06 Dec Bancore Newsletter December 2017
This will be our ﬁnal Newsletter in 2017 and therefore contains a review of 2017 events and results. The informati on is primarily for our shareholders, but Bancore’s development is followed by quite a few other interested parti es who are of course also welcome to this informati on.
Bancore achieved a lot during the year, but admitt edly not as much as we had hoped and forecast. For instance, although our monthly burn is small and shrinking, disappointi ngly we are still not cash positive and do not expect to reach that state unti l mid-2018. As you would expect, the reasons for this delay are multi faceted and are outlined under each product category below, but the overall causes are 1) insuﬃ cient ﬁ nancial resources to move at the pace we are actually capable of, combined with 2) the ti me it takes to penetrate and change ingrained cultural and business traditi ons in the countries we have decided to focus on.
Bancore management and board nevertheless remain truly optimistic – not just “cautiously optimistic” – about our growth and eventual success, because we receive frequent external validati on that our business strategy is sound, and that our services can help resolve some of the socioeconomic and practical challenges that exist in the rapidly growing economies in which we work.
A peek around the corner: we are in strategic discussions with several potential strategic partners, but are unfortunately unable to mention their names here. However, we hope to close a deal in January (unfortunately, Christmas is “in the way”) that will, as a minimum, provide the ﬁnancial resources we need to reach our 2018 objectives.
Meanwhile, here is a more detailed description of the status of our 3 focus areas: Consumer services, Enterprise services, and Public Sector services.
We wanted to dramatically increase the number of virtual cards issued, while accepting that this would not automatically create signiﬁcant revenue until such ti me when we can oﬀ er truly seductive services to consumers who are not immediately convinced that it is to their advantage to be “banked”. However, we are convinced that once we have installed the basic grid that enables electronic (in this case mobile) transactions between individuals, we will, together with cooperating partners, be able to activate consumers by oﬀering a broad range of services that are new to them, from receipt of remittances from family members abroad or retirement beneﬁts, to easy bill payment and participation in contests, lotteries, and loyalty rewards. We also anticipate that the granting of microloans by mobile phone, installment buying, and certain forms of insurance (life- and house-, but probably not general health insurance, due to the remoteness of many inhabitants) all show major promise for the future and they will all require a broad mobile payment structure to be established ﬁrst.
The following milestones have been reached or passed in our construction of a suﬃciently large footprint:
* an agreement with card schemes and processors not to pay monthly card fees, even when a card is not used. These will be replaced by a revenue sharing model which is in the process of being ﬁnalised. The ﬁxed fees obviously made us hesitant proactively to issue cards to unknown consumers, whereas we can now send millions of virtual cards to people’s mobile phones without incurring huge monthly expenses for unused cards.
* we have secured access to a database of 140 million consumers in Nigeria and this is likely to be followed by similarly vast databases in other countries – details to follow. We will utilise “big data” to encourage providers of some of the services mentioned above to enter the market in a systematic and creative way. We estimate that we will issue around 20 million virtual cards between now and the end of 2018.
*our mobile APP provides a consumer friendly and easily understood entry point for newcomers to the world of non-cash transactions, and we expect the beta version of our APP to be ready in January 2018, to be followed by a full launch towards the end of Q1 2018.
In Q1 2018, consumers will have an APP providing an easier way to life.
Our focus is on services to small and medium enterprises (SME), such as bill payment and collection, payroll and associated employee beneﬁts, payment of road tax and fuel allowances for company-owned vehicles, and payment of insurance premiums or installment purchases on behalf of employees. As you know, we had expected this activity to become our “bread & butter” business already in 2017 and to provide enough revenue to cover Bancore’s global operational costs. We were encouraged in this by the growth of our customer SmallWorld, who will this year reach around USD 45M in remittance volume from expat Nigerians.
We still expect this segment to continue growing rapidly and our new sales executive for the segment will persuade 10+ smaller remittance companies to also use Bancore as their processor. However, most other SME services have suﬀered delays, mainly due to bureaucratic obstacles beyond our control, but we are increasingly taking charge of the processes while trying to minimise the involvement of external partners.
For instance, in order to construct a broad Payment Gateway, we will be persuading a large number of African banks to accept services such as Bancore settlement to individual bank accounts, cash withdrawal from a bank teller using your Bancore card and account, instant card issuance, cardless ATM withdrawals, settlement to microﬁnance providers, and other services that have so far not been available to SMEs.
Our ambitious Pan-African project has also suﬀered a 6-month delay, mainly due to HR issues, but will go ahead regardless and will form a broad cross-border gateway through the inclusion of at least 150 banks in 24 countries, in total representing around 700 card systems. This project will be executed in collaboration with our US card-issuing partner GTP.
On balance, our overall year-end appraisal of this market segment is that it continues to be extremely promising, since it oﬀers concrete, measurable beneﬁts to participating companies, but the full roll-out will take place at least 6 months later than originally estimated, requiring us to raise substantial additional capital for operational expenses during that period. We are conﬁ dent that we will be able to do so.
Our broad Payment Gateway oﬀers a plastic card available for purchase.
Public Sector Services
Going into 2017 we had identiﬁed a range of promising Public Sector projects in Nigeria and proceeded to carry out the necessary preparatory work, including acquiring the licenses necessary to work for public sector organisations. Our focus was on public employee payroll processing, tax collection (IGR), and ID registration (BVN). We have been very frustrated by the slowness of progress, mainly due to political inﬁghting or key people secretly opposing a transition to cleaner and more transparent methodologies, because that would prevent them from skimming the revenue streams.
We have been close to abandoning this sector altogether, but have now agreed with our local JV partner that we will give it one more chance, but will in the coming year devote at most 20% of our ﬁnancial and manpower resources to this segment. The potential revenue streams are huge, which is why we will hang in there a little bit longer, but we will also want to see at least one service or project succeeding beyond any doubt, and if not we will probably withdraw from public sector work in Nigeria, at least for the ti me being.
Local markets are included in our vision to reach the public sector.
Without doubt this has been a challenging year which did not provide the breakthrough we expected, but we have reason to believe that 2018 will be much improved. To illustrate this, here is the consolidated income statement for 2018 which takes into account all of the factors commented on above.
Our strategy is well deﬁned and we are more conﬁ dent than ever that we can execute it by emphasising the following key areas of development that will increasingly spread our risk, by being less Nigeria-focused:
- Continued support of agreed Nigeria-based projects, but those that can realistically be implemented in the course of 2018.
- Finish the build-out of our Pan-African Payment Gateway.
- Big Data exploitation (with participating companies) of the huge databases that we are in the process of accumulating.
- Relaunch of European services; we have not talked much about it lately, but as soon as additional funding has been secured, we intend to relaunch our European services, which showed signs of success a few years ago, but was halted because of a less than perfect partner structure.
We hope to report further signiﬁcant news within the next month or so, but meanwhile we wish you restful end-of-year celebrations!
If you have questions or comments concerning any of the above priority areas, please feel free to contact us and we will get back to you by return