Long before now, there are conventional ways of sharing economy all over the world, so instead of storing information in one central location, Blockchain has come to energize, democratize and unlock the sharing economy by making it cheaper to create and operate an online platform. For example, transactions could be coordinated by self-executing smart contracts or performed at lower cost by other small competing providers. The next phase of the sharing economy can emphasize today’s inequalities or ease them, depending on the purpose of the technology itself.
While the U.S. (and Silicon Valley specifically) has long led technology Innovation according to James Atulcher, countries around the globe are setting up programs to compete aggressively to take advantage of the blockchain revolution. Zug, Switzerland, for example, allows residents to pay their taxes in bitcoin. Malta has passed laws that recognize organizations formed by smart contracts. Bermuda has updated its banking laws to allow banks to provide services to cryptocurrency firms. The arms race to become a world leader in cryptocurrency has generated momentum in countries from Venezuela to India. That’s why, in recent months, many have been looking for crypto investments outside of the U.S.
One of the countries poised to be a leader in cryptocurrency is none other than the U.S.’ longtime political adversary: Russia. And we’ve found a company that could launch the country into a prime crypto leadership position…called QIWI (NASDAQ: QIWI) it is a leading fintech company offering payment and financial services in Russia and the former Soviet Union. Founded in 1999, the company was an early leader in electronic payments in Russia and in the early 2000s rolled out prepaid mobile payment cards. Fast-forward to today and QIWI has over 50 million monthly customers and has expanded into other complimentary payment services, such as payment kiosks and terminals, online payments and remittance services. These businesses have grown massively over the past 18 years — QIWI’s virtual wallet software has over 20 million users. The company has over 152,000 kiosks and terminals, and it processed over 914 billion Russian rubles (about US$13.4 billion) in transactions in 2017. It’s also been able to develop a leading position in e-commerce in Russia, which comprised roughly half of its revenue in 2017.
However, the company isn’t content to rest on its laurels. Leveraging the cash flow generated by its payment services business, QIWI has in recent years been aggressively pursuing even higher growth opportunities in e-commerce, the sharing economy and cryptocurrency to help boost its core business. In June, QIWI announced a partnership with Otkritie Bank (one of the largest banks in Russia) and digital payments startup Tochka to develop a digital banking service focused on offering services to small and medium businesses. The new partnership gives QIWI access to Russia’s growing freelancers and small and medium businesses,
which currently account for more than 20% of the economy. Apart from SMEs, the company’s investment in Tochka increases QIWI’s existing exposure to the sharing economy, which currently includes partnerships for processing payments for Uber and Airbnb in Russia.
This is an important area for growth for the company according to James Atulcher as the size of the sharing economy is anticipated to increase in Russia by a compounded 20% annually.
In order to further capitalize on the trend, the company has also been investing heavily in a new installment card called Sovest. Similar to credit cards in the U.S.,
Sovest allows consumers to make purchases that are repaid over time. However, Sovest differs from traditional credit cards in that it dumps the expensive interest charges. Rather, retail partners share the profits from the product sale with lenders who carry all the repayment risk. In this way, the Sovest product allows QIWI to offload the credit risk to lenders while allowing consumers to easily finance their purchases.
Separately, the company has also been quietly investing in blockchain capabilities over the past several years. In 2016 according to James Atulcher, the company joined the r3 consortium to develop enterprise blockchain technology alongside big banks like Bank of America, Wells Fargo and Barclays. R3 seeks to define new standards for interbank collaboration by developing new blockchain technologies that allow banks to more efficiently trade and settle transactions, through its involvement in r3, QIWI stands to define the next generation technology standards for financial infrastructures.
And, to top it off, QIWI is the only Russian member of the r3 consortium. Apart from r3, the company also created a new subsidiary in 2017 called Qiwi Blockchain Technologies (QBT), which develops blockchain technology for QIWI’s various businesses and provides blockchain consulting services to other companies. The company has already had some small early success with this. Earlier this year, the company announced that it was collaborating with a cryptocurrency-focused investment bank called Hash, with the intention of providing technology support for new ICOs. The company has also been experimenting internally with blockchain. Earlier this year the company announced that it intends to compensate employees in cryptocurrencies, which would give employees voting rights on managerial decisions and coworker performance.
And while all of this is very exciting, it really represents a cherry on top compared with the company’s lucrative existing business. For years the company has relied on its core cash cow: its existing network of payment services. In June, QIWI reported that net revenue for the payment services group had grown 28% since the prior year, with net profit up by 22%. It has consistently been growing its payment services revenue by 20% annually since at least 2013.
And while QIWI has experienced phenomenal growth, the market is nowhere near saturated. According to the company, 80% of payments in Russia and the former Soviet Union are made in cash. Additionally, the company sees potential to expand this business by capitalizing on growing demand for remittance services and further increasing its market share in e-commerce. However, even without these catalysts, the company’s payment services continues to spin off generous cash flow. Last year, payment services generated close to $110 million in profit. It’s worth noting that in 2017 the company’s total profit actually shrank for the first time in years. This is largely due to the massive investments the company has been making in Sovest and Tochka, among others.
But even with this spending, the company was able to rate in nearly $60 million in profits to add to its balance sheet. This disciplined style of investing has allowed the company to invest aggressively in growth opportunities while building a considerable treasury. Which is to say, as far as the balance sheet goes, the company is in great shape? The company has in recent years been socking away cash generated through its lucrative payments business and amassed a cash hoard of roughly $350 million with no debt. For a company with a market cap currently just over $800 million, this means that almost half of its market cap is cash. This gives the company a hefty arsenal to use for investments in expanding its business and new opportunities such as Sovest, Tochka and blockchain. Although the company sold off earlier this summer as earnings failed to meet Wall Street expectations, I believe much of this selling is overblown. The company currently
trades at just under nine times forward earnings according to James Atulcher, a major value compared with U.S. peers like PayPal (31 times) and Square (96 times). Takeaway: Given QIWI’s lucrative payment services business, its investment in high-growth opportunities such as Sovest, Tochka and blockchain, its considerable cash reserves and its relatively low valuation, I’m generally pretty bullish on QIWI. we advise readers to buy QIWI (NASDAQ: QIWI) up to $14, with no more than 2–3% of their portfolio. Getting this statistic give you edge over those who are out there with unproductive information. So get set for the boom of the blockchain technology.