The IOUpay Ltd [ASX:IOU] share price is up today after releasing update on consolidating opportunities in Southeast Asian market.
The IOU share price is were up 7%, trading at 51.5 cents at midday.
The IOU share price spiked hard over the last two months.
IOUpay Ltd [ASX:IOU] stock is up 200% YTD and up a dizzying 7,100% over one year.
Riding this positive sentiment, IOU yesterday released an investor presentation concerning its plan to capture some of the growing Southeast Asian market.
Let’s examine some of the details.
IOU and growing addressable markets
Growth companies need growth markets.
That is why we see growth stocks like Afterpay Ltd [ASX:APT] always mention addressable markets and how these addressable markets are bound to expand in the near term.
For example, according to ASIC’s 2020 industry update on the BNPL sector, the number of active Australian BNPL accounts in FY2015–16 was 487,221.
In FY2018–19 that number ballooned to 3,748,737.
And as of 31 December 2020, Afterpay alone boasted an active ANZ customer total of 3.4 million and 13.1 million worldwide.
Imagine the investor scrutiny for Afterpay if the BNPL sector was not expanding so quickly. A lot more attention would be paid to profitability rather than active customer and merchant metrics.
IOU’s ASX update today sought to build a case for its own addressable market, specifically in Southeast Asia (SEA).
IOUpay and the Southeast Asia opportunity
According to reports cited by IOUpay, almost 300 million of the adult population in Southeast Asia are ‘underbanked or unbanked with limited options for credit.’
Not only that, ‘credit cards and ATM’s are on a sharp decline as e-money surges to more than 50% of all payment volumes.’
IOU’s report also cited figures stating that e-commerce in SEA grew more than 200% since 2015 and is forecasted to triple in value by 2025.
Seeing the opportunity to capture some of that market with its products, IOUpay commented that its goal is to be ‘one of the leading digital transaction processors in the booming cashless economies of South East Asia.’
IOU’s strategy to consolidate its market presence involves expanding from transaction processing into ‘higher value add services’ like:
- Short-term revolving BNPL instalment options
- Bill payments
- Mobile banking transactions
- Digital commerce services for large brands
In support of its goal, IOU pointed out that it is already processing more than 20 million transactions per month in Malaysia and counts the likes of Citibank, Standard Chartered, and MBSB Bank as strategic partners.
IOUpay share price outlook
The danger with targeting growth markets is the diminishing returns one may receive if too many others enter the fray.
As I’ve said before when covering IOU’s latest results, IOUpay’s success depends on how well it carves out its niche.
What moat can IOU construct to withstand competition?
For instance, we’ve already covered the leading position held by Afterpay in the BNPL arena.
But consider also the privately-owned, Sweden-based Klarna.
Klarna, founded before Afterpay, was recently described by Bloomberg as ‘Europe’s most valuable startup.’
According to Bloomberg, Klarna has about 90 million users worldwide and the much-prized US is on track to overtake Germany as Klarna’s biggest market by the end of 2021.
As Forbes recently reported, the saturation of the BNPL space will see BNPL providers specialise.
Some providers will ‘get real good at pricing and selling BNPL offers for electronic products, another set of providers will focus on clothing and fashion.’
IOUpay bulls may also believe that the BNPL market can become so large that smaller players can still carve out their fiefdoms from Afterpay and Klarna empires.
If you’re interested in IOUpay and want to dig deeper then feel free to watch this video where I outline my thoughts on IOU in greater depth.
And if growth tech stocks like IOUpay and Afterpay interest you, but you’re unsure if the market is too saturated, then be sure to download this free report on the topic.
In the report, you’ll find profiles of three exciting small-cap fintechs that have yet to properly take off.
With so much hype in the fintech space now, it’s well worth a read.
For Money Morning