TIO Networks (fka TNC)

[junkHustler]

Hunting for Unicorns: 3 emerging Canadian Fintech firms to consider: TIO Networks, Mogo, Vogogo

Fintech — the intersection where technology meets financial services to provide alternatives for everything from bill payments to borrowing — is rapidly becoming an entire sector onto itself. From Bitcoin to Apple Pay, the range of services that have traditionally been the exclusive sandbox of banks is increasingly becoming populated by technology firms that offer financial functions. In an effort to offset the market share erosion banks are experiencing as a result, financial institutions are adopting technological innovations.

The earliest examples of financial technologies are Interac, ATMs, and telephone banking, which began infiltrating developed nations in the seventies and became omnipresent in the eighties and nineties. Now, a new generation of technological innovators are “disintermediating” and “re-intermediating” traditional banking functions like international money transfers, pre-paid debit cards, micro-loans and even mortgage sourcing and application, while simultaneously incorporating previously unknown financial products such as alternative payment types and systems (Bitcoin, ApplePay, Google Wallet, etc) and crowdfunding.

So what publicly traded baby unicorns are grazing on the Canadian technology savannah? Here are some that I’ve been following that I think have great potential to become success stories.

1. *TIO Networks Inc. (CVE:TNC) has been a regular feature of Midas Letter coverage since 2014. Since then, CEO Hamed Shahbazi, who founded the company in 2002 and has been doggedly building the platform ever since, is very focused on fulfilling a need by major utility companies to expedite payments from “underbanked” or “unbanked” customers, who typically face challenges in paying their wireless or cable bills on a timely basis. The company has 70,000 physical locations throughout the United States, and last month reported a Year-on-Year revenue increase of 397 per cent from 14 million transactions worth $1.62 billion.

TIO has been growing both organically and through acquisitions, most recently acquiring Softgate Systems last July, a New Jersey-based provider of consumer retail bill payment solutions for US$31 million.

I asked Hamed back in February if he thought this could be a billion dollar business, and he said, “Within five years, I’d like to see a billion. I mean, there’s no reason why we shouldn’t be able to reach substantially higher metrics than we are at today.”

*TIO Networks was a featured company in the February 2016 edition of the Midas Letter Premium Edition, and as such, is a portfolio holding of the Midas Letter Portfolio Fund.

2. Mogo Finance Technology Inc. (TSE:GO) is creating a virtual banking experience for millennials who typically prefer a digital online relationship with a young, internet-age financial institution over the traditional bricks-and-mortar big banks. Mogo, which has a revenue-sharing agreement with Postmedia Network, has in excess of 200,000 members to whom it has originated over 1.2 million loans since 2007. There is no cost to customers who open an account, and the company guarantees an instant decision from its lending partners online. It offers such novel features as its “Level Up” program, that allows the interest rate being paid on outstanding loans to be lowered with consistent repayment history.

Mogo’s agility rests in part on its strategy of partnering with existing providers of financial services, and using its online visibility to drive transactional growth. Our model is, we are very much focused on building the brand and the digital experience,” said CFO and co-founder Greg Feller in a recent interview. “We don’t have to own all the back end. So we partner with an issuing bank on the Visa for instance; our upcoming mortgage product, we will partner with an existing mortgage provider.”

3. Vogogo Inc. (CVE:VGO) has not seen stellar performance since it launched in late 2014. But as is often the case with start-ups that go public pre-revenue to access equity capital more easily, early growing pains can mask imminent growth and value compression. Especially when it comes to technologies and services that operate outside of public view.

In Vogogo’s case, its role as a provider of risk management services to online payment processors ensures it remains invisible, making it difficult for investors to assess its market traction.

Last month, Vogogo announced that it had become a “Payment Facilitator” with Secure Trading Financial Services (STFS) — a licensed European Financial Institution — meaning it can enable the payment processing for STFS qualified business customers. Vogogo is planning to roll out the payment services to STFS throughout 2016.

When I asked CEO Geoff Gordon if he was planning to become more of a retail processor, he said, “We mostly target aggregators, because that just makes more sense.”

The Way of the Future

The rapidly changing landscape of payment processing and consumer-facing financial services is directly correlated to the breakneck pace of technological advancement, that is often seen driving regulators to accommodate new processes that they barely understand. It is the speed with which these new platforms have the potential to displace legacy systems that is the opportunity for investors. The trick, as ever, will be picking the right horse. Or, should I say, unicorn.

James West is an investor and the author of the Midas Letter, an investing research report focused on small cap companies. The views expressed here are his own and are presented for general informational purposes only — they should not be construed as advice to invest in any securities mentioned.

James West and/or associated funds do not own shares in any securities mentioned in this article. For the full Midas Letter disclosure policy, click here. Postmedia and Midas Letter have a revenue sharing arrangement.

Link: http://business.financialpost.com/midas-letter/hunting-for-unicorns-three-emerging-canadian-fintech-firms-to-consider