Right, Johan, I think, at least on my watch, it's 8:45 AM. So, anytime you feel ready, we can get going, Johan.
Okay, perfect. Well, welcome everyone to this report call and webinar following Crunchfish's third quarter 2024 report. I'm here with Joachim Samuelsson. Me, I'm Johan Widmark from Emergers. And as always, I will ask some questions, and please feel free to either raise your hands or write your questions in the chat here, and I will raise them with Joachim. And for logistical reasons, we've put this just a quarter past the release time of the report. I hope I suppose everyone hasn't had time to read it in full, but we've also set aside 45 minutes for this webinar for the same reason.
As always, we will divide this webinar into segments. We'll start off with the key points from the third quarter report, then we'll discuss the eight revenue opportunities mentioned in this report, and dive deeper into that, and we'll also have an update on the sales activities, and then we'll talk a bit about the market and the rights issue coming up here. With that said, let's just jump straight into it. As mentioned, the report was released only 15 minutes ago. Joachim, can you start by summarizing the key points in the third quarter report?
Yeah, sure. Well, mainly as I have in my CEO word, I think there are three main areas. One is the financing. A lot of activity to do a rights issue. It starts off a lot of activity. So obviously that is sort of one area, that, and I'm sure we will, as you said, talk about that some more, but the financing is sort of one.
One major part of this report is that we talk about revenue opportunities. So where will we get money from? I think we've talked a lot about technical stuff in previous reports, and we sort of deliberately decided in the third quarter report to rather just spell out more, so where is the revenue going to come from? And that's a big part of the report.
And as you said, we will. We'll talk about that some more in more details. I think the other thing, which has also have taken time, is the gesture business. I think the board was quite clear after the second quarter report. We had a board meeting just before that. We need now to draw the line and push for a conclusion for the gesture business. We went out and discussed with all the prospects that were still in the making that we need to make a decision now. Are you interested or not? I think that's the other part that I comment on where we are.
I think it's about these things, mainly about revenue opportunities, which is sort of what we will have to live on. I think the title I put for the key word was that right now we're financing us for having a future within offline payments, really.
Okay, so a higher focus on the commercial side of it, you could say.
In this report, yes. Yeah.
Okay, and in this introduction, you also mentioned partner sales in markets where offline payments are prioritized, like in Southeast Asia, Africa, and Latin America. These you've mentioned these markets before, but we've not had so much focus on it. Who specifically are we talking about in terms of these partners, and which markets are we talking about?
There are our partners are active. I think we have several partners that actually are active. One actually which has proven, and I sat in on a partner call with them where we do, say, a monthly update is, Xars. They are they're really active, and they are reporting a couple of deals that they have got, yeah, basically a go-ahead for, and this will be this is African countries, as we said, that this is mainly where they're focused, but they are also have deals potentially in the Middle East, and they also have two agents in Latin America as well.
But offline payments is mainly outside the CBDC area, which I think this sentence referred to is in the emerging markets. Xars, I think, is a good example where they really are working hard, and they have set up a network of, sort of, distributors or resellers for them, really. So that reaches out, and there's two that they have reported to us that they think will close before the year end. That is sort of one. In Southeast Asia, we have V-Key, still our partners that have developed our secure environment, who provide that for us.
They are active in that part of the world. And we have one partner that have already done the integration with our Digital Cash product, but we haven't gone out with a name because they don't want to do that until they've got sort of the first opportunity.
But they're also active in the Middle East. They're active in Africa, and they're trying to find sort of opportunities there. And there is a meeting today with them, actually. It was supposed to be last week, but it was postponed. Later today, there is a meeting with them. So, there are push from these partners into region. And I think the most concrete is the go-ahead that Xars have, that is, yeah, they are saying before the end of the year. I know I put into my revenue opportunities, I put three to six months instead of saying yes, one to two months instead, but that's there, really.
I don't know if that answers you, but there, we have some partners that are active, pushing our products into the market. Ourselves, we are mainly focused on the Indian market, with our direct sales, and outside, it's primarily via various partners that is sort of going for those opportunities.
Yeah, okay. So that I think that brings us straight into the eight revenue opportunities that you discussed in the report, in some detail. And could you provide, just, some sort of detailed summary of each of these eight revenue opportunities that you see for the company?
Yeah. Well, we present a two by two matrix here. Geographically, it's the market where we are addressing mostly ourselves, through our Indian colleagues. India would be one, and then the rest of the world outside of India. So that's sort of two dimensions, two sort of areas. Then, in another dimension, you can look at who's sort of providing those payment systems. It's either commercial systems or it's handled by the central bank. This is what is called central bank digital currency. So that's sort of both in India and the rest of the world.
So that makes up two by two areas. And then in each of those areas, there are sort of two opportunities mainly that we are talking about. That makes two by two times two. That makes those eights that we describe. So, in India, for instance, if we say commercial systems, we have our discussion with NPCI. I don't think we've ever been closer to something there. And NPCI is the whole backbone of the Indian payment ecosystem. That's in the commercial area. But there are also wallets in India, which are not sort of doing offline payments with over sort of UPI.
They have their own closed loop wallets, and we have dialogues there as well. So, within that quadrant, India and commercial systems, there is our revenue opportunities with NPCI, and there is opportunities with closed loop wallets. If we move on to CBDC, this is where we have an opportunity in India. We have it for our telecom solution.
This is what RBI calls about, talks about offline payments in non-proximity. We have one system there with IDFC. And I had a meeting with RBI this week, and they expressed actually disappointment that it's taking so long. And we couldn't agree more. Why has it taken so long? And one reason it has taken so long is that we've had, or IDFC have had problems to get it approved by Google on Android, but that is now past us. We told RBI that, and RBI then told IDFC, then we want you to go.
I think they said full throttle, basically, you know, blast it out to all your customers now. We don't want you to do it piecemeal. We want you to accelerate because we think this is an elegant solution. They've said we tried it ourselves. We want this out, and that creates that opportunity for the telecom. It's IDFC expanding to more customers that RBI is now requesting them to do.
And the meeting we had with RBI this week was to discuss, all right, can we get this to other banks, and RBI said, yes, that's possible, but we want to see some more numbers, transactions, and this is now what is possible when it's not just for iOS, but also for Android, and in India, iOS is very small. It's not like Sweden where half of the population have an iPhone. In India, it's probably 10%. 90% is Android, so now when it's on Android as well, it's possible to push, and then RBI is, you know, supportive, because they like the solution.
It's an important one. The other opportunity in this quadrant is that, and we discussed that, we can also do proximity payments. This is a payment in full offline mode, no connectivity whatsoever. And we have a unique situation here because our solution can go to any smartphone. And one thing that is not, I don't think we have pushed it or stressed it enough, but we certainly had a good discussion with the Indian central bank, is that the solution that has been developed is for NFC, that you do exchange over what's called NFC, Near Field Communication.
But the majority of the phones in India are low-end phones, and they don't have NFC. I've seen some numbers of 70%, yeah, around 70% are low-end phones, and only 10% to 15% of them have NFC. So, we have a huge, we're talking hundreds of millions of users who are sitting with phones who can't do this sort of interaction. And we are the ones that have a solution that can develop or deliver to this sort of huge segment here.
And RBI wants offline in the market. And right now, I think the solutions which is there is for NFC and also for a security environment, which is sort of not safe enough on those low-end phones, whereas we can just as easily address it there. We have the same solution there as we have for high-end phones. And that creates that other opportunity for full offline for CBDC. So that's India. And, you know, I had two good meetings this week with both NPCI and RBI.
Yeah, they are the ones to talk to, really, in the Indian market. We are there in the discussion, and we need to capitalize on that. Outside of India, there is the CBDC area. There, as we describe in this report, we have been active in CBDC conferences. We were in Istanbul in early September, and in late September, we were in London. We picked up some opportunities.
There is an Eastern European central bank that we met in Istanbul that we've had a couple of meetings with, and they are extremely interested because they understand that they need a solution, what we are saying, a mobile-first solution to the market that they can roll out.
So, we've had a couple of meetings with them after Istanbul, and they're waiting for their decision to take us on. This is for them doing a pilot within for offline payments as well. And then there we have one of our partners who's in the CBDC area having another Eastern European opportunity as well that is piloting offline starting early next year. This is what we have there. The other opportunity in this quadrant is the major central banks. We we're sort of in the running for that as well. This is... I just briefly comment on that. This is where NDAs come in and where it's difficult to comment too much on opportunities there.
Commercial systems outside of India. We have Xars, as I said. That is one area of opportunities. They've already told us that they have two, which have said, go ahead, and we are now to be brought into these commercial discussions and seeing how quickly we can close those, and then there are our payment platforms. That would be the other area in that quadrant. What can we do with the payment platforms, which are actively out there selling our stuff? And yeah, as I said, there is a meeting actually later today with some of those. But this is how that quadrant has been built up.
And we try to give some flavor on timelines. How far away are those things? And giving in a way an estimate of when we think we will have an agreement here, in those areas. That's what a large part of the report is actually written with that because we got a lot of people asking us, so what is your best guess on, don't talk about our, don't explain your technology more. We think you have a good technology, but tell us about where is the money is going to come from, where is it, and how is it going to come? That's what we try to do in this report.
Yeah, I see. So, these timelines, they range from three to six months to about 12 to 24 months. Is that correct?
Yeah, well, yeah, we just tried, and it's a way to try to, things can go faster. But it's the best estimate given that we are getting the deal because nothing is sort of signed yet. If it would have been signed, we would have had to release it sort of. But what is the timeline we expect it would take to negotiate and get a contract together with these sort of customers, really.
We are fast from our side, but we're dealing with often quite large organizations, and we are not in control over their processes. I think that is why it's hard to say if it's one month away or three months or six months away. It's just hard, because of, yeah, the complexity of dealing with large organizations, and their processes for approvals and getting it through their legals and whatnot, really.
Yeah. And yet going back to the stuff you mentioned about the Indian counterparties that themselves expressed frustration with things not moving...
But that's RBI. This is the Indian central bank saying that.
Yeah, and what is it that is taking time? What is their explanation to stuff taking time here?
What took time here at the end was when it was sort of ready to go, and it took at least three months extra. We got it approved on iOS. That was already before the summer. But then, for some reason, which we still don't really understand, it took a long time to get IDFC to release it on Android as well. Typically, Indian companies develop Android first, but they got pushback that, using, as we do in the telecom solution, SMS as one way of connecting to the backend here. They felt that there was some sort of language around that that needs to be addressed or stipulated in some way.
I honestly, I couldn't really figure out, but at the end, I know IDFC took help from some experts internally that they didn't use initially, that was good at sort of putting the application together correctly for putting it up on Google Play Store, really. And then it went through. No change, really, except that they, yeah, that they got it together. So we explained this because RBI was in a way, yeah, they were annoyed because they said, we really like this solution. We want to see this out in the market. And we are frustrated that it's taking so long time.
One guy, he said, well, I'm using it myself. I've sort of tried it myself. It's an elegant solution. I like it. And this is the guy that said, let's now go full throttle to really release it. That would mean revenue for us because IDFC will scale up then in terms of having more users. And also, I really hope that this will bring us to other banks.
And this is what we're asking RBI's help because they have committed to offline payments. That's one of them who have really done that. And they need to, I think they want to show progress that they are doing that. And they're frustrated that it's taking longer than they would hope it to be. Yeah.
Okay. So also going back to these four quadrants that you mentioned, could you also discuss commercial potential here or the relative, I mean, for Xars, a deal in maybe Africa or Southeast Asia must be much smaller than NPCI, of course. And could you put some sort of,
Well, we're giving some flavor of that in the report as well. We tried to say, I think a deal with NPCI would be, will be huge for us in a way that, we're having NPCI. This is the backbone of the most populous country in the world. If we're getting a deal with them, that would be sort of a fantastic thing. RBI, I think, is also the fact that if we can get this from now a pilot with IDFC only, much wider, it has also grand scale. The other one I think, I know we comment on as well is that in some way if we get associated with a major central bank as well, I think that will also be of huge strategic importance, as well.
The other deals are more, I think, important in order to show that our technology is coming out in the market, but revenue-wise, it would be, yeah, it would be smaller deals relatively. But I think the major ones I would say is what we're doing with IDFC, oh sorry, with NPCI, what we're doing with RBI, and then what's happening with in the CBDC area with the major central banks, really. I think these are the ones that these three I would highlight as key in really taking Crunchfish from where we are today, struggling to show our revenue potential in this area to something completely different.
But these are also the ones that are closest sort of in time as well because we have taken the time to work on these big ones, right or wrong. Maybe it would have been easier to work on smaller ones, but we've gone for the big stuff, really. NPCI, RBI, yeah. So, that's where we are.
I see. And could you also maybe just elaborate a bit on how these respective deals in these respective areas would be structured? I mean, considering that the RBI and other central banks, they provide a public service, and whereas a bank or commercial player, it would be more reasonable for them to have a commission-based deal. Could central bank deals be structured differently with upfronts or something like that as opposed to commission-based commercial deals or how.
Yeah, I think it would be. I think with NPCI is also they see themselves delivering payment services as a public good for the Indian market. And they are they don't want a deal which is, per anything, really, sort of a deal which they want to have the right to use the technology and want to pay upfront for that. So I think that's very much so. And I think we've seen similar arrangements for other central banks as well that they're willing to pay upfront to sort of control the solution and then use it. I think what we're doing with IDFC is with our which is the for the Digital Rupee.
We have a commercial arrangement there, and that's for one bank, and we don't think RBI is in the market shopping around to buy a solution in that way. They have gone another route that they are piloting, and this will be an opportunity for us to get the commercial contract that we've set up with IDFC would be, I think, a base that we can do with other payment services or banks, doing the Digital Rupee as well.
We have one good sort of baseline agreement, and that would be what we could be asking for with other banks or payment services in India as well, so this would be set up probably in that way, but you're right.
some of these, who are providing as a public good in the market, then, they are more likely to pay upfront, and then have control, and distribution rights over that solution than, a smaller sort of payment service, as we mentioned, that we do via our partners.
Yeah. Okay. I just want to remind everyone listening that you're welcome to either raise your hand or raise a question in the chat, and we'll bring it up with Joachim here. So, let's move on to. I'm sorry, I want to go back also to one thing you said before that you yourselves are focused on India, and outside India, it's mainly the partner-driven, so to speak. Two questions on that. Are you not involved in approaching any other central bank deals outside India or all those actually partner-driven, all those relationships?
It's a bit of both. As I said, we were approached in Istanbul by one Eastern European. This is outside the Digital Euro area. And they were impressed with what we could do in offline payments. Their plans were to have offline payments later, but when they found us, they are understanding that they probably could do that, and it's important in their country to have it. This is actually then handling, or we have had, as I said, it's been with 10 people from their central bank, two meetings, and it's set up, you know, follow-up meetings as well. This is sort of us driving that.
So it's not like we are saying no if this happens, but the partners is a way for us with, as we are quite a small organization, is to have much more reach into the market. That's what we get, via our partners, both from who are selling CBDC systems, both who are selling commercial payment systems, as well as our resellers here for Xars that are also very active and pushing our solution and discussing in the market about offline payments and what it can do for their payment service.
Yeah. And also the other side of that is TCS Tata Consultancy Services. Are they able to in some way accelerate your relationships in the Indian market?
I don't honestly, I don't know if you could think that because they are Indian, but I think what we have discussed so far is mostly outside of India for CBDC opportunity rather than within India. The backbone of the digital rupee system is provided by RBI. No, sorry, not RBI, but NPCI for RBI. So I think they are not really delivering that. So that's why they're seeing themselves selling their TCS Quartz into other markets outside of India. Mainly the discussion with TCS has been outside of India rather than India.
Okay. I see.
So this is as I said, we already have those. We talked to NPCI. We talked to RBI. So I think we are talking to the right people, both at NPCI as well as RBI. And yeah, I don't think TCS is necessarily accelerating these discussions.
Okay. Fair enough. And also, could you tell us a bit more about the development on the CBDC market in general? There's a lot of talk about it. You read about it, from time to time, but it seems to me that it's not just Crunchfish that is experiencing this slow pace in the market. Is that just our impression or what is the market development in general and how are other players on and initiatives in CBDC?
Yeah, no, I think the CBDC area is a bit complex. There's two major parts of this. One is what's called CBDC retail. What CBDC retail is where the central bank with their central bank digital currency providing that as something that can be used by the public, you and me, in the market. That's CBDC retail.
There is another part of CBDC as well, which is sort of CBDC wholesale, which is sort of a way to use CBDC to connect between banks. Particularly what I think an interesting area for here is CBDC wholesale between banks and its cross-border as well. I think what we've seen is some central bank have decided that, hey, this CBDC retail is difficult.
It's difficult for us to do because we typically don't naturally deal with the public. And they can do that via intermediaries, but they're going to set up a system that they will be responsible for that. And they are shying away a little bit from the retail side. I've seen this just last quarter. Canada who have been active researching on CBDC retail have said that they are scaling back on retail. I've seen Thailand saying the same thing that we have a less focus on retail and more focus on wholesale and having CBDC there. But then again, there are central banks that are pushing ahead. And good examples is India.
India have said that we want CBDC for the public and we want it to be offline, which is sort of very much what we like to hear. ECB, European Central Bank, I think they are also pushing ahead, and they've also said that offline is key. So that's another major central bank that is sort of saying that.
We heard, I think it was last week, that the Bank of England, which is also a major central bank, said that CBDC retail is something that we are going to focus on in order to sustain the innovation in the payments market. So, we want to be part of it. But it's I think from I would say six months ago or maybe a year ago, everybody was sort of interested in CBDC and for the whole spectrum.
But what has happened is that some central banks have sort of now said, well, maybe the retail part is something that we should wait with and go for the wholesale part rather. So it's been a little bit of a trend there and I think that is maybe what you see, Johan, when you're saying that it looks like it's going slower. In some sense you're right, but there we are trying to focus on the ones that are pushing ahead and certainly pushing ahead and very clearly have said we want offline, as part of that offer.
That is with some major central bank, as I said, and with some central bank in emerging markets, which having problem with their internet connectivity or even power sometimes that they need innovation and the central bank takes on that role in order to deliver a payment service that works, you know, even if connectivity is not there. That then we're back again to those emerging markets, Latin America, Asia, and Africa.
I think this is where there is interest from central banks because they know they need to deliver something in order to help the public to go digital in because that it's not happening from the private side so much then they would have to take a more responsibility. But some markets, as I said, have said we've researched it, we think it's a difficult area to deliver in and are scaling back. So, it's a bit of a mixed bag here really.
Okay. I see. So yeah, let's move on to the upcoming rights issue here. I'm thinking about the detail in the transaction and about the units here. Why have the subscription periods been chosen for these relatively near dates in February and May? Could you explain a bit about your thought process behind this and whether there is a connection to considerations around commercial potential and the revenue opportunities you mentioned in the report or is it mainly just based on the recommendation from advisors?
Yeah. Well, I think let's just take a step back and explain what a rights issue is, a way where if you have a share, you have the right to participate, that's a rights issue, and you can do a rights issue as a unit, with units instead, and that's what we decided to do in order to make it more lucrative because essentially you get for every share you have the right to buy one more share, but we made it as a unit instead, so we're saying which is equivalent for two shares, you can have one unit then, and that could buy two shares.
But as free of charge, you get as an upside without paying for it, you get those warrants, those, yeah, TOs, subscription options or in Swedish warrants that is due in February and May. And that's just an upside for you. You have the right to buy additional shares at 30% the average price, which is a way to sweeten the deal even more, because this obviously has a value. You have no obligation, but you have a right to buy more in February and in May.
The timing, as you ask here, Johan, is, it's not set by these eight revenue opportunities because they were not explained. This is actually coming now. So I think it's, it wasn't there when we discussed this in September.
But the advisors felt that, as you suspected, we need to make it a good lucrative deal here, both in terms of the price, and that is lower than ever, at SEK 145 per share. But also, that you get those freebies, one in February and one in May. The timing of it was, you know, it was more by advisors really, to when it came really.
But it's also a way for Crunchfish to get. We will get financing now, in November, but then we will get additional financing in February and May really, according to this scheme. But it's just. It wasn't really set by sort of linking it to the revenue opportunity. It was more to create a lucrative deal in the market for shareholders.
I want to say that this is a rights issue. So it's sort of fair in the sense that if you don't want to participate, you can sell your right. That, that's. You always can do that. You can sell your right now, but you can also sell your right sort of in February that you get and the one in May. So there is. If you don't want to participate, you don't have to. You can sell your right. And that's, yeah, that's the possibility for everybody really. You get a right to participate. And if you don't want to, you can get money for that right, as in a rights issue.
And then structurally, it is this unit that for two shares you can get one unit which costs you SEK 290, which is then having two shares in it. But free of charge, you're getting one warrant in February, which is just an upside for you. And one in May, another upside for you. Where the price is capped, the one in February will maximum be not more than 30% above where we are now with SEK 145. And the one in May is set to 1.5 times SEK 145 as a maximum. It could be lower as well. It depends on some average price, in some trading period just before the emission really.
Right. Okay. And so I want to encourage everyone listening. If you have a question, please raise your hand or put it in the chat. And, lastly then, I suppose you have talked to a lot of shareholders since the announcement. And, what is the feedback you have received about participation, mainly from the larger existing shareholders that you've spoken with?
I don't have. Maybe I should. I haven't asked, specifically gone around and said, how much are you participating? So I really don't have that information. A lot of shareholders has contacted me, and had discussions, but I haven't proactively reached out. So I don't have more information about how, and I think it's now the subscription period starts. And then, I don't think anyone anyway would have liked to commit and say, this is what we're going to do, you know, upfront.
We have our, yeah, the other major shareholders is committing those SEK 5 million that we got as a loan. They're committing that as investment that has been announced. And there's been another one who have committed SEK 500,000 as well. But, apart from that, it's up for everybody to act on their shares really.
Right. I was thinking more about software feedback in terms of commitment to the larger vision in Crunchfish and,
I think that no one has. We published that in September, end of September. As you can see, there hasn't been much movement at all, so all the shares, major shareholders still are sort of keeping their shares, so I think that is a show of faith, if anything really, that it's the list in end of September that we have published on our website as well as in the third quarter report here looks very much the same as in the second quarter report really.
So, I think there are still people are still there, supporting and then believing in the vision, and it's been more sort of, I guess people have been saying, come on, let's just, you know, show us the revenues that you can do.
And that's sort of a little bit reason for structuring this report on so where are the revenue opportunities? Where can we find them? And in some sense, we've never been closer. We are in the major. This is a leading payments market in the world. And we are in dialogue with both RBI as well as NPCI. And we have a solution which addresses half of that market in a unique way that no one really else could sort of do. We just need to capitalize on that.
That we just need to get money out of it. It's frustrating as hell in a way to not having shown that because we wouldn't have been sitting here with this rights issue at all if we had just been faster. But it's been a challenge to get to the deals. And the focus is all on trying to get there.
Yeah. Perfect. So, then we look forward to the subscription period for the rights issue, of course, and especially then the coming three to 24 months of these eight revenue opportunities. With that, I would like to thank Joachim for his time today and thank you all for having listened in. This recording of this webinar will also be available on Crunchfish website and on emergers.se.
Yeah. And thank you, Johan. And have a good flight back from Barcelona, which I know where you are at the moment. And thanks for actually doing this interview on short notice. I appreciate that, Johan.
No problem. Thank you.
Thank you. Bye-bye.
Bye.