OLB Group: A Fintech Hidden Gem That’s Already Profitable

Small and medium-sized businesses (SMBs) have always been an important pillar in the U.S. economy. These businesses, particularly the B2C models, were among the worst affected sectors in the lockdown caused by the COVID-19 pandemic likely was one of the biggest factors responsible for the economic slowdown. With time, SMBs have realized the importance of technology not just for growth but for sheer survival in tough economic circumstances. They are increasingly adopting modern technologies to ensure that their products reach the consumers even in a lockdown and that consumers have the maximum ease of payment despite the restrictions on physical movement. The technologies are obviously not developed in-house by SMBs and they are relying on fintech companies for this purpose. OLB Group (NASDAQ:OLB) is a fintech player that has been instrumental in supporting a large number of B2C SMBs across the U.S. and has generated exceptional revenue growth and profitability in the eCommerce and omnicommerce space.

What Does The OLB Group Do?

The OLB Group runs a payment ecosystem for B2C SMBs such as retailers, restaurants, bars etc., which includes electronic payment processing, cloud-based multi-channel commerce platform solutions, and crowdfunding services. The New York-based company offers a number of different products to merchants through a software-as-a-service (SaaS) model such as payment facilitation, customer analytics, e-commerce services, fully outsourced private label shopping solutions, and more. The company operates through three fully owned subsidiaries – eVance, Inc., Omnisoft.io, Inc., and CrowdPay.us, Inc. It provides payment processing solutions through eVance and SecurePay, crowdfunding services through CrowdPay, e-commerce solutions through ShopFast, and offers all of these to its merchants for a fixed monthly fee. The company reported revenue of $10.29 million with a positive EBITDA margin for the year ended 2019 making it one of the very few profitable fintech companies in the world.

OLB Group’s Payment Ecosystem

OLB Group does not rely on any one offering for revenue. It provides a complete ecosystem of payment solutions to its merchants for a fixed monthly fee. This ecosystem includes PayFac, its payment facilitation solution where it accepts payments on behalf of its SMB clients and assumes the responsibility for Chargebacks, Fraud, KYC (Know Your Customer) and AML (Anti-Money Laundering). Using PayFac, OLB is able to rapidly underwrite new merchants and handle their complete PCI compliance. The company uses SecurePay, its payment gateway solution and virtual terminal to handle payment processing issues for customers. This offering includes proprietary business management tools which offer a wide array of analytics to them such as details of customer-wise payments, effects of seasonality, and so on to the merchants in order to help them create operational efficiencies. The OLB Group has payment integration with all known providers such as MasterCard, VISA, American Express, and PayPal. It has partnerships with a number of banks and financial institutions such as Wells Fargo, Esquire Bank, Chase, MVB Bank, US Bank, Worldpay, and many more. Last but not the least, its ecosystem also includes crowdfunding services through its CrowdPay platform, e-commerce solutions through its ShopFast platform which follows the Shopify model, and various other business management and marketing tools for merchants through its Omnisoft platform.

A Diversified & Growing Merchant Community

OLB’s merchant community, as per the company’s definition, includes a wide variety of B2C goods and services providers such as restaurants, bars, snack bars, amusement parks, repair shops, health and personal care stores, specialty food outlets, apparel retail outlets, healthcare and ambulatory service providers, legal service providers, and many more. OLB has been in the process of acquiring portfolios of small fragmented merchants rather than focusing on the large-sized retailers minimizing the revenue concentration risk. Its merchant base has been growing rapidly and the company caters to more than 8,500 merchants today, spread across over 130 industries in each of the 50 States. These merchants process close to 23.5 million transactions each year with a gross transaction value near the $1 billion mark. OLB helps each of these small merchants accept digital payments through credit cards, e-wallets, and other online media. It helps merchants track their revenues from different customers using various analytics tools, maintain books of accounts using various plugins (e.g.: the Quickbooks plugin). For these types of solutions, there is often a strong resistance to change at the merchant level which leads to a high switching cost. Hence, OLB is not likely to witness many merchant dropouts and its merchant base is expected to keep growing with the fresh influx of funds as a result of its IPO in August 2020. The Company’s significant diversification should ensure minimal revenue losses due to the slowdown in any given sector at any point. For example, the restaurants and bars using OLB’s solution were badly hit in the lockdown phase caused by the COVID-19 pandemic but its ecommerce clients transacted significantly higher values, thus balancing out the revenues of OLB.

Strong Management Team

The OLB Group is spearheaded by industry veteran Ronny Yakov who has spent more than 25 years in the e-commerce software and development space. Mr. Yakov has worked for companies like AT&T and Omnicom Group. He was responsible for creating the wholesale shopping e-commerce platform for AT&T’s 180,000 employees and has also created many similar e-commerce solutions for Fortune 500 companies. He has been instrumental in implementing the ShopFast solutions which help small merchants and retailers provide their services through e-commerce. Mr. Yakov is ably supported by Patrick Smith, the Vice President of Finance and Operations who also has over two decades of experience working in the payments industry with companies such as Concord EFS, Cynergy Data and Pay By Touch.  OLB’s finance function is handled by its CFO, Rachel Boulds who is a veteran with over 20 years of experience spread across brands like Disney and PWC.

Key Takeaways The OLB Group’s business model is similar to that of Square and Shopify but its valuation is not. The company is trading at a paltry valuation of 2.0x its revenues whereas Square and Shopify trade at revenue multiples of around 13.5x and 58x respectively. It is truly ironic because OLB has a significantly higher EBITDA margin of around 10% as compared to both these companies which have a negative bottom-line. After its most recent fundraise of $6.5 million, OLB is looking to acquire batches of multiple small merchants which do not fall on the radar of these fintech giants and which are easy to onboard to the OLB platform. This is expected to grow the company’s gross transaction value and significantly increase its revenues. Given this background, we believe OLB’s stock is poised to generate a significantly   higher valuation for shareholders and new potential investors in the near future. It is currently priced at just $3.65 a share and could easily go into double digits over the coming twelve months. Hence, the OLB group appears to be a very attractive investment proposition at current levels.

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