PETALING JAYA: Earlier last week, a minor development took place in the e-know-your-customer (e-KYC) space, but the deal could be laying the foundational blocks for a local player to strengthen itself in this particular sphere.
A local private technology player called Innov8tif Holdings Sdn Bhd announced it is in the process of purchasing the full equity stake of Xendity Sdn Bhd (Xendity), a wholly owned subsidiary of listed company Green Packet Bhd, for a cash consideration of RM17.5mil.
The announcement was made through a bourse filing by Green Packet, which currently owns Xendity through its Singapore-registered subsidiary Xendity Pte Ltd, just before the Chinese New Year break.
Basically, Innov8tif and Xendity are involved in the business of providing e-KYC solutions to various industries, with representatives from both companies acknowledging that this purchase was in effect more of a merger than it was an acquisition.
Put simply, e-KYC is the expression used to describe digital KYC processes, and is the remote, paperless procedure that minimises the costs and traditional bureaucracy necessary in KYC processes.
There has been increasing demand for e-KYC services in recent times as falsification of identity, signatures, fraud and phishing has become more commonplace.
Companies such as Innov8tif and Xendity are specially dedicated to technological compliance solutions and their core business is developing completely secure e-KYC processes.
Innov8tif chief innovation officer and co-founder Law Tien Soon says that the merger of both companies is a step in the right direction in expediting Innov8ate’s ambition of going global, further strengthening from the firm’s Asean footprints.
Law told StarBiz: “Domestically, our strong focus points are in the telecommunications (telecoms) and wealth management sectors, particularly telecoms. Our overseas expansion plans also went very well, and were in a way helped by the onset of the lockdowns. For example, we are now serving about 10 banks in Cambodia.”
Besides Cambodia, Law said Innov8tif’s main overseas markets now lie in the Phillippines and Singapore, although for the city-state, he said its selection as the regional headquarters for many firms means that Singapore customers of Innov8tif are mostly procuring solutions to serve the region.
Besides the desire to expand worldwide, Law said sourcing for reliable and skilled talent in the artificial intelligence field has also been a challenge, both for Innov8tif and Xendity, and therefore, it only makes sense to merge deep learning engineers from two companies to solve the same problems.
He explained: “Thirdly, the merger would also allow us to expedite our customer ID assurance (CIDA) product roadmap, which is something we have been pitching to our existing customers.
“In simpler terms, CIDA products would enable our customers to make sure that there is no fraudulent identification with their own clients, that they are always who they claim they are throughout the average customer lifecycle, even when transactions are performed remotely.
“This can be achieved by capitalising on multi-factor authentication, including face biometrics and recognised fraud signals.”
Lastly, the acquisition of Xendity would also allow for the sharing of patented intellectual properties, Law said, which are related to MyKad authentications.
At the core, he pointed out that the key points of the merger was to create a sustainable business model and revenue stream for the combined business entity, an integrating of resources, and for improving customer success.
“Fortunately, through our discovery exercises leading to this merger announcement, we found that both our teams are not really overlapping in strengths, but are complementary of each other,” Law added.
Notably, the sale of Xendity means Green Packet itself held on to its subsidiary for less than two years, after only completing its own acquisition of the company in early February 2021 for RM28.4mil.
Green Packet wrote down the carrying value of Xendity to RM13.9mil, showing on its announcement that it was making a profit of RM3.6mil on the sale.
The write-down is understandable in a sense, as Xendity has made net losses of RM2.3mil and RM1.2mil for the six-month financial period ended Dec 31, 2021 and for the 11-month financial period ended Nov 30, 2022 respectively.
Xendity director Vincent Wong put the loss-making down to the long turnaround time needed for the entity to secure customers and for business volume to pick up.
“Thankfully, we began to see traffic coming in gradually, which is evidenced by the reduction in our net loss,” Wong told StarBiz.
While not disclosing the full details of the funding source for the purchase of Xendity, Law said Innov8tif, which is 20%-owned by ACE-listed Securemetric Bhd, was acquiring financing for the deal, before adding that the company was aiming for an initial public offering exercise in the next two years.
Innov8tif garnered a net profit of about RM500,000 for the year ending Dec 31, 2021, on the back of an approximate RM11mil revenue.
Xendity, similar to Innov8tif, also provides e-KYC solutions to financial institutions, as well as to insurance and telecommunications companies.
Incidentally, Green Packet released another announcement pursuant to its earlier note on the sale of Xendity, further outlining reasons for its sale of the subsidiary.
In the latter note, Green Packet said, “The group has been making losses for the last five financial years.
“The group has implemented asset rationalisation and business optimisation measures via the disposal of non-core or non-profit making assets which are not primary revenue or profit generating for the group in order to improve the company’s financial position.”
Concurring with Law and Wong on the issue of manpower requirements, Green Packet added that Xendity’s business would require substantial resources such as extensive funding, a highly skilled workforce and a sustained enhancement of its solutions in order to remain competitive in the ever changing market.
“Thus, the disposal of is viewed positively to provide an opportunity for the group to immediately unlock and realise the value of the investment and assets in Xendity,” it said, before mentioning that proceeds from the sale would be reallocated to expand the group’s existing core businesses in the financial technology and communication businesses.