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e-Banking to profits: Why FairFX could be heading for fair weather

Publication Date: 05 Jun 2018 - By Gaurav Sharma (Associate Editor ReachX) By Gaurav Sharma (Associate Editor ReachX)
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Equity Fundamental FX Equity UK Financial Services

As far as challenger financial firms go, AIM-quoted international payments provider FairFX (LON:FFX) is a unique business that has seen its share price rise by 21% since the start of 2018, climbing to an all-time high of 106.50p at one point in April. 

What makes the London upstart tick is its ability to make eye-catching acquisitions, mixed with sound operations and a knack for keeping its brand in the public eye. For instance, you’ll often find the company commenting in the media on a range of issues from "rip-off prices" for foreign exchange transactions at UK airports to what might be the cheapest, most cost competitive place to get a pint in Europe. 

Apparently, FairFX’s research suggests that place might be Budapest at £1.40 per pint, and for what it’s worth, the company’s management can drink a fair few celebratory pints in the Hungarian capital should they choose to, as business has been good.  

In a recent statement, the company hailed its "continued strong growth" in the first part of 2018. To the uninitiated, FairFX has a cloud-based peer-to-peer payments platform that facilitates "low-cost multicurrency payments" in a broad range of currencies and across a range of FX products, all via one integrated system, for personal clients and business customers alike.

Its platform facilitates payments either direct to bank accounts or at 30 million merchants and over 1 million ATM's in a range of countries globally via mobile apps, the Internet, SMS, wire transfer and Mastercard/VISA debit cards. Complementary to all of this, having acquired its Q Money and its e-money licence, the company is now busy creating a service provision for digital banking products specifically targeting small and medium enterprises (SMEs) looking for affordable current account services.

And the company’s fiscal first quarter was a positive one. Group turnover rose 125.9% to £439.5m; up 31.6% on a like-for-like basis, while revenue rose 85.3% to £4.8m; 18.7% on a like-for-like basis. 

However, what has really caught the market’s eye is the company’s desire to supplement organic growth via acquisitions. For instance, FairFX acquired CardOne in January for £15m, in order to harness the target firm's technical capability to speed up its own roll-out of the SME banking product.

Hot on the heels of the CardOne acquisition, FairFX bagged payments and travel currency provider City Forex for £6m in February. What’s more, the latter move was earnings enhancing. FairFX also completed the migration of CardOne’s international payments business to its platform a mere ten weeks after the acquisition.

These strategic acquisitions have been described as "transformational" for FairFX by its management. So where from here for the company that claims to have over 600,000 satisfied customers?

It might all depend on a relatively recent announcement. In April, FairFX said it had started to issue its own Mastercard branded cards alongside its proposed commercial finance service for business customers. 

The finance service, launched in collaboration with Alternative Business Funding, which connects customers with appropriate and properly regulated lenders, could prove to be a bankable strategy with many SMEs turning away from traditional banks for their business finance needs.

Meanwhile, the ability to issue its own cards is cheaper and likely to enhance the e-bank’s whole product suite. All of it would make for an interesting 2018 for FairFX, and, depending on how things pan out, could result in a near doubling of its share price from the summer of 2017.  

One thing to watch out for is the competition - both established and emerging. Another digital innovator – Revolut, which offers a secure, mobile-based current account that allows you to hold, exchange and transfer without fees in 25 different currencies – has also caught investors’ attention. 

In April, the company raised $250m (£186m) to support its international expansion. The latest round brought its total fundraising to $340m in three years, making people sit up and take notice. 

While established banking brands would not compete on money transfer prices with FairFX, the market is pretty competitive, with price comparison websites propping up several alternatives to the company on that front. 

Currencies Direct, TransferWise, WorldFirst, OFX, TorFX, WorldRemit and CurrencyFair are just some of the names being brandished about. Of course, there is no such thing as perfect competition, given money transfers are only one aspect of FairFX’s ever-expanding product offering. 

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Gaurav Sharma (Associate Editor ReachX)

 

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London, United Kingdom

info@reachx.co
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