Wirecard (WDI GY) ... GI Retail and a rapidly shrinking market share

Tuesday 17th November 2015

Were one to buy or invest into a business, paying up to say €340 million, or c. 49 x run rate EBITDA, then on that multiple there's a few criteria of investment one may look to tick off. In this list would be a fast growing underlying market. One would also seek the presence of a high barrier(s) to entry or, absent this, at least some sort of first mover advantage. There's no denying that the Indian payments market is growing rapidly.   

Financials of Wirecard's acquisition of GI Retail Group
Source: Wirecard

Data, data, payments data

The World's major central banks generally provide what seems like an endless amount of economic and financial data. The Reserve Bank of India (RBI) is no exception.

Below is the section from the RBI's November 2015 bulletin pertaining to transaction values and volumes by a range of payment and settlement systems. This data is published monthly and goes back many, many years.  

Indian Payment and Settlement Systems data July-September 2015
Source: Reserve Bank of India - November 2015 Bulletin

The data can be found at this link here. 

Historic data can be found here. 

The data that is of interest is that found along the Immediate Payment Service and Prepaid Payment Instruments (PPIs) rows. 

This data shows that in September 2015 there were:

• 17.7 million Immediate Payment Service transactions.
• 120.7 billion Indian Rupees worth of Immediate Payment Service transactions.
• 58.0 million Prepaid Payment Instruments (PPIs) based transactions.
• 40.8 billion Indian Rupees worth of Prepaid Payment Instruments (PPIs) based transactions.

At a rate of c. 71 EUR:INR this equates to:

• €1.696 billion worth of Immediate Payment Service transactions.
• €0.573 billion worth of Prepaid Payment Instruments (PPIs) based transactions.
• €2.269 billion in total.

Commission fees in the payments space typically range from 1% to 1.5%. Indeed, Suvidhaa's commission rate was reportedly c. 1.37% as highlighted in my prior post: Suvidhaa vs. GI Retail.

Further, Dan McCrum's latest feature, Rupee do, from his House of Wirecard series, shows how GI Retail's Hermes i-Tickets business appeared to earn gross commission of c. €1.6 million on total sales of c. €185 million in the year to 31 March 2014. This is a c. 0.9% rate of commission, which is somewhat lower than the typical 1% to 1.5% range. Hermes' commission was also seemingly principally related to airline and railway ticket bookings and less so to money transfers.

However, what Wirecard says is that the GI Retail Group as a whole achieved revenue as follows:

• FY13/14 (31/03) 1,109.2 million INR or €15.8 million in revenue.
• FY14/15 (31/03) 2,677.6 million INR or €38.3 million in revenue.

and is projected to achieve

• FY2015 (31/12) €45 million in revenue.
• FY2016 (31/12) €75 million in revenue.  

Presumably all this revenue (achieved and projected) is largely related to payments and money remittance. Indeed Wirecard's CEO, Markus Braun says as much:

"Great Indian (GI) Retail Group has been at the forefront of India's dynamic and early-stage e-commerce and money remittance market for many years. Our investment into one of the region's leading payment groups secures us a strong position in one of the world's most rapidly growing electronic payment markets."

Hence, if commission rates are in the range of 1% to 1.5%, then if we assume GI Retail earns mid-way in this range, receiving 1.25% of total transaction value, then this would imply the following:

• FY13/14 (31/03) 1,109.2 million INR or €15.8 million in revenue = c. 88.736 billion INR or €1.264 billion in transaction value.
• FY14/15 (31/03) 2,677.6 million INR or €38.3 million in revenue = c. 214.208 billion INR or €3.064 billion in transaction value.
• FY2015 (31/12) €45 million in revenue = c. €3.6 billion in transaction value. 
• FY2016 (31/12) €75 million in revenue = c. €6.0 billion in transaction value. 

The data goes back a few years

As mentioned above, the RBI Payment and Settlement Systems data goes back some time. Well it goes back to 2013 and a bit before that.

Here is the Payment and Settlement Systems data from the Reserve Bank of India's May 2014 bulletin:

Indian Payment and Settlement data January-March 2014
Source: Reserve Bank of India - May 2014 Bulletin

This shows that in the twelve months to March 2014 there were:

• 15.3 million Immediate Payment Service transactions.
• 95.8 billion Indian Rupees worth of Immediate Payment Service transactions.
• 144.3 million Prepaid Payment Instruments (PPIs) based transactions.
• 79.05 billion Indian Rupees worth of Prepaid Payment Instruments (PPIs) based transactions.

At a rate of c. 71 EUR:INR this equates to:

• €1.349 billion worth of Immediate Payment Service transactions.
• €1.113 billion worth of Prepaid Payment Instruments (PPIs) based transactions.
• €2.462 billion in total.

As highlighted above, Wirecard's claims for GI Retail's FY13/14 (31/03) revenue should imply it was related to c. €1.264 billion in transaction value.

That would suggest that GI Retail had c. 51.3% share of the combined Immediate Payment Service and Prepaid Payment Instruments transaction business that was up for grabs in the twelve months to March 2014.

That seems quite a lot.

Skip forward a year and here is the Payment and Settlement Systems data from the Reserve Bank of India's May 2015 bulletin:

Indian Payment and Settlement data January-March 2015
Source: Reserve Bank of India - May 2015 Bulletin

This shows that in the twelve months to March 2015 there were:

• 78.4 million Immediate Payment Service transactions.
• 581.9 billion Indian Rupees worth of Immediate Payment Service transactions.
• 314.5 million Prepaid Payment Instruments (PPIs) based transactions.
• 213.4 billion Indian Rupees worth of Prepaid Payment Instruments (PPIs) based transactions.

At a rate of c. 71 EUR:INR this equates to:

• €8.195 billion worth of Immediate Payment Service transactions.
• €3.005 billion worth of Prepaid Payment Instruments (PPIs) based transactions.
• €11.2 billion in total.

As highlighted above, Wirecard's claims for GI Retail's FY14/15 (31/03) revenue should imply it was related to c. €3.064 billion in transaction value.

That would suggest that GI Retail had c. 27.4% share of the combined Immediate Payment Service and Prepaid Payment Instruments transaction business that was up for grabs in the twelve months to March 2015.

That seems quite a lot but is down from the c. 51.3% share it appeared to have a year earlier.

Now, bringing this up to where Wirecard reckons GI Retail will finish the year shows as follows.

The RBI data indicates that transaction value related to Immediate Payment Service and Prepaid Payment Instruments totaled €16.705 billion during the nine months to September 2015.

Transaction value has been increasing by an average €123 million per month during 2015. On that basis, total transaction value related to Immediate Payment Service and Prepaid Payment Instruments would be expected to total €24.266 billion* during the twelve months to December 2015.

Now Wirecard reckons GI Retail's FY2015 (31/12) revenue will be c. €45 million, which should imply it will relate to c. €3.6 billion in transaction value.

That would suggest that GI Retail had c. 14.8% share of the combined Immediate Payment Service and Prepaid Payment Instruments transaction business up for grabs in the twelve months to December 2015.

That still seems high but is down from the c. 27.4% implied to March 2015 and the c. 51.3% implied to March 2014.  

*Total transaction value in the nine months to September 2015 = €16.705 billion.
Total transaction value in September 2015 = €2.275 billion.
On average total transaction value has increased by €123 million each month in the first nine months of 2015. 
Hence, expected total 2015 transaction value = €16.705 billion (9 months to September) + €2.275 billion + €123 million (September + average increase in the month) + €2.275 billion + 2x €123 million (September + 2 x average increase in the month) + €2.275 billion + 3x €123 million (September + 3 x average increase in the month) = €24.266 billion.

Incidentally, as a corollary, if Wirecard expects GI Retail's revenue to rise to €75 million in 2016, then for GI Retail to maintain (or grow) its implied 2015 market share, then market growth needs to slow to (or fall below) 67%. This is still strong growth but would be a sharp slowdown from 214% growth in 2015 and 351% growth in 2014.

And another thing

As Dan McCrum amusingly^ highlights in his latest feature on Wirecard, Hermes is signed up with India's Yes Bank to provide money transfer services. Now you might think that on the basis of GI Retail's implied market share of c. 51.3% from a few years back, that Hermes/GI Retail was either the only (or one of very few) to be signed up with Yes Bank. You'd be wrong to think that.
^Look for the section on an unusual headline. 

Here is Yes Bank's latest list of Money-Business Correspondents:

Yes Bank's list of Money-Business Correspondents
Source: Yes Bank November 2015

And here is Yes Bank's list of Money- Business Correspondents from August 2013, around the time it would seem (on the basis of above) that Hermes/GI Retail had c. 51.3% of the combined Immediate Payment Service and Prepaid Payment Instruments market.

It was clearly slim pickings for the other twelve members signed up with Yes Bank. Of course Yes Bank is only one of many retail banks in India.

Yes Bank's list of Money-Business Correspondents
Source: Wayback Machine - Yes Bank August 2013 

Just one more thing

Wirecard highlights that:

"The National Payments Corporation of India (NPCI) ranks GI Technology as number one bank's remitter among 123 members as of 6th October 2015."

And here is the NPCI's website showing GI Technology with c. 3.7 million subscribed users (1 lakh = 100,000).

Prepaid Payments Instrument Issuer subscribed users
Source: National Payments Corporation of India

Strangely the only other subscribed user data is provided for ITZ Cash Card. One can see why one may reckon that Wirecard views GI Technology as being the number one bank's remitter.

But this may not have always been the case.

According to the NPCI, in December 2014, GI Technology had c. 1.4 million subscribed users while Oxigen Services had 50% more or c. 2.1 million subscribed users.

Prepaid Payments Instrument Issuer subscribed users
Source: Wayback Machine - National Payments Corporation of India December 2014

And prior to this, in May 2014, GI Technology had c. 0.5 million subscribed users while Oxigen Services had c. 0.9 million subscribed users. These numbers are indeed odd, when at the same time, going on Wirecard's claims for GI Retail revenue and the RBI data, it would appear that GI Retail had c. 51.3% market share.

And finally

Here is the iCashCard website, "India's number one domestic (Immediate Payment Service - IMPS) remittance instrument":

iCashCard website and click option for Agent Login
Source: www.icashcard.in

If you click on the "Agent Login" option (highlighted above) it takes you here:

iCashCard Agent Login site
Source: http://agent.icashcard.in/login

And if you click on the "Want to become retailer click here to apply provide us details. We will reach you shortly" option, it takes you here:

GetMyTrip application/enquiry form
Source: www.getmytrip.com

Why does an application to become a retailer for the iCashCard payments business ("India's number one domestic remittance instrument") take you to the Hermes' travel agency site, Get My Trip? This is altogether very odd.

I increased my short in Wirecard.

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