Calpian, headquartered in Dallas, has put together an incredibly powerful two-pronged assault strategy for capturing significant market share in two very distinct operating areas by combining stable, near-term recurring revenue streams from credit card processing fees in the U.S. with the explosive growth potential of an m-wallet service using mobile phones in India.
On the one hand we have immediate cash-flow generation via wholly-owned subsidiary, Calpian Commerce, which is an agile, well-positioned intermediary in the credit card processing services field. Calpian offers small U.S. retail merchants a one-stop-shop solution to hooking up with the large payment processors and then making credit card point-of-sale (POS) transactions a snap. Calpian essentially goes around, acquiring merchants from the pool of some 2M small merchants handled by the roughly 10k domestic ISOs (independent sales agents), who sell the small merchants the payment-processing solutions and POS hardware they need to do business with the big credit card processing companies. This space is worth around $1B in annual residuals and Calpian has thus far carved out a healthy slice of the overall pie, acquiring revenue streams from credit card processing fees and making a name for itself by providing superior quality of service to the merchant customers.
Through a sophisticated array of agent banks, ISOs, and a direct sales force, Calpian has planted deep roots in the merchant community and continues to grow via portfolio acquisitions on the strength of their fully integrated software-enabling products and payment servicing capabilities. Backed up by an adroit sales force, Calpian represents a strong, cash flow-positive core business for the company here in the U.S. built out of small retail store contracts, making for an extremely resilient home base footprint. CLPI is looking for around $5M in growth (EBITDA) per annum moving forward on roughly four to eight acquisitions per year and has the high ground as a leading buyer in this growing (roughly $1B) space.
On the other hand we have the insane growth potential of Mumbai-headquartered Money-on-Mobile (MoM), often referred to as the “PayPal” of India, which stands poised to revolutionize transactions across the massive, especially underserved, poorer populations of this sprawling country via a simple, easy-to-implement methodology using money loaded onto the mobile phone. It seems like everyone in India has a cell phone these days (even people who can afford little else) and thus the underlying metrics for this business are unquantifiably vast. Moreover, as the poorest often lack suitable means of transferring money due to a variety of logistical factors, with travel and wait time for a bank trip alone often taking hours, this is a sociological game-changing technology as well. The appeal of a stored-value mobile payments service can be grasped immediately by anyone, no matter what country you live in and CLPI’s March 2012 ownership acquisition of MoM (74%) brings the company’s seasoned industry captains to the helm of a project that is ready to pop.
Taking into account the fact that transaction momentum is actually highest among the poorest people, who are also often unbanked/underbanked (only 200M bank accounts out of 1.2B consumers), or who choose not to use existing systems because of the inordinately high direct costs of 1%-5% charged on transfers/transactions in most cases, it should be clear to even the lay observer that the iron is hot for a cheap, easy-to-use solution like MoM. It is basically an end run on the entire bottlenecked payment system in India and one which renders state to the consumers/merchants, allowing transactions to occur as long as both parties are registered with the service and granting additional, even transaction/transaction type-specific security benefits in the process.
Some 72% of clients surveyed in India cited security as a primary factor when choosing a means of money transfer, with the risk of being robbed while traveling or at transaction points, as well as the risk of informal money transaction methods weighing most heavily on their minds. Countless means exist via the mobile commerce solution for preventing such theft, from limiting transaction interval amounts to algorithm-based triggers that can spot abnormal transactions and alert personnel or the user. Carrying around a tiny bank that can’t be easily robbed and can be used to conduct person to person or business to consumer transactions is an ingenious solution to the numerous problems which have plagued increasingly wealthy Indian consumers.
Immediate comparisons can be drawn to the first mobile money system, M-PESA, which was rolled out in Kenya and coped exceptionally well with the daunting logistical pitfalls of an unstable government, society, and economy. By allowing poor people with little or no access to banks, a means of saving small amounts of money and transacting daily business, the metrics went thermonuclear almost overnight, growing subsequently in the space of only half a decade to represent some 25% of GDP transaction volume, a truly staggering figure. MoM is out ahead of the game too, being roughly three times the size of the next nearest competitor. With better financing, the only full suite of services ready to go/easy to use, and CLPI’s veteran management team, stepped in the payment processing sector’s ins and outs, this MoM rocket ship is headed for new worlds.
Think about it, being able to transfer money from device to device, or transact business like paying for pre-paid cell phone or TV, utility bills, and tickets, or being able to buy food or other items while out shopping, all via the mobile device. For millions in India today who don’t even have access to a bank, this changes everything. The number of unique phone users registered has shot up from under 5M at CPLI’s first investment (Apr 2012) to over 30M at the close of 2012, and the retailer network has blossomed in a similar fashion (again more than doubling), from just under 50k at the time of the initial investment to just shy of 120k in December of last year. Domestic remittance metrics will likely swell processing volumes even further and said volumes have already doubled over the same interval as the above user and retailer data.
Calpian masters the automated clearing house, credit/debit card processing, mobile acceptance, and gateway payment solutions game domestically, while MoM taps the massive growth potential in India’s consumer market by allowing individuals to handle everyday payments and transfers using simple SMS text functionality over their mobile – this is a winning formula. The difficulties of transportation in India should leap right out at investors when it comes to the MoM side of CLPI’s operation, and Calpian has done a superb job of engaging relevant markets via their Transaction World Magazine (TWM) with high-value actionable intelligence on emerging markets and developing industry trends, a key aspect of the company’s success so far.
For more information on Calpian, visit www.Calpian.com
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