Change Financial exits loss-making USA operations
ASX-listed Change Financial Limited have provided a strategic update on the company’s USA operations and the resulting positive impact on profitability.
Change CEO Tony Sheehan commented, “It has been a positive start to FY25 for Change with new clients secured, our PaaS operations continuing to scale in Oceania and the business delivering increasing top line revenue and improved bottom line results. All this has been delivered against a backdrop of broader challenges in the US regulatory environment and although these challenges are not specific to Change, they have directly impacted US operations which has prompted us to strategically consider our geographic footprint.
“Recent regulatory events in the US market will likely continue to drag on the broader Change business and we estimate it would now take a number of years to achieve profitability in the region. We have therefore made the pragmatic decision to withdraw from the US market. This will reduce our overheads from H2 FY25 and allows Change to prioritise its Australia and New Zealand PaaS operations.
“This decision ultimately strengthens Change’s financial position and enables the business to continue winning in markets where we are seeing significant near-term opportunities. We are seeing the number of requests for proposals in Australia and New Zealand continuing to increase in H1 and we are reinvesting into our existing key target regions including SE Asia with additional business development executives to aggressively pursue the large opportunity in front of us.”
US Operations Update
Unlike Australia and New Zealand where Change is a principal issuer with Mastercard, regulatory requirements in the US stipulate that Change partner with an issuing bank. Over the past 18 months, notably following the collapse of Silicon Valley Bank, there has been a significant shift in the US regulatory environment with materially increased oversight of banks and the way they operate with third-party partners, with fintechs in particular drawing increased scrutiny.
These challenges are not only affecting Change but others in the US market with peers also experiencing similar challenges. On 17 October, the Office of the Comptroller of the Currency (OCC) announced it had taken enforcement action against Change’s current US issuing bank partner. The issuing bank is completely independent of Change and the regulator’s enforcement actions against the bank do not relate specifically to Change however any new programs seeking to onboard with the current issuing bank now require submission to, and approval from, the regulator.
The risk associated with a single US issuing bank partner is something Change has been actively seeking to address and mitigate. As a result, Change was in advanced stages of due diligence and commercial negotiations with one of the top 10 issuing banks in the US around future growth plans in the region. While these discussions were progressing, the Change Board and management team have assessed the merits of continuing to operate in the US and have decided to withdraw from the region for the time being, closing the Company’s US operations.
Impact of Closing US Operations
Closing US operations will have an immaterial impact on Change’s overall PaaS metrics and revenue.
Currently, Change has less than 800 active cards in the US market representing only 1.2% of all active cards, primarily driven by one client. Due to the regulatory environment, it has been challenging for this client to grow and for others to progress beyond pilot stage.
The Company will however realise significant cost savings and operational efficiencies from exiting the US operations. Change is targeting to cease US operations in Q3 FY25 and estimates the total one-off closure costs to be less than one quarter of US operating expenses.
