For decades financial services in numerous flavours were the exclusive province of the banking sector. To get a loan, pay bills, apply for credit cards, or transfer money, consumers and corporations alike turned to banks.
It is hard to imagine the rise of the Internet is little more than 20 years old and the rise of smartphones is even more recent – less than 10 years.  As a direct result new industries are emerging, among them FinTech, or financial technology.
FinTech companies offer alternatives to the banks and as such stand ready to massively disrupt the way financial services are delivered. Direct peer-to-peer lending and crowdfunding are changing the way consumers and corporations raise funds. P2P (Peer to Peer) lending companies secure funds from willing investors looking for higher interest rates and match investors with appropriate borrowers. Crowdfunding is a revolutionary approach replacing bank or venture capital loans. A company’s crowdfunding platform posts a given project allowing investors of all types to fund the project. 
Mobile payment platforms allow consumers to use smartphones to pay for goods from merchants with a mobile payment system in place. The providers use cloud-based software to process the payments for their clients, eliminating this source of revenue from traditional banks. Global consulting firm Accenture claims these mobile payment systems could reduce revenue at traditional banks by as much as one third by the year 2020. It should come as no surprise that across the globe the public perception of traditional banks has deteriorated following the GFC, while smartphone technology is revolutionising the daily lives of people and businesses everywhere.
One of the more successful mobile payment providers on the ASX is Mobile Embrace Limited (MBE). In addition to its mobile payment services, the company provides marketing capabilities to its customers, allowing direct digital communication between businesses and their customers. Mobile Embrace has rewarded its shareholders handsomely, with average annual rates of total shareholder return of 52.2% over five years and 141.2% over three years. Year over year the MBE share price is up 11.3%. Total shareholder return for pure play mobile payment provider Mint Payments Limited (MNW) over three years is 62.6% with a year over year share price increase of 43.3%.
Two FinTech companies that listed on the ASX in 2015 via the “back door” remind us of the risk and reward of investing in start-up companies of any kind. Directmoney Limited (DM1) is a P2P lender. Zipmoney Limited (ZML) provides qualifying consumers with point-of-sale credit digitally as well as mobile payment services. Back door listings, or reverse mergers, allow companies looking to list on the ASX to forego the traditional IPO process by being taken over by a “shell” company that is no longer operational, but is still listed on the ASX. The following chart compares the price movement of these two companies since their listing. 
In the next month two new FinTech companies will be coming to the ASX via traditional Initial Public Offerings (IPO). As you may know, the ASX is looking to tighten listing requirements to avoid a pitfall of back door listings – companies listing without sufficient assets.  
Singapore based crowdfunding platform provider CoAssets Pte Ltd listed on the second largest stock exchange here in Australia, the NSX (National Stock Exchange). The company is now ready to make the move to the ASX. With offices in Singapore, Malaysia, China, and Indonesia, CoAssets operates a crowdfunding site that brings together real estate developers, or ‘opportunity providers’, in need of funds and investors looking for opportunities. The company has expanded to businesses outside the real estate space. 
The offer price for shares of CoAssets is currently listed at $0.40 per share with a targeted listing date of 5 July. The IPO will add about 15 million shares to the existing total shares outstanding of approximately 150 million, and the company will exit the NSX upon listing on the ASX. Coasset’s real estate operations only began in 2013 but the company claims its platform has handled more than $40 million dollars in transactions in that time.  Historical financial results for CoAssets reported in the company’s IPO prospectus were audited by accounting firm BDO Corporate Finance (WA) Pty Ltd. Despite its relative youth, the company’s Half Year (1 July 2015 – 30 December 2015) results showed a S$317,951 net profit after tax on revenues of S$1,972,017. Revenues more than doubled from the prior reporting period (11 September 2014 – 30 June 2015) while profit rebounded from a loss of S$251,496. The company has net assets of S$3,980,622 and total liabilities of S$863,446, and total cash and cash equivalents came to S$1,769,392. Cash on hand has grown to approximately S$3,000,000 which along with the IPO proceeds expected to come in somewhere between 5 and 10 million to be reinvested in the company after paying for the IPO costs.
Obviously, CoAssets begins its life on the ASX in a stronger position than the many companies that go public having never shown a profit. The company’s growth prospects are strong as well. The expansion beyond the real estate industry is quite recent, beginning in January of 2016. The plan is to focus heavily on services to small and medium enterprises (SMEs). Here the Opportunity Providers are corporations looking to raise capital from interested investors.  
The following graphs from the company’s IPO prospectus show the substantial potential in online business funding as an alternative to traditional means. 
Asia-Pacific Region (ex-China) Online Alternative Business Funding 2013-2015 ($USFigD) – Source: Harnessing Potential: The Asia-Pacific Alternative Finance Benchmark Report (March, 2016)

The next graph is growth in the Chinese market.
#FOTO:306865778:600#China Online Alternative Business Funding 2013-2015 ($USD) – Source: Harnessing Potential:
CoAssets publishes a magazine on Crowdfunding projects as well as and educational book entitled Crowdfunding Wisdom.
The other new entry, expected to begin trading on 30 June at an offer price of $0.80, is ChimpChange Limited. The company is Australia based but first offered its digital banking application (app) in the US in August of 2015. ChimpChange’s customer base has grown from an initial 500 at the time the beta version of the app was introduced in March of 2015 to 87,000 as of 31 March of this year. Company headquarters are now located in Los Angeles.  
ChimpChange chose the US because of the ever-present, costly fees for electronic money transfers of any kind. As opposed to the situation in Australia where users can put in their BSB (Bank State Branch code) and an account number and transfer money without being charged, US banks charge business customers “interchange fees” for Master Card payments and consumers pay fees for person-to-person transfers, ATM withdrawals, and a host of other pesky fees. 
There are some membership conditions where member users transfer money for free, provided the receiving user accept ChimpChange membership as well, which is free. The company uses the MasterCard network and offers a pre-paid MasterCard option. However, there can be fees depending on usage, but they are lower than what traditional banks in the US charge. In effect, ChimpChange operates as a bank without physical branch locations. The company is planning to begin operating in Australia, focusing on small lenders and payment firms.
The Financials included in the Prospectus show minimal revenue and a reported accumulated loss of $US5.9 million, as of 31 December 2015. As opposed to the already profitable CoAssets, ChimpChange is one of those IPO’s offering promise with minimal performance for investors to evaluate. 
Although the business models differ, there are two successful US companies offering smartphone financial apps to help consumers with banking functions, track savings, and minimize the fees that litter the US financial landscape. Moven has an impressive list of partners for its Master Card based app, including Accenture, Toronto Dominion Bank, and Westpac’s New Zealand ban king operation. Simple has been acquired by Spanish banking group BBVA (Banco Bilbao Vizcaya Argentaria).
The ChimpChange IPO prospectus states the company has “strong partnerships and relationships with key businesses” without naming any. After less than six months in operation, ChimpChange is changing its partner bank, without explanation. The company acknowledges the move poses a risk.
Although the company operates in a high-growth sector and has expanded its young client base, this is a speculative stock with high risk.
First, the company lists plans to add features to its banking platform within the next twelve months, including: cheque clearing;personal budgeting tools;savings accounts; andbill payments.These additions should make the ChimpChange platform even more competitive with traditional banks. The problem is the company’s competitors already offer many of these features, with Simple offering all of the above and more.
Second, the Prospectus states the company raised $11 million dollars from private Australian investors to get to their current state.  In the tech-heavy US market that is not a lot of capital to raise, leaving ChimpChange exposed to the very real risk of someone somewhere coming out with a superior digital banking app. 
Third, it is already behind in international expansion and its plans for penetrating the Australian market are sketchy at best.
Superior technology in a highly competitive sector is no guarantee of success. To underscore the point, one only has to look at the performance of OzForex Group Limited (OFX).
The company’s digital platform offers international money payment and transfers as well as foreign exchange services to consumers and businesses. OzForex made its ASX debut on 11 October of 2013, closing its first day of trading at $2.34. The stock hit an all-time high of $3.45 in less than a year before cooling off, only to eclipse that high at an intraday price of $3.70 following the late 2015 announcement global money transfer and foreign exchange powerhouse Western Union (NYSE:WU) was interested in acquiring the company. Here is a price performance chart for OFX since it came on the ASX.
The collapse began when Western Union lost interest in acquiring the company for its former proposed takeover range of $3.50 to $3.70. Western Union invested two months in evaluating OFX and apparently did not like what they saw. On the same day the deal died, OFX announced an earnings downgrade. Full Year 2016 Financial Results announced on 17 May didn’t help as net profit declined 2% despite a 15% revenue increase. Management blamed the decline on the 22% increase in expenses incurred to upgrade the OFX platform. The FinTech space is attracting new players and some analysts feel it is the increasing competition that is hurting OFX.

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