- IOUpay is strategically collaborating with IDSB to provide instalment-based consumer finance to Malaysia’s Federal Civil Servants.
- The first project includes short-term bridging loans provided by IOUpay, which feed into 10-year term loans facilitated by IDSB.
- The first project is revenue accretive to both IOUpay and IDSB.
- The development opens the way for the two companies to capture a much larger share of a market that has the advantage of very high credit quality customers.
IOUpay (ASX:IOU), a leading name in financial technology and digital commerce software, has announced a strategic partnership agreement with its associate, the specialised Malaysian finance company, I.Destinasi (IDSB). The agreement is aimed at Malaysian Federal Civil Servants (FCS), who span various government ministries including portfolios across education, health, and other key agencies.
Notably, IOUPay is a substantial shareholder in IDSB. IOUpay and IDSB make great partners in the fintech space.
The launch of the strategic partnership with a new product that fills a gap in the Malaysian consumer finance market emphasises the strategic value of the shareholding as the partners collaborate to develop a broader base of consumer finance offerings.
Triggered by the update, IOU shares jumped by 13.235% to trade at AU$0.077 on 8 September 2022.
First Project - revenue accretive to IOUpay and IDSB
The first project commences with a bridging loan product by IOUpay and a term loan product by IDSB for newly recruited Federal Civil Servants. This is promising in terms of revenue growth for IOUpay and IDSB. IOUpay would receive margin income on short-term loans to low-risk bonded civil servants while IDSB would benefit from upfront agency fees for the new customers, together with management fees on refinanced 10-year loans.
The new bridging loan product to be provided by IOUpay is a local market-first finance product that provides short term unsecured consumer finance for the (up to) three month period from commencement of employment until the first payslip is issued. This period is currently not serviced by mainstream financial institutions.
The initial targets for the product will be new recruits to the Malaysia Ministry of Education who are subject to bonding programmes requiring them to commit to 8 years’ service with the Government following completion of their tertiary education. In due course, as the first project is proven up, IOU anticipates expanding the product availability to include all Federal Civil Servants.
Given the gap in the market, scale of opportunity and the competitive advantages of each partner, IOU believes this first project initiative under the new strategic partnership to have the potential for significant incremental volume and revenue growth for both companies (IOUpay and IDSB).
Overview of first project
The customers in the first project can be acquired from across Malaysian federal government agencies (subject to agency approval), and so will not be sourced solely from partner bank referrals.
Individual loans of nearly AU$3,279 (RM10,000) and with term up to three months could be availed by the civil servants under the first project.
To illustrate the potential volume that could be generated, based on a notional 10% penetration of the education and health sectors, IOU has estimated that the total transaction value each year with respect to new bridging loan volume could be more than AU$6.5 million. That level of bridging loan volume could translate into more than AU$65 million in IDSB’s 10-Year Term Loans funded each year, representing more than 20% incremental new business growth for IDSB based upon recent business activity levels.
Under the strategic partnership, IOUpay would fund the new bridging loans and the company is in talks with a leading Malaysian Non-Bank Financial Institution (NBFI) for an arrangement on a special purpose wholesale funding facility for efficient, low-cost capital to fund the first project.
Until the NBFI’s wholesale funding is available, IOU would fund these bridging loans out of the current BNPL capital allocation. It is anticipated that the NBFI would provide 100% of the required capital to take the first project forward. If the wholesale funding facility is successfully implemented, then further projects under the strategic partnership could be considered by the NBFI.
IOUpay and IDSB are natural partners
IDSB has the capacity to bring a large number of targeted civil servants toward short-term finance services provided by IOUpay.
It is notable that the Federal Civil Servants would come with the advantage of high-credit quality. Over 1.7 million civil servants work across the Malaysian Government, and an estimated 20,000 new staffers begin employment every year with the education and health sectors. A big chunk of these new recruits commits to service for an eight-year period, also referred to as ‘bonded civil servants’, so represent a key target market for IOU’s strategy of pursuing communities of high credit quality consumers.
The new strategic partnership agreement between IOU and IDSB commences on 8 September and runs for five years but can be extended upon mutual agreement. Importantly, a non-competition clause has been added, evidencing the close relationship and commitment between the two companies.