If the MCP gains traction because banks understand the value proposition embedded in the IBM/Monitise partnership, all bets are off in terms of any predictions.
Ram: So beautifully put as always. You forgot, of course, to mention the pivotal IBM deal that will provide the technological wherewithal to make everything else happen. It is the most compelling value opportunity for banks, small, medium and large, to remain not only relevant but pivotal in the evolving mm ecosystem, as central hubs linking each and every player to one another. I know I've said this before, but it remains more and more relevant to say it again.
Ram: Have you noticed that other than Omega, none of the largest shareholders have sold anything? Only 20% of the shares have changed hands during the last month. It is demoralizing but this panic is not based on anything concrete.
I agree with everything Ram has already said and I would add that a company that is trying to negotiate 4 separate transitions, count them 4, one, the transition in business model, two, the transition to the cloud platform, three, the transition in the behavior of banks and their IT depts., four, the transition in consumer behavior, and despite the enormous headwinds all that created, the company's revenues declined only 5%. Only 5%. Are you kidding me? The real issue here is that the company mismanaged market expectations and over promised and under delivered, not once, not twice, not three times, but four times. Is it any wonder that the market has lost all faith in the company? Now imagine if the company had issued a press release forecasting flat short and medium term profits, given the transitional period it was facing, for the sake of long term profitability? If the company had released that prediction late last year as Santander, Telefonica and MasterCard put up a lot of cash, where do you think we would be now? Much higher, I would think. Besides I continue to believe that the partnership with IBM represents a compelling value proposition for banks to remain relevant as central hubs in the evolving MM ecosystem. IBM gets it and Santander, Telefonica and MasterCard get it. And, in time, others will get it too. I do wish management would put out a reassuring statement. I am disappointed in that. But I also feel that Santander would not throw another 10 million at a new JV if this company was on the verge of collapse.
The opportunity is still there. People are concerned with security and don't know how to fit mobile money into their lives.
a Gallup poll released last week found just 13 percent of more than 17,000 consumers surveyed have a digital wallet on their smartphone.
While Gallup conducted two separate surveys from November 2014 through mid-January, it’s safe to assume the needle hasn’t moved much in the past six months. Maybe, just maybe, we’re approaching 15 percent of consumers now with a mobile wallet on their smartphone.
What’s more concerning for providers about Gallup’s poll results is how consumers continue to view certain aspects of mobile wallets such as Apple Pay/Passbook, Google Wallet (as it existed at the time of the survey), PayPal, and others.
Security concerns top the list of reasons why consumers shy away from proximity mobile wallets. Obviously, that’s not a surprise because we’ve known this for quite some time. Some 55 percent of respondents were concerned about some kind of security issue such as a hack or losing their phone.
Some 21 percent of respondents don’t know enough about mobile wallets to make a decision about them. I found it a bit surprising that as much as companies (and the media) hype things such as Apple Pay and PayPal, consumers have no idea how any of those products fit into their everyday lives.
Gallup recommended three ways mobile wallet providers can convince consumers to use their products. Stop me if you’ve heard of this before:
gain consumer trust regarding personal data security;
educate consumers about what digital wallets are and how to use them; and
provide a clear value proposition.
Each of these recommendations is linked to the
He is making a point I have made on several occasions here. The company and its relationship with IBM represents the most compelling value proposition for banks to remain relevant or essential in the evolving MM ecosystem and to offset the influence of Apple and Google. If banks don't change their behavior, they will become like "dumb pipes", places to upload money from and little else. It does not have to be that way.
Let’s look at payments. Who are innovating payments today? M-Pesa, PayPal, Apple Pay, Bitcoin, Venmo, Dwolla, and others. Not one bank globally has led the charge on payments disruption, which is why banks in the US have been forced to jump onboard the Apple bandwagon despite the interchange penalties. Everyone knew that mobile payments were coming, but banks wanted to wait and see what the ROI would be, what the regulators would say – tech and start-ups just did it.
At the heart of the Financial Services industry is an aversion to risk. While banks are reasonably profitable as a whole, investing billions of dollars in uncertain outcomes is not their modus operandi, but it is for Silicon Valley players and the thousands of other start-ups around the world, as it is for Apple, Google, Microsoft and the technology sector.
ariana: Thanks for your thoughtful post. I agree with the underlying sentiment of your post. I am long and believe that the company will be successful. However, I think you underestimate the threat posed by Apple Pay. It is not only a point of sale offering at checkout lines in stores. You can also pay using their app and they appear to do what the company promised in its buy anything and pay anywhere motto. I think the huge opportunity for the company comes from banks realizing that Apple and Google could turn their mobile offerings into "dumb pipes", simply as places to upload money from. The company would like to help banks stay relevant in the evolving mobile money space and become central hubs in the space by connecting them with retailers, end consumers, telcos. I believe that the partnership with IBM represents, as far as i can tell, the most compelling value proposition for banks, small and medium and large, to achieve this. Large banks do not have to reinvent the wheel and smaller ones cannot afford to do so. And banks are notoriously slow at adapting to change. But I believe that they are finally getting it. Santander does. Telefonica does. MasterCard does. And IBM does. Let's hope that more get it sooner rather than later.
I congratulate ram for his fortitude. But I disagree somewhat with his take on Apple. I think if Apple Pay had not entered the market in the last year, we might have had more revenue. There is some threat but the market is so vast that clearly there is room for everyone to do well. But I think the key point I would make is that the IBM/Monitise partnership represents the most compelling value proposition for banks to remain relevant in the evolving ecosystem in mobile money. If banks don't want to be reduced to being simply "dumb pipes" or places where money is uploaded from, if they want to be central hubs where they are connected to retailers, end customers, telcos and provide an avenue where all of these players can be more connected to one another, than I think our product offering and central platform is the best way for banks to do this. I like to think of Apple Pay and Google Pay as Trojan horses, who ultimately could render credit cards redundant and marginalize the role of banks in the mobile money space. IBM gets it, Santander gets it, Telefonica gets it, even, I think, MasterCard gets it. Let's see more players large and small get it too.
The company has maintained that the reason why the latest estimates were not met was because of pending deals that were not finalized on time. I confirmed this with the company.
antone: I understand your frustration. I share it. However, given the transition in business model, in technology, i.e., the new platform, in the behavior of IT departments of banks and consumer behavior, the last year has been a veritable sandstorm. Who could predict clearly in that? The company should have been out front of that. It is amazing actually that revenues have only declined 5% YOY, from 95 to 89 million. Given all of the above, I would have expected a more significant decline.
As the company transitions its business model away from up front license payments to a subscription based model and as we anticipate the launch of our new cloud based platform, we believe revenues over the next several quarters will be largely flat. We have decided that it is in the best interests of the company to sacrifice short term revenue for the sake of maximizing longer term growth and profitability, which we believe will happen beginning in FY 2016. Our existing partnerships with IBM, Telefonica, Santander and MasterCarc give us the capability of achieving previously announced goals of 200 million subscribers and 2.50 ARPU in 2018 but we fully realize that our ability to achieve these goals will depend on the decisions made by our partners rolling out their product offerings.
If the company had been ahead of the curve then, where would we be now?
Ram, thanks for your usual insightful post. I asked management about why they did not offer the reason for the latest downward revision in revenue in their press release. We had to learn about it elsewhere. I did not get a response to that. It is amazing that in the midst of 3, as you point out, and not merely 2 major transitions, the company did as well as it did this past year. I would have expected a larger loss and with the proper spin, sacrifice of short term profits for the sake of redefining the business and ensuring long term profitability, the trust in the company could have been maintained. I could have written that press release. That said, it's getting to be crunch time. Management says it's still on track for EBITDA profitability but I don't think that will be enough to stem the tide. It is not merely about cutting costs but increasing revenue. Again, with an outstanding value proposition to banks, and with IBM providing the cloud and its salesforce promoting the product, I don't understand why banks are not lining up to sign on. That puzzles me. With respect to Cooperman, he has cleared out a number of positions and it seems he is doing house cleaning in his portfolio. As you point out, he remains the largest shareholder. If there are deals that are close to signing, you are right, we need to hear about them and hopefully soon.
What the company has to offer is to make banks not only relevant but essential in the mobile money space, as opposed to being the "dumb pipe", the place where money is simply deposited and withdrawn, establishing them as a critical hub in the whole financial ecosystem, connecting retailers and consumers, credit card companies, telecom companies, etc. and facilitating a deepening relationship between these various parts of the ecosystem to one another as well. I cannot understand why banks would not be lining up to link up with the company's platform. Certainly, the small and medium sized institutions who don't have the IT budgets to invent the wheel themselves, but even the larger banks who don't have to reinvent the wheel. I would think that a cost effective and quality of product argument could be made to pitch the company's products to these large banks. So I simply don't understand why there has not been more traction with the company's MCP. Santander gets it, IBM gets it, MasterCard gets it, even Visa gets it (but they apparently want to reinvent the wheel) What am I missing here? Ram, I certainly would appreciate your weighing in here. But others too. Let's try to put our heads together here.
It's selling for about 2x cash. Can it really be true that all of its partnerships are worth nothing? In the middle of not one but two major transitions, in business model and to its platform, the company's revenues declined YOY about 5%. Think about that. I am quite surprised that revenues did not decline further. If the company had only informed investors last year that short term revenues would be sacrificed for the sake of redefining the business and long term profitability, where would we be now? It is all about managing the perception of the market while delivering the goods. They over promised and then had to diminish expectations in painful increments. And this is what we get. But it does not change the fact that what the company has to offer will present itself clearly, hopefully sooner rather than later.
Ram: I agree with your basic point. We have moved from white to black. A lot of that can be attributed to the company over promising on revenue this year, guided downward from 120, or 25% growth, all the way down to 89, in several painful increments. This poisoned market sentiment and gave the impression that the company was failing, even though this has been a transitional year, both in terms of business model and in the introduction of a new cloud based platform. Imagine if the company had made a more realistic forecast and framed it positively as a short term cost to redefine the business and ensure long term profitability. I could have written the press release myself. Your comment about an unloading announcement I assume refers to RBS. My understanding is that the relationship and revenue producing projects continue with them. This is by no means a loss of an important contract. I don't think the market is saying that the IBM partnership is "small change", it's just that we have not yet realized or even grasped its potential. The proof will be in the eating. It is imperative that the company secure more users for its standard MCP. I am assuming many of these will be small to medium sized banks. The company has identified this as the driver of future growth. But we have not seen it yet. And the market is adopting a skeptical or show me attitude.
What I've written is accurate, they confirmed that the latest revision of revenue was because some deals were not closed before the end of the fiscal year.