SYDNEY, AUSTRALIA: IOUpay Limited has executed binding documents to acquire 42% of the total issued capital of I.Destinasi Sdn Bhd (IDSB) for cash consideration of RM126 million paid 50% upfront and 50% payable no later than six months.
IDSB is a private company incorporated in Malaysia in 1981, which operates a financial services business focusing on providing instalment based consumer credit services to civil servants for and on behalf of Malaysian banks.
The investment in IDSB represents a non-controlling interest in a uniquely and strategically aligned business with IOUpay.
The investment will not see any merger of operations directly or indirectly. Both companies have distinct service offerings and business models with different financial, human and technical resources.
IDSB has significant credit management expertise and systems but does not effectively take credit risk, rather passing this on to its bank customers (RHB Islamic Bank Berhad (RHB) and Affin Bank) who also provide funding for each transaction.
As a result, IDSB acts as more of a specialist outsourced agent for banks for in-field origination, execution and settlement services generating upfront transaction fees and ongoing account management fees.
IDSB does not generate interest rate spread income. Each bank provides funding for and assumes the credit risk of the customers they refer.
IDSB has a small portfolio of “direct” business (less than 10% of its total receivables), generating strong margins for instalment transaction processing and account management. Direct business is no longer being written and will run off naturally over the next two years.
Strategic Rationale:
IDSB, formerly known as Arastu Sdn Bhd (“Arastu”), was incorporated in 1981. From 1981 to 2004, Arastu was a wholly owned subsidiary of Amanah Capital Malaysia Bhd (“ACMB”, a subsidiary of Permodalan Nasional Berhad “PNB”) until 2 May 2004.
PNB was established on 17 March 1978 as one of the instruments of the Malaysian Government’s ‘New Economic Policy’ and is one of the largest fund management companies in Malaysia. Arastu was renamed Ikhtiar Destinasi Sdn Bhd in 2004 and was shortened to I.Destinasi Sdn Bhd (IDSB) in 2009 as part of a corporate rebranding exercise.
The corporate timeline of IDSB as a finance company is representative of its size and growing relevance in the Malaysian financial sector particularly after being granted an AG Code Licence in 2013.
Leveraging from the corporate history of traditional consumer finance models in place at IDSB, IOUpay believes the investment in IDSB is highly attractive for the following reasons:
Servicing Banks:
Both IOUpay and IDSB have a well-established history in servicing Malaysia’s largest banks, leveraging their expertise and resources to provide transaction services to bank customers. Each business intends to leverage its respective bank relationships to develop opportunities for each other.
Engagement with Merchant Networks:
Both businesses engage with networks of merchants across Malaysia where approved customers purchase goods and services with finance facilities processed as non-interest bearing instalment plans.
Cross pollination of business development opportunities between these networks is anticipated. AG Code Licence
IDSB has always had an exclusive focus on providing its payment instalment facilities to government employees (or civil servants) who typically have long term stable employment and credit records, and have their salaries processed by the Malaysian Government civil servant payroll agency, ANGKASA.
In 2013, IDSB was granted, by the Ministry of Finance, an Accountant General Salary Deduction Code (AG Code) which allowed IDSB to deduct salaries of civil servants directly at the paymaster source and put IDSB salary deduction capability on par with that of ANGKASA.
IOUpay Limited (ASX:IOU) provides fintech and digital commerce software solutions and services that enable its institutional customers to securely authenticate end-user customers and process banking, purchase and payment transactions.