Good morning, and welcome to this webcast, together with Crunchfish, in connection with the company's report for Q2 2023. I am joined by the company CEO, Joachim Samuelsson, to discuss the report and the company's current situation. My name is Philipp Stenberg, analyst at Västra Hamnen Corporate Finance, and I will be your moderator today. As usual, I highly encourage you all to send in your questions using the chat function as we go along. I will then present the question to Joachim for him to answer. I also want to inform you that this webcast is being recorded and the recording can later be accessed at Crunchfish homepage and on Västra Hamnen Corporate Finance YouTube channel. Without further ado, thank you, Joachim, for being here today with us.
Thank you, Philipp. It's good to have... this is your first interview, I guess so-
Yes. I have taken over this-
I know you've been in the background, supporting with the analysis, but-
That's right
... now you're in camera as well, so that's good.
Yeah, it's good to be here. If we start off by the title of this quarter's report, Breaking the Glass Ceiling, what do you mean by this, and how is it connected to your current business operations?
Yeah. I tried to sort of capture the moment, and I think this was sort of a bit of a theme here. The fact that we did get, finally, the first order is like a glass ceiling. Before we've had many pilots. We have done proof of concepts, but finally, within Digital Cash, we got the first order with IDFC FIRST Bank. So that's certainly sort of one aspect of breaking the glass ceiling, which I think is important. But it's also related to, in general, offline payments. It's been a little bit the Cinderella. Everything should be online, everything.
Payments has been online, and in this quarter, there has been signs, good signs, that what we've been talking about for maybe three, four years, offline payments, is starting to take center stage. BIS released a... Well, it was so many pages in it, so it wasn't just a report. They call it a handbook-
Okay,
... the Offline Handbook, and they interview us for it. And I was quite happy, not just that it came out, but it also... I think they established what we've been saying, that you don't need hardware. You can have a secure environment also in software, and we met BIS and talked about our solution. And I think the fact that BIS, and for those who don't know, BIS is Bank for International Settlements. This is the central bank of the central banks. The fact that they are saying offline payments is sort of, yeah, it's there, and it's important for central banks for their projects around central bank digital currency.
I also think that within the gesture area, the fact that Apple, this has been awaited for probably, I don't know, six, seven years, that they have released finally what they've been talking about for a long time. Now, I think this became a quite, to me at least, a bit of a pricey, top-end device, what is called Apple Vision Pro. But that they're coming out with a device for AR/VR, which has gesture interaction together with eye tracking, I think it is also a glass ceiling. The whole market has been waiting for Apple to actually come out with their play in this area. It's been rumors for so many years. So in many aspects, I think there has been some glass ceilings here.
Offline payments is becoming in fashion. We got our first order and then the Vision Pro. I think that's... All these together, I think, prompted in a way that, "Why don't we put the theme here for that?" That there are breaking glass ceilings here that has happened. So I guess that's one-
Yeah
... that's how it relates to the report.
Yeah, and then I understand that. But let's start off by the big thing of the quarter, your first deal. You signed a deal with IDFC in the last day of the quarter, back in June. Could you please tell us more about the partnership, how it will work, the revenue model for Crunchfish, and the overall deal structure?
Yeah, this is. You could see. I think it's good to say that it's a partnership, but it's also they are a customer. So if we start there, they are, they see use cases, obviously, then for offline payments. One use case that they talked about when we met them was that it's very expensive for foreigners when they come to India for roaming cost. So if you have mobile data on, it's almost like $20 a day.
Yeah, expensive.
$20 a day, and you don't get too much bandwidth either. But if you could download their app, you fill it up with maybe a credit card payment, then that app could be used anywhere in India, using instead the telecom backbone network. So you actually initiate the payment with sending an SMS instead, and that's our product that we released just at the end of first quarter, Digital Cash Telecom. They saw the opportunity in that. So that's one. But IDFC FIRST Bank is also one of the banks that are part of the initial batch of banks who are going with a Digital Rupee. That one is also initially here sort of a, it's online payments. That's what it started with.
The same solution that we just described, that you could initiate a payment using SMS, that has been already now developed using the IDFC FIRST Bank's the e-Rupee app. We have it already in user acceptance testing. We presented it for RBI, and we've actually also entered into a hackathon competition called the Harbinger. We were in it last year, and we are now an official finalist in the Harbinger for that solution. And last year we entered with an entry ourselves. This year we are doing it together with a bank who have already sort of implemented it. So that's an opportunity. It's only banks currently who can carry the e-Rupee, and we have one good partner here who have started with that.
But why it's also a partnership is that the overall dominating payment rail in India is called UPI, and it's sort of absorbing almost everything. We talked to one e-wallet provider. They said, 98% of their volume is on UPI. Only 2% at the moment is on when you actually insert money into their wallet and pay with that. Everything is going over UPI. So UPI is just... it's just becoming extremely strong. So... And it's only banks that are allowed to post transactions on the UPI rail, and to do that for any of what is called third-party application providers, and these are—this is where most of the volumes are. This is Google Pay, this is Amazon Pay, this is PhonePe.
They are not banks, so they need to use a bank in order to do offline payments. And with us now having IDFC FIRST Bank as a partner then, who have implemented our solution, we can approach them now with a solution. So in that sense, we become partners because all these third-party application providers, they need to use the banks in order to post UPI transact. That's how it works today, and that's how it will work in the future as well. So IDFC here have, with our solution here, an opportunity to become the banking partner, an additional banking partner for many of these third-party application providers app.
We've together with IDFC, we've gone to NPCI and proposed this Digital Cash Telecom solution, as I described, and asking them to, yeah, basically approve it because it expands how you can use UPI, using it in this way as well. We are just waiting for their approval of it, and then we wanna go to these third-party application providers and propose this opportunity, because that's where the scale will come from. This is where these are the big players who have big numbers in terms of users. The deal itself is a three-year contract, and we have a...
They are signing up for a bucket of users, and we—I think there are seven layers. IDFC said that we wanna start with—when we are developing now, initially, we wanna start with—yeah, relatively small number of users, and we, we're paying upfront for that. So they have—they're paying for the first bucket, and that is for a two-year use. Revenue-wise, we talked to our CFO, we will recognize this actually then over two years, starting from July onwards, as this was signed so late in, yeah, as you said, last day of June. So this will be over the next two years that we will recognize it as revenue.
So there's nothing in the Q2 numbers that comes from this deal, and it will be spread. They will pay upfront for a two-year deal, but then as we go along, as we increase volume, they will have to buy a new bucket.
Yeah
... of users. And this is for their own apps.
Yeah.
This could be for their e-Rupee app, this could be for, this, their own wallet that I said initially here that they, they can use. We haven't yet said how... if it's gonna be via them, we go to the, third-party application providers, or if this will be separate deals. That hasn't yet been... it's not part of the agreement yet, but, but that needs to be discussed. IDFC is keen to do it, and they wanna do it. That's why I think they are already talking to NPCI about this solution, but, that needs to be, addressed, of how...
It could also be that because of the volumes would be very high, that this won't be a deal based on number of users, but maybe it's based on number of transactions instead.
Yeah.
... but this, this still has to be understood.
Of course.
Right now, for IDFC's own use, it's based on. It's sort of a user model.
But just to get this clear, then, you will receive all the upfront money now, or you have received, I don't know, and then you will do the accounting rules spread out over your quarter reports?
Yeah, for whatever. They buy-
Yeah
... users in buckets.
Yeah.
So they bought the initial first buckets, and then when they have more users, they need to go for-
Yeah
... and buy another bucket, and then that's how it works, yeah.
All right. You talked about in your report that you have received a lot of international recognition, that we know about the rewards and such, and this had led to additional partners wanting to integrate Crunchfish Digital Cash. How fast can we expect new deals to be signed going forward?
Yeah, we have signed in this quarter three, what is called development, yeah, demo and development agreements, and one has already come quite far. And this is particularly in the area of CBDC, Central Bank Digital Currency, where we got this reward for outstanding advancement in sort of digital currency. We met with a lot of the other players who are there, who have a platform for CBDC. We have recently even submitted a proposal together with one of those platform partners to a central bank. That has also happened here in quite recently. I think it was, if it wasn't last week, maybe the week before. But that has gone in already.
That will, again, that would start with a pilot, and then that will later lead to... But I think what has happened with this international recognition, which was particularly in the area of CBDC, has led to that a lot of those platforms who currently do not really have offline payments, but that's a requirement from many of the central banks. They are... Yeah, many of them are looking to us to help with that when it comes to a software-based offline payment solution, which we still are fairly alone about. There are other players that still claim, even if BIS and we say it differently, it needs to be hardware. And we are doing it in software, with a mobile application or a smartphone.
You talked about pilot, and then we think we could go back to the RBI sandbox. Have you received a final evaluation of that, and what can you tell us about it?
No, we've been bugging. This is the central bank, RBI, the Central Bank of India, that, because they were supposed to release that report. The latest we heard was that they will want to probably do something jointly, with maybe other things that has happened as well, and do that at the Global Fintech Fest, which is a huge event in Mumbai, where we are the official offline payments partner, and we're gonna be there. It's September 5th to 7th. This is where I think RBI will come with their report. We've seen IDFC, or we've seen sort of reports about stats. And as we reported already last quarter, that has gone well. So we're waiting for them to...
Yeah, I don't know how even the report will look like or what they would say. It's hard for us to, you know, put a lot of pressure on them, really.
Of course
... because it's a central bank. They, they, they act when they act. But, I think the understanding we have is that they are having some sort of announcement around offline payments at the, at the event, the Global Fintech Fest. And again, there's another break in the ceiling. RBI is, they are interested in offline payments, and we've had this thing, but unfortunately, we, we haven't seen that report yet from them. It hasn't come out yet.
Will the report be published to the public, or will it be like an internal thing that only-
We don't even know that. They're not, we don't know what form they will, how they will release it. We don't know.
Yeah.
That's the. And we've been, you know, this was wrapped up already, sort of May, June, and we were expecting that they will just within a month.
Yeah.
That's sort of what they have indicated before. But then, I don't know if they've been busy or what has happened, but they haven't released more since then. So, and we don't have any clear answers, so, unfortunately.
Yeah. We received a question from the public: "Offline payments are and will be extremely important in a more insecure world. Crunchfish has been early on this. How will you keep your position in the front lines?
I think that would be our patents will be very important. As we were early here. The patents that we have and even patents pending I think will provide us some protection here. We also are still, you know, very much continuing developing. As I said, end of Q1 this year, this is when we released our, what we call Digital Cash Telecom, where we, from the same environment that the payer has, instead of just sending a message in proximity, we send it remotely to the back-end server using an SMS. That is sort of a development that was released as a feature to the market in end of March.
In July, we released a way of paying forward. So anything you receive in proximity, if I pay you, Philip, what you have received, you could, if the system allows that, the settings allows that, you can pay forward. So you don't have to go online, in order to bank your transaction. You can pay forward. This was a release that we did in July, so that's Digital Cash 2.2. So there is still a lot of extensive development going on, but I think in order for us as a small company to actually have a chance, is the fact that we have a quite a extensive IP portfolio.
Yeah
... with patents for a lot of things that we do here in this area.
Yeah. You have previously reported that you have been in discussions with HDFC Bank. Do you have an update on this? How is the commercial discussions moving along?
Yeah, I met with them in June when I was there in Mumbai. And it's been a bit of a disappointment for us, because we've been discussing with HDFC since, yeah, even before this pilot started. And HDFC, for those who don't know, this is the major, the biggest bank of India, and they have now merged with their basically house loaning part as well. So as a bank, they are now, I think they're top five in the world. So this is a huge bank, and this merger with the house loaning parts, HDFC financing, that was announced and completed here in, or they announced that at the end of June.
And they said to us, "We're gonna be just extremely busy with merging our bank with that other part." So, the top management and a lot of the management here, they're fully occupied, so they put us a little bit aside, which disappointed us. And we expect to meet them again when we are there now in September, and discuss with them the opportunity around—tell them what we are doing with IDFC FIRST Bank, which they also, I think, have an interest in, and that they could do something similar. And also the joint project that we've had with IDFC and HDFC, what's the next step there? Sort of that. We really like to discuss that with them as well.
But I think it's... Yeah, we had much more hopes for that. This would've been a quicker thing, but it's been stalled in many phases during this year. And the last story was sort of that, yeah, completely absorbed by the merger. So,
Right
... we need to get back with this discussion with HDFC Bank.
Yep. Yep. Going back to the Indian platform company you announced earlier this year that you were about to acquire, and then you found some problems, technical difficulties in the due diligence process. Is this acquisition completely off, or will it maybe happen?
Yeah, I met them as well in June, the top management of it, and we talked about it. And I think we had a window there that we could acquire. We had the money to do it. Right now, I think, I'm sure we will talk about that as well. I don't think we have... We don't have the funds to just go ahead with it, and it's still, we haven't focused on to clear out the technical issues that we identified. So right now, nothing has progressed. We are not...
I don't see this. I wouldn't say completely off, but as time goes by here, it becomes more and more remote about that acquisition.
Yeah. All right. Moving over to gesture, I thought you tried quite extensively to capture the technology evolution with AR/VR, when you talked about the Apple new Apple release, and the overall rapid new increases within the segment. How are currently positioned with your technology to maximize the potential of this opportunity?
Yeah. We have we've quite a f- the new guy that we have head of the gesture business that has come in, Fredrik Clementson, as well as who is head of Digital Cash, Patrik Lindeberg, they used to work together at Precise Biometrics. And for them, this is a little bit of a déjà vu. They remember the days when Apple started with fingerprint sensing for well, mobile phones, and all of a sudden, that started just an explosion for Precise Biometrics, who could deliver the similar technology for the Android world.
They are sort of seeing that, "Is this the event we've been waiting for, that Apple is releasing the sort of the start here that will trigger for Android developers as well?" We, I think, yeah, how we are positioned, we are in dialogue. We have announced some deals. You know, we have Lenovo, we have Ximmerse, we have LogistiView and a handful of others that we are talking to. So a lot of the Android world, they are very aware of what we do, and what we're hoping is that this event will start and build the momentum faster. Because this has been the market uptake for AR/VR has been, it's been slow.
It needs to accelerate further, and more needs to happen.
Yeah.
Yeah, but we are positioned well with the-
Mm
... Android players, and they know about our capabilities, and this is, yeah, that's our ... position there-
Yeah.
And, and, and-
See
the end could maybe trigger a faster adoption in the market.
Yeah. Now, you mentioned it being slow, and last time we saw the major deals within gesture interaction for Crunchfish were in Q3 last year. When do you think we can expect some sales and some recurring sales in this segment?
Yeah. When they sign up a deal with us, I think many of those were sort of Q2 to Q3 last year, Lenovo, Ximmerse, a lot of SDK use. They pay some sort of upfront license, and they're getting some volume with that. Most of that is they're running out of what they have already prepaid for. So that would need to get new revenue from that. They don't have more licenses there. So that's one. But also, there are still ongoing with many big brands with new gesture interaction possibility, AR glasses, basically, that who needs gesture interaction. That could come. There is nothing magic about Q3. That could.
I think that was more a coincidence. That could happen, but it could be Q3, could be Q4. But we have those dialogues still ongoing. But it's both from recurrent revenue from the ones that we already have, which are still working with and releasing products with our software on, and it's also new ones.
Yeah. If we move over to finances, as for your financing, you're starting to run low on cash, and you have taken up a bridge loan now of SEK 7.5 million, until you will complete a directed issue. Can this loan be converted into shares, and how... what's the interest and such of this loan?
Yeah, it's a straight loan, so it's not a convertible loan. So it's a straight loan that we've done. Interest is okay. I think in this condition, it's 7%, so it's quite a... it's a very reasonable loan. The reason is that you are obliged to have three months' finance. You have to have three months, basically, cash. You have to have that on the bank account. So this is why we decided to take up this sort of loan.
But the answer is that this is just a straight loan, and it doesn't have it in the terms that it can be converted into shares, no.
Yeah. All right. I want to say to everyone who listening in, I have only one more question, so if you want to type your questions, the time is now. As for Chui, the investment from them, do you believe that this investment will come, or is that also completely off? What are the chances of that?
Yeah, we discussed that at... We had a board meeting, as we always do before. I think there is still... Yeah, I still think there is a chance for that Chui will... I talk to them regularly as well. They want to do the investment into Crunchfish, possibly not for three million shares. That MOU is off the table, but they wanna do an investment into Crunchfish. That's been very clear from their management. But they don't have their financing yet. And that's why... And we don't wanna sign an agreement with them, or we can't announce anything until they... before they basically have to secure their financing. We can't...
We've been disappointed in their delays of things and not delivering, and so we need them to have money on their account. And then they're saying they wanna go ahead. So as... Yeah, if they secure their financing, which they say they will, in some sort of near future, then I think there will be an investment, a directed share issue towards them.
Mm-hmm.
But they need to show that first.
Yeah. Should we take some questions that have come in? What has happened with the parallel pilot with a major Indian bank that was reported in the Q3 report?
Uh-
Can you see?
What was that question?
I got it in the Q&A form.
Okay.
Uh-
So I didn't see that.
All right, so it's.
Yeah
... Alright, it's questions both in the Q&A and chat function now. Yeah. All right.
What happened with the parallel pilot with a major India bank that was reported in the Q3 report? I don't know.
Right
... think it is, I think that refers to, HDFC, sort of-
Yeah
... it must be, so I don't know what else it's... It must be HDFC if it's from the Q3 of last year.
Mm.
Yeah.
He wrote again, it was parallel to the RBI pilot. All right.
Yeah.
Let's move on.
No, no. I think they're... I don't know. It's it. I think it refers to HDFC Bank. I would assume.
Mm.
I don't know otherwise. Yeah.
We get a lot of questions about the value of the HDFC deal. Is that something you can answer?
We've decided not to disclose that simply because I think it is sensitive in the sense that it's our first deal, and we want—we don't wanna set a precedence.
Mm
... for the price per user in the market. So that's why we have... Yeah, otherwise we would have disclosed, but we decided not to disclose that in the market.
Mm. Mm, also, it's discussions about the issue, and I thought you wrote on your report it will be a directed issue, or will you do like a public issue, what's... Yeah.
A rights issue.
Rights issue, that's right.
No, I think the-
Mm
... we, well, we wanna avoid, if we can, a rights issue. And, I think the intention is to do, like Socio here, that they would buy shares from the company, and it will be a small dilution, and then that's what it will be. So that is what we are preferring. Yeah.
Yeah. We also get questions, when will the next deal be announced? Is it, like, in the near term, tomorrow, or after New Year, New Year's Eve? Is that something you can answer?
It won't be, it won't be tomorrow.
Mm.
I would've known about it then. But it's always extremely hard to say about sort of timings. But we are, as I said, we are in discussion with IDFC FIRST Bank, and there are also other opportunities that we are pursuing. But exactly when, timing is one of the hardest thing to answer. So I'm afraid I can't really shed exact timings on it, really. It's just hard.
We received a question about the tap technology. Can that be used outside Digital Cash? Do you actively sell this, the tap, we call?
It can certainly be used for other use cases than Digital Cash, but we are currently we don't have the bandwidth to pursue it. We had actually some discussions with a tech entrepreneur who were very keen and interested in it, but we decided to keep focusing on the opportunity with tap within the area of Digital Cash.
I get a few questions about people that are a bit annoyed about there have been delays in deals and such. Should investors be calm? What do you tell them about the future of Crunchfish?
Well, I think I share that, as I said, I particularly with this major bank, HDFC, I had hoped that we had had agreement with them, yeah, earlier. That's certainly what we believed in. We're working as fast as we can and doing whatever we can in order to get deals. It's just, yeah, that's where we are. I think it's... Yeah, we're doing our best. We have a new play into the market. We very happy that we got our first bank.
As I said, that leads us to opportunities with them, but also potentially for third-party application providers that would like to see their users that they can pay even if they are offline, using the bank-
Mm
... as the back end here. And we'd like to pursue that. Right now, I'm just waiting for... We are ready, both us and IDFC to actually approach those, but we need the endorsement right now from NPCI that they are okay with this solution on the UPI rail, that we can offer-
Mm
... to third-party application providers. So we're working as hard as we can in order to get deals from the market.
Yeah. Progress with the major e-wallet provider, I get question, will it become reality? Yeah,
Yeah
... what's the status of that?
They, we meet regularly with them as well. We talk to them regularly. They are. The shift that they have seen is again that most of their volume is not on their e-wallet, it's on UPI as well. And for them, they need a solution first, I think, for the similar solution as I described here, using the telecom solution. This is what they are interested in as well. So I think what we came with in the market in March this year, the Digital Cash Telecom, this is the first step for them as well.
And again, this is something we could go to them together with IDFC FIRST Bank, because they need a bank in order to post those UPI transactions on the UPI rail. They need a bank partner for that. We have the perfect bank partner for them in IDFC FIRST Bank, who have the solution sort of ready for us. So we are talking to them about that. And they are... Yeah, that's where we are. Their app is still only currently working online, and they have a project on making it that it can start offline as well, because that's also a prerequisite. If you need online sign-up, you can't do offline transactions. And they are working to get that ready.
That's their project that they're saying. We have ongoing discussions with them.
Yeah, is there any other markets than India in the pipeline, for example, Sweden? I know you have been in talks with Nigeria and such. How are you moving along in other markets?
Yeah, with the sort of tour that I did in Q2, there are interest from the sort of South African or from Africa. South Africa, even in one, we met with other partners as well, that would take us to other markets also. So there are dialogues going on elsewhere than just than just India. But these are also, it's a bit early, but we have broadened the scope, going to other markets than just India. And some of those opportunities has come up through that we have been present in many of these events. Like the central bank offering that we are doing together with a CBDC player, this is not, it's not India.
This is sort of in another country where this has been offered. So yeah, there are scattered sort of approaches. Nowhere else are we as focused as in India still, but yeah, there are other markets as well that we are showing what we can do, and having that in discussions with some of our partners that have reach into other markets.
Yeah. I think we should. I don't know how you feel about how many more questions. Otherwise, we maybe could end on the last question that what investors should look forward in the near term, in the coming months?
I think we are actually heading for to India again for the Global Fintech Fest. We are their official offline payment partner, and we will be there. We'll have some announcements there. We will showcase the solution that I've been describing. And we hope to do well in right now in the RBI. If you talk just next month, we're going to submit to RBI our solution for their hackathon. Yeah, it's just quite busy times on many fronts. And a lot is focused, if you talk Digital Cash, on India, and it's coming together at this great event here, which is already September 5th and 7th, where we are actively.
I'm going to host a panel there on offline payments. IDFC FIRST Bank is there. There is a product director from Amazon Pay who is part of the panel, and someone from the India Blockchain Forum, which is behind their... Yeah, I think he understands a lot about their CBDC solution, which is blockchain-based. So, that's going to happen. But, so yeah.
Yeah. All right, Joachim, thanks a lot for today and for answering all of our questions. I want to wish you and Crunchfish good luck to you in the future, and I will hear from you again.
Yeah. Looking forward to that as well.
... in three months.
Yeah.
Yeah.
Okay.
Thank you, Joachim. Have a good day.
Thank you, Philipp.
Bye.
Cheers. Bye-bye.