International Bank of Australia continues funding round with valuation uplift for Novatti

The International Bank of Australia could soon be the next challenger bank set to take on the traditional banking landscape with investors keen for a slice of the digital bank which is in the middle of a funding round, most recently raising at a pre-money valuation of $24.7 million. 

International Bank of Australia (IBoA) was originally the brainchild of digital payments company Novatti Group Limited (ASX: NOV), before IBoA obtained its restricted banking licence in November 2022, and has operated independently of Novatti since. 

With its independent Board of Directors and management team, IBoA has been making steady progress towards a full banking licence, working with the regulator – APRA – to fulfil the strict compliance requirements required to operate as a bank in Australia. 

In recent months, this has included banking tech enablement, product design, and development of its policies, procedures, and compliance functions as it progresses toward regulatory approval for a full banking licence.

The latest funding round completed at the $24.7m valuation, remarkably values Novatti’s 87% stake ($21.5m) higher than the payments company’s entire current market cap (approx $18m). 

As part of the restructuring that Novatti has been undertaking since CEO Mark Healy was appointed in June 2023, the stake in IBoA now sits within Novatti’s investments division.. 

“From a payments perspective, a large part of our payment solutions ecosystem is a cross-border business. And so that cross-border business seeks to target also the same customer segment [as IBoA] in terms of international migrants,” said Healy on an investor call. 

“Helping those migrants remit money through international corridors as part of our cross border payments business, we feel very strongly that the two businesses can work together to service that target segment with a set of products that is far superior to what’s in the market today.” 

Over time, Healy hopes that Novatti’s investee companies can offer complementary services to their core payments business, which reported $21.5 million in revenue for the Half Year ended 31 December 2023. This represented a 12% HoH increase, while the commencement of restructuring initiatives saw expenses decrease 11% over the same period, highlighting the value of their digital payments ecosystem independent of their IBoA stake.  

With this rising revenue and decreasing expenses, Novatti is on track to deliver positive operating cash flow by mid-2024, assisted by a further $4m in expenses which will be realised over the next 12 months following a  reduction  in costs  across a number of areas. 

Australia’s migrant population represents a segment that is growing strongly and carries unique financial needs. Traditional banking systems have frequently overlooked or inadequately addressed these needs, leaving migrants grappling with cumbersome processes and limited access to essential financial services. 

However, with IBoA’s targeted approach towards this demographic, facilitated by Novatti’s expertise, a paradigm shift seems imminent. This will be driven by IBoA’s partnership network which is actively growing to include migration, education and tourism agencies throughout Asia. 

With a clear focus on driving meaningful change and delivering tangible value to their customers, Novatti and IBoA stand poised to redefine the future of banking in Australia and beyond.