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On Nov. 23, 2010, an obscure press release hit the wires in the United Kingdom. It reported that Visa Europe had entered into a contractual agreement with ValidSoft Limited for its fraud prevention solutions. What was a bit unclear from the press release, however, was that ValidSoft is a wholly owned subsidiary of Elephant Talk Communications (NYSEMKT:ETAK), a publically traded company. Because the release barely mentioned the parent company Elephant Talk, the news went almost completely unnoticed by the investment world and was quickly buried over the long holiday weekend. Why Elephant Talk did not tout this impressive achievement more widely is anyone’s guess. But this situation presents an extremely unique opportunity for investors.

Elephant Talk’s ValidSoft subsidiary inked a deal with Visa Europe, one of the world’s largest financial payments businesses, to utilize the company’s fraud-prevention solutions. These solutions, known as VALid-POS and VALid, will be integrated into Visa Europe’s security processing platform. Visa Europe has more than 4,000 member banks and payment service providers across Europe. They intend to offer ValidSoft’s fraud solution to these members as part of their value added services. ValidSoft has quickly broken into the financial industry in a big way.

Electronic fraud costs banks money. Lots of money. In fact, the financial industry bleeds out more than $100 billion a year due to fraudulent transactions. Interestingly, false-positives (when banks erroneously block transactions that are in fact authentic) cost the industry more than actual fraud itself. This is where ValidSoft’s fraud prevention solution comes in. Its breakthrough technology is able to correlate the location of a financial transaction (at an ATM or merchant terminal for example) to a user’s mobile phone. If the transaction and mobile device are in proximity to each other, the transaction is likely authentic. If suspicious, the customer can be automatically contacted via cell phone and, if the transaction is confirmed fraudulent, be routed straight to the bank’s fraud department. This proprietary solution confirms the authenticity of users, in real time, and greatly improves fraud detection while minimizing the amount of wrongly flagged transactions.

What is most telling from this story is that Visa Europe, the European payment system, chose little-known ValidSoft to help reduce fraudulence. This in itself speaks volumes. Visa Europe could have chosen any solution that is offered by literally hundreds of technology companies. However, it selected ValidSoft’s solution to integrate into its security processing platform. For one, it offers the most cutting edge and effective solution available today. It utilizes very sophisticated technology. The authenticity of a transaction is determined in only 500 milliseconds, a feat that nobody else can offer. Furthermore, VALid-POS does not track customers nor invade their privacy. In fact, VALid-POS has earned a European Privacy Seal, easing any fears that customers may have about being tracked. This seal maintains the highest standards for privacy, and ValidSoft is the only company of its kind to boast this credential.

ValidSoft’s technology has been thoroughly tested in almost a half dozen trials. These were conducted in conjunction with some of the world’s largest banks in almost every region in the world. The trials demonstrated that Valid-POS is able to turn the normal 90% false-positive rate into least a 90% success rate. The major point here is that financial institutions can save billions of dollars by simply implementing ValidSoft’s proprietary solutions, not to mention saving their customers the headache of having their card erroneously declined. Visa Europe has taken notice of ValidSoft’s one-of-a-kind solutions, and no doubt others will soon follow.

It is difficult to comprehend just how important the Visa Europe contract is for Elephant Talk. First of all, the company will eventually begin to earn revenue from this deal, likely on a per transaction or per verification basis. Combine this with high margins and millions of transactions and things start to add up. More importantly, the agreement with a major banking company is just what the company needed to prove itself on the world stage. Partnering with Visa Europe creates credibility for the relatively small company. The current contract will also likely act as a springboard and accelerate talks currently under way with other financial service providers. In fact, Elephant Talk has "quite a solid pipeline built up" of banks and financial service companies. It will now turn these into contracts in the coming weeks and months.

Of course there is more to this company than ValidSoft. The parent company, Elephant Talk Communications, focuses on providing business software and services to the telecommunications and financial services industries. ETAK offers mobile network operators (MNOs) and mobile virtual network operators (MVNOs) one highly integrated software solution, as opposed to the 20 to 30 programs typically used. By utilizing Elephant Talk’s simplified solutions, operators can reduce costs anywhere between 50% to 75%, while increasing their flexibility and quality of service. The company already has contracts with several mobile players, including T-Mobile Netherlands and Vodafone’s Vizzazi subsidiary in Spain. The company expects to add at least one more by this coming spring and cover seven countries by the end of 2011. Furthermore, Elephant Talk’s management has a proven record of following through, not to mention insider ownership nearing an astonishing 70%.

Unfortunately for investors, the company is listed on the OTC Bulletin Board. But, the company is working toward up-listing. The company has been getting positive news on this front and believes it may be on a more senior exchange by early 2011.

Where Elephant Talk opens the mobile cloud, ValidSoft can make it secure. Banks are bleeding from the electronic fraud epidemic and Visa Europe just confirmed that Elephant Talk has the best, proprietary solution to a $100-plus billion problem. And 2011 will be the year of the cloud and everyone is jumping in. But the future of the cloud will rely on secure mobile networks and Elephant Talk is positioning itself as a leader in this area. The company is the solution to authenticating and verifying transactions, through billions of mobile devices, all on a secure real time network. The contract with Visa Europe is only the beginning. But news of this deal never made it very far, even in today’s 24/7 news cycle. Thus, this crucial information has yet to be disseminated and priced into the stock. A unique buying opportunity has presented itself.

Disclosure: No position in ETAK, yet

Source: Visa Europe Gives Boost to Elephant Talk