LONDON | Prepaid voucher company Ukash has reported impressive revenue growth and is projecting around 70 percent growth in payment volumes for 2012. The volume is being driven by the company's expanding retail point of sale network, now 45,000 in 57 countries — an asset that may be even more valuable than its patented technological platform.
Source: William Cain, VRL
Revenue at Ukash, a UK-based prepaid voucher issuer, almost doubled in the last financial year driven by strong international growth, according to CEO David Hunter.
Hunter says sales grew 61 percent from GBP12.4 million (USD19.1 million) to around GBP20 million (USD30.1 million), with payment volumes up 70 percent in 2011. Canada, Bolivia, Brazil, Argentina, Columbia and Uruguay were particularly exciting markets among the 57 that Ukash operates in, Hunter says. He expects international revenues to overtake those in the UK in the next two years.
The privately-held company's overseas growth has also helped it earn the Queen's Award for Enterprise two years in a row. This award is given to around 100 companies, all of which have demonstrated outstanding achievement in international trade for three or more years.
"Although we are now doing business on six continents, the two areas of focus for us are primarily still Europe as our 'home' market and Latin America as our 'away' market if you like," says Hunter.
"We certainly see Latin America as very interesting in terms of the huge, and growing population of middle class people, who are spending more on e-commerce. That said, cash is still the most prevalent means of payment in those economies. We see a great opportunity in those factors coming together and allowing us to be at least one of the alternative payment providers facilitating e-commerce in Latin American markets.
Ukash is a three-party prepaid payment network. The three-party structure means Ukash issues and acquires for its scheme, rather than the four-party structure of networks such as MasterCard, which have separate issuers and acquirers. However, Hunter says he has considered licensing agreements in some markets in which third parties could act on behalf of Ukash. If this happens, the model will, of course, begin to take on some of the characteristics of a four-party payment scheme.
Ukash's core product is a paper voucher that can be bought with cash or card at retailers who have signed up to offer it. The vouchers can then be used to make online purchases at websites where Ukash is accepted.
The main attraction of using a Ukash voucher for many people is security. People who are concerned about online security tend to use the vouchers to protect their identity online, as those that would prefer anonymity when making purchases for a variety of reasons.
However another obvious, and very large, global market is those people who do not have access to payment cards.
Ukash has around 420,000 merchant locations worldwide and 3,500 online merchants.
Target online retail sectors
Its largest groupings of online merchants operate in the gaming, bingo and lottery and casino sectors. One of the strengths of the Ukash business is its ability to enter new markets in different countries across the world relatively quickly. Hunter says its cross-border expertise is one of the company's most valuable assets, even more so than its patented technology which supports the product.
"We often debate this internally," says Hunter. "Our technology is patented and is an asset of the business. I think really the primary asset of the business is that network of points of sale we have built up across the world, 45,000 locations where people can walk to their local neighborhood store and get Ukash. That I think is our prized asset.
Hunter says Ukash's business model means it is able to deliver "slick and fast entry from a technical and commercial perspective" to almost any market it wants to enter.
"The way we are able to do that is we typically piggy back on the mobile top-up infrastructure. If you think that 10 years ago the likes of Vodafone and Telefonica created huge demand for prepaid mobile phones that require top-up style solutions, which has in turn driven local companies to develop retail networks with terminals, switching and network functionality to allow those mobile providers to provide mobile top-up vouchers.
Essentially what we do is we piggy back on that infrastructure. Then we can really focus on things like the regulatory and compliance considerations, marketing and merchant engagement. That's typically our mode of market entry."
There are added complications, particularly in Latin American markets, because of different business practices and commercial expectations relating to point of sale products like Ukash. Merchants tend to expect a larger percentage fee to provide the retail point of sale functionality.
Hunter says this may be because they expect to receive a fee similar to what they would receive from a telco. Ukash, however, as a financial services product, needs to be competitive relative to the cost of processing a card transaction rather than the higher fees paid by telcos to merchants for offering top-up vouchers.