Interview With Identitii (ASX:ID8) CEO, John Rayment
Listen to this episode: https://open.spotify.com/episode/3hpkwXiGZ7NKaSlMTQctAS?si=d2f9459d19a54f4b
[00:00:00] Ben: So John, to kick us off, why don't you give us a bit of a rundown on the business? Give me the elevator pitch and tell me a bit more.
[00:00:07] John: I'm the CEO of Identitii and our ticker code is ID8. We help the financial services industry avoid the regulatory risk of non-compliance without changing the underlying legacy technology.
[00:00:19] John: Diving slightly deeper into that, what that means is that there are trillions of dollars that move around the financial services industry, cross-border every year. And that number is growing as the population on the planet grows, as online eCommerce grows, and so on. And most of those transactions are conducted in a financial services industry where the technology is not new and it makes it really difficult for most of the players in the industry: banks, money, service, businesses, and even casinos, to get a single view of everything they're doing with their customers.
[00:00:50] John: And that makes it really hard for them to submit complete and accurate reports to their regulators, letting them know what's happening inside their businesses. And to bring that to life our technology platform solves exactly the problem that recently Westpac was fined $1.3 billion for, that in 2018, the Commonwealth Bank was fined $700 million for. Those fines exist because there's a large amount of manual processes involved in looking all across those technology estates and bringing together a single view of the customer, and where there's a manual process and human intervention, of course, sometimes there are errors.
[00:01:24] Ben: Give me a sense of what you are pitching to a customer, what's the value prop that you concentrate on? Is it the single point of view? Is it automation? Is it, "hey look these two organizations just paid $2 billion in fines that we could have saved them. We're a cost benefit to potential fines." Or all of the above?
[00:01:45] John: The answer is, it depends on who we're talking to because inside our target group of customers, which is financial services businesses in this country and in others there are multiple decision makers and each decision maker is motivated by potentially different things.
[00:01:58] John: I guess the top couple of drivers for the industry engaging with us is the growing level of concern from boards and executives in financial services, and businesses all around the world. And the increasing scrutiny the regulators are putting on businesses and the implication of those fines, not necessarily to the business, but to the individuals involved in the business. In the last 12 months, we've really been talking about using automation to allow our customers to reallocate those resources to other tasks within the bank or the money service business. Of course, you don't have to go too far to read about the war on talent again, in this country and others. And that is particularly well felt in the AML compliance space where there's just a shortage of skilled people in this country and in others, and to be able to use automation to free up a whole host of individuals to be able to be allocated elsewhere is a compelling proposition.
[00:02:49] Ben: And I imagine there are not many people who I guess get their rocks off on things like data entry processes that can be automated. I imagine when you're selling to those people and talking about it and giving them the ability to picture their future life doing some quote-unquote "higher value work", I imagine that resonates pretty well.
[00:03:09] John: It does. And actually, this is, I think this is probably one of the challenges the company faces in telling our story to our investor base and to the wider investor market. Because to your point, when we are talking to prospective customers who understand the industry, understand the problems that legacy technology is causing within compliance and even revenue-generating departments within a bank or a money service business, or even a casino. The story resonates very well. So if you're working in the industry and you felt the problem. It's very easy to understand the value that our company can create for a customer.
[00:03:42] John: Most of the people on the planet don't work in the financial services industry. I bank with Commonwealth bank and I got a home loan from them recently, and that process was really seamless. And you could be forgiven for thinking that the technology at CommBank is fantastic. But like every institution on the planet that's been trading for as long as they have, they face challenges because the app is just one part of a number of pieces of technology that they're conducting transactions with their customers and getting that single view of transaction information, it's really hard.
[00:04:08] Ben: I've been guilty of this in the past in our own tech startup, but not the tech guy. So you look at a nice flashy front end and you assume that the end-to-end process is just as flashy and new. But in a lot of cases, especially for a legacy business, like CommBank the front end might be new, but then it just filters into a back end of legacy compliance, or maybe even like offline stuff in many different divisions of the bank. And so you bring all that together?
[00:04:35] John: Correct, we had a conversation with a prospective client, a large financial services business, let's say within the Asia Pacific region. And their largest problem is it's very difficult for them to have a single view of all the transactions that they're doing with their customers.
[00:04:48] John: Therefore it becomes very difficult for them to meet their obligations to their regulator. When we were doing some prospecting with them and we sat down to map out what the problem might look like, it turns out that the data about all of those transactions comes from more than 30 different pieces of technology across their estate.
[00:05:04] John: It's a big problem and it's a big problem for big businesses. It's even a problem for the potential 100,000 businesses in Australia who are gonna have to potentially start reporting to the regulator under the tranch two legislation. Of course, I'm talking about real estate agents, accountants, and those businesses captured by the tranch two legislation.
[00:05:23] Ben: When you're looking at these larger financial institutions, legacy systems, et cetera, I imagine it's a more integrated solution that you need multiple people to get across the line. What's a typical sales cycle where are you in that cycle? One dropped the other day, I think, or last week?
[00:05:42] John: Yeah we announced Rabobank had become our sixth customer.
[00:05:45] Ben: Can you give me a sense of, like, when that relationship started? Like how long did it take to go from interested to signed and announced? Or give me a sense of a typical sales cycle, and how investors should think about that.
[00:05:59] John: Let me answer that through the lens of the job that I had previously, which was looking after the B2B business for Travelex around the world. We were lucky enough to win some deals with some big four banks here in Australia, and those deals from the first cup of coffee talking to the people that are aware that they had a problem and wanted to use technology to improve a process, take cost out, improve a customer experience. Now, these things are typically measured in years.
[00:06:24] John: And Identitii's on a journey, from a couple of years ago when I joined the business from having a platform that was monolithic by design was difficult to onboard customers, and I guess that the technology journey that we're on at the moment is to try and reduce that onboarding time and to reduce those long sales cycles down to as quickly as possible.
[00:06:45] John: If we segmented, and we do, we divide our prospective customers into tier one, tier two, tier three, tier four, et cetera, the larger customers are always gonna take a longer time. And so the job for us to do is to get our company and our platform into a position where we can aggregate hundreds of smaller businesses that generate smaller revenue for us and build a consistent revenue stream.
[00:07:06] John: We're always going to want to be fishing for the really large institutions, but they're gonna take time. So if you layer all those things together over the next couple of years, this company should start to drop a range of different revenue-generating contracts from the smallest of clients that we can onboard really quickly, to the largest of clients, which are gonna take a bit of time. And we've been working on all of those for a number of years, it's not like we're starting a brand new journey.
[00:07:26] John: I'm conscious that the market wants to see more sales and revenue generation from us. As a shareholder of the company, I guess the thing that makes me different to the rest of the shareholders is that I get to sit in those conversations with those prospective customers and I get to hear how enthusiastic they are about adopting our technology.
[00:07:41] John: I joked with somebody the other day that I feel like rewriting our investor deck and just making it one page and drawing a bell curve, and putting us at that point, just as you start to climb the bell curve of adoption.
[00:07:50] John: We've got six early adopter clients. We have HSBC in Australia and Hong Kong, MasterCard, Rabobank, Standard Charter Bank, and Novatti Payments, and we've got lots more that are interested in the platform and our time will come.
[00:08:04] Ben: While we're on sales, what does your competition look like?
[00:08:08] John: Our largest competitor is the manual process that already exists within our target customer set: financial services, business banks, large money serviced foreign exchange businesses, and casinos. Our largest competitor is the fact that these processes are already in place and reporting to a regulator is not new.
[00:08:26] John: We recognize that today, even in some of the largest businesses in this country and around the world, it is still very much a manual process or a process that has a tinge of automation in it. So we recognize that the largest competitor is the existing process and therefore the change to automation is probably one of the barriers that we have to overcome in the sales process.
[00:08:45] John: I genuinely think that we are one of a very small number. And when I say a small number, two or three companies that we've come across potentially even globally that are automating specific reports to a regulator here in Australia, and to the regulator in New Zealand, and contemplating the Canadian market.
[00:09:02] John: And that creates a really interesting opportunity for us because not only do we then have a sweet spot with our target customer set, but there's also an emerging value creation opportunity for us because there are a lot of larger companies that are providing technology right across the AML, CTF, or anti-money laundering and counter-terrorism financing frameworks that exist in this industry around the world, that don't have an automated solution to the specific thing that we do. And therefore it creates an opportunity for us to talk to them about plugging our technology into bigger platforms to allow them to offer more downstream services to their customers. We were enormously enthusiastic about the fact that there aren't a lot of competitors to us and that the opportunity, therefore, becomes both a direct and an indirect sales chance.
[00:09:54] Ben: The listed market is just an awful place to be at the moment. There's a lot of fear in it. And people are expecting the worst. First of all, congratulations on raising a substantial amount of money last year. It's the end of the last quarter, but I think in March you still had over a year of runway available which is a great position to be in. With the current things going on, with the meltdown in crypto, the meltdown in a few other areas, and the interest rate area, do any of these macro lenses have an impact on the business?
[00:10:24] John: It depends on which part of the business it has an impact on. The last time we talked publicly about our cash position, we said that we had enough cash to run the business towards the end of FY 23. Looking at our forecast revenue and the likelihood of us getting another R&D grant as we have over the last number of years. I still think that holds true, I still think we're in a relatively similar spot.
[00:10:44] John: So we've got enough cash to turn our plans into reality. So I think that's probably the most important thing for us to be focused on at the moment. Your question is potentially about both sentiment and then I think the impact on the customers that are buying from us. And let me talk just for a second about the most important one of those which is, does the crypto crash and does rising interest rates and a bit of a negative outlook in the market, does that impact our target customer set from making buying decisions on buying from us?
[00:11:11] John: The answer to that is absolutely not. One thing that has not changed and will not change in the face of rising interest rates, or whether or not Bitcoin is worth $20,000 or $30,000 or $50,000 US a coin, is the rising scrutiny and the growing pressure from government regulators on the industry to understand what they're doing with their customers. And that thematic is almost recession-proof.
[00:11:32] John: We saw through the 2020 and 2021 years with the impact of COVID we really saw a significant uptick in the number of institutions that talked to us because they had to find more nimble and cost-effective ways to meet the same, if not rising, obligations to regulators against the backdrop of having to reallocate capital to support customers in the face of the pandemic.
[00:11:54] John: So I think we're in a really good spot. We're operating in a space where there is investment being thrown into the RegTech industry en masse because of the pressure from the regulators and pressure from customers too.
[00:12:07] Ben: Talk about recession-proof and "nation risk" and those sorts of things. There's very little chance that governments are going to remove protections for retail investors, they'll just continue to increase and more focus on it.
[00:12:23] John: Yeah, without question there is. I attended a conference a couple of weeks ago, it was called ACAMS, the Confederation of Anti Money Laundering Specialists, it's a global organization, and Nicole Rose, who's the CEO of AUSTRAC, did a keynote speech, and the room is under no illusion that obligations are only heading in one direction. The regulator wants to see more and more evidence that the industry understands who its customers are and understands the type of transactions they're doing with them. And it's a worthwhile pursuit because at the end of this are pretty horrible global thematics that exist when an institution or a financial service business doesn't understand who they're dealing with, and it can't demonstrate to the regulator that they know absolutely everything they're doing with their customers. I'm talking about financial crime, and that facilitates drug trafficking, human trafficking, child exploitation, and animal trafficking. There are some pretty horrible things that happen when a financial crime occurs, and the other one is financial exclusion which is the fact that more than a billion adults on this planet don't have access to a bank account. Both of those things exist because the technology that's in use for most of the industry around the world, just isn't new and it's really difficult to get a single view of everything you're doing with your customer.
[00:13:34] John: I think that, rightly, government regulators are making demanding that the industry get closer to their customers and get closer to the transactions that they're doing so that they can ultimately reduce the impact of financial crime and give more people access to bank accounts.
[00:13:52] Ben: So you talk a lot about that single lens or the single dashboard/ single view of that customer, the regulatory benefits, the compliance benefits, et cetera. Surely there's a huge commercial benefit, right?
[00:14:04] Ben: Where you can see that flow of information and make... you're smiling because I've walked right into a trap, I feel like. If I think of every startup pitch in the FinTech space, there's usually one slide talking about "we're more nimble, we understand our customers more because we don't have legacy systems and blah, blah, blah". That's a very standard thing. If you can give say, a large bank, a single lens on their customer, surely that creates more opportunity, more informed decision making, ability to increase LTV and, and target appropriately. What's the commercial aspect of that?
[00:14:39] John: I smile because this is the very reason that excites us about the future of this company and the job that we're trying to do is using our technology to build a network of rich payment information for our customers and for our customers' customers.
[00:14:57] John: The Trojan Horse, if you will, that we are using at the moment to gain access to payment information from the financial services industry is through the lens of regulatory reporting. This is a problem that exists now and, lots of people are talking about it.
[00:15:10] John: In connecting to those businesses and connecting to their payment information, there are so many opportunities to generate value, generate income, and generate insights about what institutions are doing with their customers. At the moment we're only talking about cleaning up data that already exists to be able to make sure that they meet obligations to the regulator, but you've touched on what we think are the horizon two or horizon three prospects for this business, which is, imagine introducing AI and machine learning and predictive analytics into that.
[00:15:44] John: We're talking about access to millions and billions of payment records. Imagine the insights that you could learn from that for your customer - to be really clear, it's the customer's data, it's not our data. But imagine being able to offer them a suite of tools that not only allowed them just to clean up the information that they already have, but then to start to understand the trends that exist within that data, and then use those trends with their customers to generate even more revenue. The value creation opportunities are enormous, once you can aggregate payment data into one.
[00:16:18] John: We've got six customers that are giving us access to payment information, and we're starting to build quite a nice war chest of insights for those customers. And if we keep going and keep onboarding customers and keep aggregating millions and billions of payment records into a platform and providing tools, there are enormous commercial opportunities ahead of us.
[00:16:36] Ben: You and I have known each other for a bit now, I've followed the journey, I hadn't thought about that aspect of it. The commercial upside is obviously very attractive to those organizations that you have and that you're going after.
[00:16:48] John: Sure, but let's pause and recognize that whilst there is an immense and exciting opportunity, we still have a job to do today. And the job to do today is to grow our customer book from six to twelve to sixty to hundreds. That's the job that we're focused on now, we're focused on deploying the technology that we have and growing that customer book for the product and the proposition that we're solving for today.
[00:17:08] Ben: I think it's worth understanding because if you think about the value of the business, and you think about the share price has obviously come off highs and you can talk about that if you want. But it's come quite off highs in line with the market and in line with the sector. But you're sitting at a 10 and a half 11 mill market cap. Half of that's in cash, you've got this growing investor base, but you've also got this other asset, which is this data and future insights that you're building. So every customer comes on and builds that up. I think from a shareholder's point of view, it's not my job to sell your business, but it's like this "off balance sheet" asset that is building and building. So regardless of revenue, you've got this intrinsic value that every customer adds to it. When you bring on a new customer, are you just looking at the transactions from that point on or do you get access to the historical data?
[00:18:04] John: Yeah, that's a really interesting topic because there's quite a significant opportunity for us to retrospectively look at transaction data for a number of institutions. We are working with some of the large accounting firms who are contemplating using our platform to perform historical compliance checks and to work out whether or not the payments reports have been submitted accurately to the regulator. We have an enormous interest in that.
[00:18:27] John: Of course that creates potential complexity for reporting entities because if they choose to give us access to their historical data and the platform recognizes that there were a whole host of transactions that were reported to the regulator in error, or worse, not reported to the regulator, then that creates an almost immediate obligation on the reporting entity to tell a regulator that that's happened. And it's an interesting point, but we are having lots of conversations about what we're doing from today forward, but also the opportunity to look backwards.
[00:18:58] Ben: So you're sitting there with probably more opportunities than you might know what to do with. You've been in the role now for a couple of years, I think two and a half years. We get a lot of excitement from you about the opportunities. What is keeping you there? You could be working in a number of different businesses. Why are you here?
[00:19:14] John: There, there are a number of people who have joined the business for exactly the same reason I have. I can point to four or five really senior people from within the payments industry that have decided to join the business over the last 18 months and come away from remunerated, comfortable jobs in big financial services businesses, and I guess we're all here for three reasons.
[00:19:35] John: First of all, the most important thing for us as a company is to build a really inclusive and supportive culture. I'm quoting somebody else, but culture eats strategy for breakfast. We're focusing on building a workplace where people are recognized for the contribution they make, as opposed to the time they work or the location or the area where they work. We work really hard at building a really great culture so that when people come to work, they just have good fun. If you have to come to work, you might as well have fun.
[00:19:57] John: The second reason that I'm still here is that I just recognize the order of magnitude that's in front of us in the opportunity. I recognize 'cos I was in the financial services industry for nearly a decade before I joined and I've felt the pain. I know what it's like to face scrutiny from the regulator, I know what it's like to not really understand what's going on with your customers.
[00:20:17] John: I worked in a global business and ran a business where we had customers in 77 countries, and it was really difficult to understand, where we had a relationship with one company that had a presence in the United States, and Japan and in Australia, we couldn't form a single view of everything that they were doing together. So I understand the problem and I understand the order of magnitude in the opportunity, and that really excites me, and it does the people that we've managed to lure to the company from the payments industry.
[00:20:41] John: And the third thing is probably a bit more personal. And that is that I've made commitments to shareholders, and I've made commitments to the team and made commitments to our board and it's really important to me that we work hard to honour those commitments and then we bring this vision to life. It would be a terrible shame for that not to happen, and I just refuse to let go until we've done that.
[00:21:02] Ben: Thank you very much for this. Definitely, for me, it's been eyeopening and I think a few layers deeper than a cursory glance at the business. One of the big things we wanna do with the Chairman's List is really how do we give all shareholders and potential shareholders that kind of visibility and access that say an institutional roadshow would have.
[00:21:22] Ben: The last question I'll ask you is, over that journey, you would've been asked a whole bunch of things. What's the question that you wish people asked more often? Like what do you want to talk about?
[00:21:32] John: The question that I wish I heard more was, "how can I help?" I go back to what I said earlier at the top of the program, which was, that if you've worked in the industry that we are selling into and you understand the problem that exists, then it's very easy for you to understand our business and the value that we can create.
[00:21:48] John: However, that's a really small section of the population on the planet and the other 99% just look at the smartphone app in their hand and think "financial services industry has got on top of this technology game, this should be pretty easy".
[00:22:00] John: If I reflect on the conversations with shareholders, existing and potential, some of the best conversations I've had are with people that, and I had one of these just the other day at the conference. So I met one of the guys who was a shareholder and he's like, "I understand the space, understand the opportunity, I understand that it's gonna take you, that you're moving towards a journey creating significant value and onboarding a whole lot of customers. How can I help?"
[00:22:19] John: I really like those conversations. We think long and hard about the other 99% of people that haven't experienced the problem, how do we share with them the order of magnitude of the problem? That's not an easy one to understand. The question I wish I heard more of and the conversations I like having the most are, "how can we help?".
[00:22:35] Ben: Fantastic. I'll ask you that offline, cause give, we'll give people their time back. But thanks very much, John. It's been great. How can people reach you, if they want to help, if they wanna ask, how can they get in contact?
[00:22:45] John: email@example.com. It's on the website, identitii.com. I think we do a pretty good job of responding to most of our inbound inquiries. Please get in touch over the email address and via the website.
[00:22:55] Ben: Perfect. All right. Thanks, John. Thanks for joining us.
[00:22:58] John: Thanks, Ben.
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