the market is headed and has the Company well positioned to be a winner in this growing space. And, don’t forget, MoneyOnMobile is seeking to uplist to Nasdaq sometime soon; MOMT shares are poised for outperformance.

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Tailwinds' Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit http://tailwindsresearch.com/disclaimer/.

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