There is an air of confidence around digital payments company Novatti Group (ASX: NOV) which has increased its equity stake in their neobank subsidiary, giving the Aussie fintech a 70% stake in the business expected to be granted its banking license soon.
Already a global financial institution, banking services have been on the agenda for Novatti since 2018 but delays brought upon the pandemic meant the regulator only resumed issuing banking licences in June 2021. Since then, two banking licenses have been issued and Novatti is firmly in the queue for theirs, having submitted their application shortly after the two that have been granted.
In this latest update, Novatti has confirmed they will increase their equity stake in Novatti B Holding Company (NBHC) – its dedicated banking subsidiary – to 70%.
Previously, Novatti’s stake was around 50% but the additional 20%, previously held by BC Invest, has been secured for $2m in cash.
At the same time, Novatti closed the Series A funding round for the new banking business, with $10.5m committed by investors, provided that regulatory approval is obtained before the end of February 2022.
“Completing the Series A funding round for our new banking business enables us to plan for the growth of this business post regulatory approval. This is important as we want to hit the ground running to ensure we capture the strong momentum we are seeing from consumers and investors backing fintechs that can provide new and innovative banking services,” said Novatti Managing Director, Peter Cook.
“Our new banking business remains a key pillar of our growth strategy as it will enable Novatti to offer new, value-add services to our customers while also driving increased margins.”
The rise of neobanks and neolenders in Australia has been met with popularity as Aussies seek alternatives to the traditional banking model that had been monopolised by the Big Four. With easing of regulations enabling fintechs to launch banking services, greater selection of banking products tailored for individual customers rather than the old-school cookie-cutter approach has seen a surge in demand. The ability to digitise the entire user experience is just one reason fintech companies like Novatti have grown rapidly over the past two years.
Unlike failed neobank Xinja which started from scratch, Novatti has been building up its international payments network to already have a diverse suite of revenue-generating products. Most recently, the Company reported $18.4m revenue for FY21 which represented a 55% increase on the previous year.
Understanding the changing needs of businesses and individuals in the world transitioning towards a cashless society has been the driving force behind Novatti’s growth. This has included their partnership with Visa where Novatti holds a Principal Issuer Licence enabling them to issue prepaid Visa cards as a solution for digital and mobile payments.
Just last month, Novatti expanded their partnership with blockchain tech company Ripple to expand their international payment corridor into Thailand through RippleNet for instantaneous cross-border remittances.
Highlighting the potential of Novatti’s banking business, neobank Judo was recently valued at $2.5 billion as a small business lender. Making their service particularly popular is the digital application process that enables faster approvals without the need to walk into a retail branch during business hours to see a banker that does nothing more than enter numbers into a spreadsheet (which could have been done online).
In July, Novatti secured a 19.9% strategic stake in accounting software company Reckon Limited (ASX: RKN) which has more than 106,000 business customers.
*Owners of this website are shareholders in a company mentioned in this article and have been engaged by them to assist in investor communications
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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