The Unbanked
QPAGOS (OTCQB: QPAG) - According to the World Bank, there are currently 2 billion adults around the world without access to formal financial services or banks.
For service providers, governments, and retailers, this demographic has been increasingly frustrating. They're out there in massive numbers, requiring many different services, but have yet to be streamlined.
Without banks, cards, or e-transfers, these customers must conduct all their transactions with cash. These cash-only transactions require significant resources, from cashiers to armored-car security.
As banks and governments have tried unsuccessfully to incentivize these unbanked adults, new solutions involving cash-to-digital methods such as e-wallets, or peer-to-peer transfers on smart phones have arisen.
QPAGOS is a rising star in the payment processing gateway industry with a robust processing platform. Through the steady rollout of their easy-to-use bill payment kiosks and software, they're looking to capitalize on the unbanked alternative market.
Their main target: Mexico
Already having integrated nearly 200 dealers and service providers, QPAGOS is targeting this massive Latin American market, with majority of its adults living without banking services, and a cultural proclivity to pay for everything in cash.
It's no secret in the e-commerce world that Latin America is ripe for a technological boost
Romain Seguin, President, Americas Region for UPS told Fortune Magazine last year:
"If you look at Latin America, there are many, many consumers that do not have a credit line. If you figure out that unbanked consumer, I think you have an advantage."
Since rolling out its line of exclusive line of electronic kiosks across centers in Mexico, QPAGOS has already seen its advantage grow. With a 139% YOY growth from 2015 to 2016, and on pace for another doubling or more, QPAGOS is definitely seizing an advantage.
And unlike several of the multibillion-dollar financial institutions and credit lenders, QPAGOS still presents a major investment opportunity with plenty of upside for those looking to capitalize on the unbanked revolution.
Why Mexico?
With a population of 120 million people, and an adult population of which the World Bank estimates over 60% do not have bank accounts, Mexico is truly a land where Cash is still King.
Where places like the USA and the EU have far, far larger economies, Mexico's economy is almost entirely cash driven.
The government of Mexico studied the habits of the Mexican people, and pegged the amount of cash-transactions in the country to be around 95%.
The concept of banking as abnormal, is a distinctly cultural phenomenon seen in many parts of Latin America. But as an economic leader in Latin America, Mexico is a natural epicenter for the roll out of a QPAGOS' payment processing kiosks.
With their ease of use, proper location scouting, QPAGOS is essentially bringing the retailers and service providers directly to where the customers are.
One of Mexico's biggest barriers to banking is that of low bank coverage, combined with the country's seriously under-developed transport infrastructure.
A 2015 National Survey for Financial Inclusion done by the Mexican federal government, found that Mexicans spent an average travel time to a bank branch, relying on cars, buses or on foot, was 42 minutes in the rural areas and 22 minutes in urban centers.
It's not uncommon for these consumers to require waiting in lines at the bank or in convenience stores to make all forms of payments, including for utilities, cellphone data, tv subscriptions, tolls, government document renewals, etc.
QPAGOS estimates that when you consider all of these types of transactions, the individual makes approximately 15 payments per month.
Through an integrated service such as QPAGOS' kiosks, no longer will these transactions require so many trips, and so many lines.
Users of the service can now pay most of their bills at once, either through the kiosks, or through a secure app through their smartphones.
While the majority of adults in the country don't have financial services, more adults have smartphones than they have credit.
According to a 2015 Pew Research Center study, smartphone ownership in Mexico reached 35%, compared to the 29% that had access to credit.
Through its cash-to-digital service, offered as an e-wallet by QPAGOS, adults without access to credit can now have access to online purchases, bill payments, and money transfers that they never had before.
Explosive Growth
Through two branches of the business, QPAGOS has rolled out just under 1000 machines across Mexico since launching in 2014.
Revenues have more than doubled each year, and this year is on pace to repeat that and more.
While there's significant growth with every machine, there is also major incentives for the company to integrate more and more providers, thus encouraging customers to complete more transactions at each kiosk.
So far, QPAGOS has integrated nearly 200 service providers into their system, with plans to expand into other areas, including ticket sales for buses, live events, and more.
The value proposition is very easy to service providers to digest. With each kiosk they're included on, the provider's collections footprint is extended.
And the kiosks are neither seen as competition for the banks who already do a lot of the payment processing for the same providers.
On the contrary…
Banks are also customers of QPAGOS, with the potential to roll out and install kiosks in thousands of the country's most popular banks themselves, reducing the strain on each branch's tellers, and freeing up the bank's primary financial services resources.
Governments and Municipalities are also embracing the QPAGOS solution, as they too feel the strain from the logistics of handling a mostly unbanked culture.
There are approximately 50,000 municipalities spread across Mexico. Most of them do not accept cash when issuing documents such as birth and death certificates, drivers licenses, etc.
It's just not safe to do so, and would put a strain on the infrastructure.
Instead, they rely on the banks to handle those payments for them, and force customers to then wait in two lines: first the bank, then the municipality itself.
By integrating their payments into the QPAGOS system, governments in Mexico can become more efficient, and reduce the time it takes for their constituents to go about their business.
QPAGOS is about convenience, and the company's strategy involves bringing bill payment to the customer.
The company has already begun rolling out kiosks into major metro stations as well, serving commuters an option to make payments while already en route to their destinations.
While QPAGOS has neared the 1000-kiosk mark, which is a major feat given the short life that the company has already had, there's still massive growth potential ahead.
Investors looking to capitalize on unbanked consumers have a rare opportunity with QPAGOS and its targeted demographics in Mexico.
How Major Companies Are Addressing the Unbanked Issue
BBVA: This Spanish banking giant is near the forefront of embracing Latin America's unbanked population. With a market cap of more than $53 billion, BBVA has publicly made financial inclusion a part of their institutional goals.
Citing lack of trust, low incomes, geographic complexities, and document requirements as major barriers to banking, BBVA seeks to tackle the problem with more financial literacy education, and higher technological framework.
In a move to digitize many of its services, BBVA doubled its digital systems investments from $1.2 billion in 2011 to $2.4 billion by 2013, and spent a reported $951 million on IT in 2014. The result was a 29.6% increase in new consumer credits in Mexico in 2015.
PayPal: The biggest name in electronic payments, PayPal has made some major inroads with the LATAM market in the last decade. With a market cap of $64.56 billion, PayPal is larger than several banks.
PayPal openly showed it is actively pursuing the unbanked, by acquiring TIO Networks, the cloud-based multichannel bill payment processing company for $233 million.
The company's President and CEO Dan Schulman acknowledged the purchase as a key service to address the unbanked, stating:
"By acquiring TIO and integrating bill payment into our global payments platform, PayPal adds another key service in our efforts to become a part of a consumer's everyday financial life. Worldwide, more than 2 billion people do not have affordable access to basic financial services, making it difficult and expensive for consumers to carry out basic financial tasks, including bill payment."
Equifax Inc.: At a market cap of over $16.6 billion, Equifax is a major presence in world of consumer credit reporting. The oldest of the world's three major reporting agencies, Equifax maintains information on over 800 million consumers, and over 88 million businesses.
Last year Equifax announced a multi-year partnership with a group called Cignifi to help expand its credit scoring capabilities into Latin America. Through Cignifi's analytics and technology, Equifax would be better able to assess creditworthiness, propensity and risk based on mobile phone usage, and the opt-in of the customers who give explicit consent.
The goal of the program is to enable Equifax to provide risk scores for millions of consumers with limited or no formal credit history. A new behavioral scoring technology called the Predictor Inclusion Score will be generated in partnership with local telecommunications companies in each country of operation. The aim is to help expand access to credit for those consumers who previously had limited interaction with banks or financial institutions.
Joel Chury for StockSocial.com
Disclaimer: Opinions and forward looking statements expressed in this article are that of the author only and should not be taken as investment advice. A fee was paid for this report. Investors should always consult an investment advisor before making any trading decisions.
