GreenBox POS (GBOX) is a fast-growing payment processing company whose platform should experience a large increase in processing volume in 2021 and 2022. The company recently announced partnerships with Visa (V) and Fiserv (FISV) to onboard merchants onto the GreenBox payments platform, which should bring processing volumes to over $1B a year. GreenBox has also expressed intent to acquire ChargeSavvy, which sells POS systems that reduce the chance of chargeback fraud for high-risk merchants. Finally, GreenBox has developed a stable token technology which we believe can eventually supplant other stablecoins such as Circle’s USDC and contribute significant processing volume, revenues and EBITDA to GreenBox.
We believe GreenBox’s revenues and EBITDA should significantly surpass the guidance management has given. In their February business update call, management provided guidance of $45m of revenue and $18m of EBITDA for FY2021. Given that in January alone GreenBox did over $85m of processing volume, even the most conservative estimates assuming flat monthly processing volumes would result in ~$75m of revenue and ~$30m of EBITDA in FY2021. GreenBox’s processing volumes, however, are growing quickly so even these estimates, far above guidance, should prove conservative.
As processing volumes increase on their payment processing platform and usage of their stable tokens grow, we believe GreenBox should be able to do more than $50m of EBITDA in 2021 and more than $95m of EBITDA in 2022. On our 2022 numbers, GreenBox currently trades at an EV/EBITDA of 5.5x. For a fast-growing technology company that should have 30%+ EBITDA margins by the end of 2021, 5.5x EV/EBITDA presents a large opportunity for investors. As more investors realize this opportunity and processing volumes grow significantly, we believe the valuation should correspondingly increase. We believe, even at a valuation well below peers, GreenBox stock could be trading over $25/share on FY2021 numbers (85%+ return) and over $55 on FY2022 numbers (325%+ return).
GreenBox has developed a processing payment platform for secure and instantaneous transactions that is beneficial to all merchants, but especially merchants in higher risk industries.
There are two major competitive advantages in GreenBox’s platform: instantaneous processing speed and fraud detecting A.I. technology. In order to produce instantaneous processing speeds that are also secure, GBOX has created a ledger where transactions are logged in a blockchain-based database. While “blockchain” can sound complicated, in this case it actually simplifies the processing. In traditional processing, matching up different individual ledgers takes time due to its complexity. GreenBox has developed a centralized ledger technology that has the capability to write into a decentralized ledger, where nodes that have access to common ledgers can record transactions by instantaneously confirming the changes with each other. The below images are from a 2016 Federal Reserve paper titled, “Distributed Ledger Technology in Payments, Clearing, and Settlement.” They clearly display how traditional Financial Market Infrastructures can quickly become complex, while distributed (decentralized) ledger technologies pose an interesting solution to the complexity problem in matching ledgers to confirm transactions.
Traditional Financial Market Infrastructures:
Source: Federal Reserve
Distributed Ledger Technologies:
Source: Federal Reserve
Advanced ledger technologies like the one that GreenBox has developed allow for much more rapid processing speeds than the outdated ledger technologies currently in use. GreenBox’s instantaneous processing and settlement speeds have garnered attention from Visa and Fiserv, both of whom have now partnered with GreenBox. GreenBox onboards low-risk and high-risk merchants through Visa and Fiserv.
However, while GreenBox’s blockchain-based ledger technology makes transactions instantaneous and secure, it does not prevent fraud by itself. GreenBox’s technology platform also includes an A.I. that quickly analyzes info from the customer, the merchant and GBOX’s partners and can detect fraud, stop transactions, or prevent chargebacks from customers to merchants from occurring. Banks and issuers such as Visa, Mastercard (MA), American Express (AXP) and Discover (DFS) often do not allow payment processors to onboard high-risk merchants due to the risk of fraud and chargebacks, or they charge high fees that penalize merchants when chargebacks do occur. It is a vote of confidence in GreenBox that both Visa and Fiserv are willing to work with GreenBox to onboard low-risk and high-risk merchants.
In their February Business Update Call, GreenBox said that December had $84m of processing volume, and that January produced larger volumes than December. If we assume volumes were around $90m in January alone, and we conservatively estimate that processing volumes do not grow from month-to-month after January, then GreenBox will be processing $1.1B of revenue in 2021.
Revenue is estimated at 7% of processing volumes, and EBITDA is 2-3% of processing volumes. With $1.1B of processing volume, GreenBox would generate ~$30m of EBITDA in 2021. This is conservative, given that processing volumes should continue to grow quickly on a monthly basis, with the launch of generation 3, continuous onboarding, and continuing to develop larger partnerships.
In March 2019, Elavon, the largest domestic CBD payment processor at the time, announced it would no longer accept payments at stores that sell CBD products. By May of that year, Visa had joined Mastercard and American Express in prohibiting the use of their cards in stores that sell CBD and hemp products.
One of the major factors that distinguish high-risk industries, such as CBD, from low-risk ones for payment processing is the frequency of chargebacks and riskiness of fraud. Chargebacks occur when customers fraudulently asks the bank for a refund. If the merchant has little way to prove they sold the correct product to the consumer, the banks will subtract the original payment from the merchant’s balance and repay the consumer, even if the merchant did nothing wrong. It is oft-repeated that 70% of credit card fraud today is because of these kinds of chargebacks. To add to merchants’ worries, Visa, Mastercard, and other banks and issuers have chargeback thresholds: if merchants have a high number of chargebacks (often considered ~1% of transactions), merchants have to pay special additional fines and will have to increase their percentage of processing volume to be held in reserves, to more than 10%. In some cases, Visa, Mastercard, and PayPal (PYPL) will even disallow credit card payments for merchants. In 2019, these banks and issuers decided they would disallow credit card payment for all CBD merchants. The industry had too many chargebacks and was too high risk.
GreenBox’s artificial intelligence technology is incorporated into their payment processing system. It quickly evaluates whether the transaction is legitimate or not and processes the payments accordingly preventing fraud and also helping merchants stay below chargeback thresholds.
In January 2021, GreenBox announced their intention to acquire ChargeSavvy. This acquisition brings three benefits to GreenBox: a point of sale system, biometrics technology that prevents fraud, and increased processing volume. Like GreenBox, ChargeSavvy’s focus is on the higher margin, high-risk merchants. In order to reduce fraud, ChargeSavvy’s point of sale systems include biometrics technology that counters false chargeback claims. For example, imagine a customer pays using a credit card at one of high-risk merchants that use a ChargeSavvy point of sale terminal. The terminal will take a picture of the customer when he swipes his card. If the same customer later protests the billing, saying he never made such a purchase, then the bank will be sent the picture of the customer, and the bank will not refund the customer. This saves the merchant from losing money in these chargeback situations. Given that high-risk industries are high risk partly because of increased frequency of chargebacks, ChargeSavvy’s technology reduces the amount of risk merchants and banks take on when dealing in such industries. With this technology in play, banks are more likely to allow transactions with high-risk merchants, and the high-risk merchants will lose less money on chargebacks.
ChargeSavvy’s anti-fraud biometrics technology complements GreenBox’s blockchain payment processing system for high-risk merchants. GreenBox’s artificial intelligence and secure ledger technologies together with ChargeSavvy’s technology, should combine to produce the best available point of sale and payment processing system for high-risk merchants, and reassurance to any banks thinking of allowing card payments in the market.
In addition, ChargeSavvy is expected to contribute at least $500m of processing volume annually, which corresponds to an additional $15m of EBITDA to GreenBox on an annual basis.
Adding ChargeSavvy’s processing volume to the expected GreenBox processing volumes as outlined above, the combined company could produce $42m of EBITDA in 2021 ($30m from GreenBox, $12m from ChargeSavvy for 9 months of 2021).
In addition to onboarding merchants onto their payment processing platform and acquiring ChargeSavvy, GreenBox has developed a token which should provide sizable revenues to the company. GreenBox’s token, or the GBT Token, is designed to solve the issues that plague current stablecoin and cryptocurrencies. The goal for GreenBox is to create a token that can be used both for transactions and as a store of value.
GBT Tokens are stable tokens. They maintain a set value, and will originally be pegged to the US dollar. As demand grows for the GBT Tokens, the number of coins will increase in order to maintain a stable value per token. Due to the programmable nature of the token, GreenBox can also automatically remove/delete coins if necessary to keep the token’s value stable. One reason why merchants, customers and banks often do not want to transact in non-stable cryptocurrencies is because of their volatility. Bitcoin, for example, has no intrinsic value – would you feel safe receiving Bitcoin as a payment if its value could quickly jump downwards, or feel confident paying in Bitcoin if it could be more valuable tomorrow than today? Stablecoin solve the problem of volatility. Programmable tokens, like GBT Token, gain stability and value from the underlying minted currency.
2. The issue of fees and settlement times
A major reason why other stablecoins, such as Circle’s USDC, aren't often used for transactional purposes is the fees and settlement times involved. Businesses, banks, and exchanges don’t want to pay exorbitant fees when transacting in stablecoins; might as well use US dollars. This has been a consistent problem for stablecoins like Tether and USDC. USDC operates on an Ethereum platform, which costs fees to send tokens to someone else’s wallet, and settlement times can take hours or days. GreenBox’s Token should not have this issue: they operate on GreenBox’s own platform. Settlement times should be instantaneous and fees insignificant. GBT Tokens will be the best token available for transactions, with the smallest fees and near instant settlement times.
3. The issue of regulations
Like Circle’s USDC, GreenBox’s token is “collateralized” – meaning GreenBox will hold as many or more US dollars as number of tokens in a custodial account in a bank. For example, if there are $100m of GBT Tokens, then GreenBox must have a partnership with a bank that holds $100m of US dollars or more for GreenBox. This protects it from regulatory issues and issues of volatility. Look, for example, at non-collateralized stablecoins such as Basis, NuBits and Ampleforth. Basis shut down because of regulatory problems, and NuBits and Ampleforth couldn’t maintain their dollar peg. Tether, which claimed to be collateralized 1:1 with the US dollar, couldn’t hold on to its $1 peg in 2019 when it was announced that they were holding less cash in reserves than the value of tokens in circulation. GreenBox avoids these issues by working with a bank holding a custodial account dedicated to the company. When someone buys 1000 GBT Tokens from GreenBox, they pay $1 per token, or $1000 in total. Once the credit card company guarantees that the custodial account will receive the $1000, GreenBox earmarks $1000 of the custodial account against the issuance of 1000 tokens. From then on, the token can transact instantaneously. This is how GreenBox keeps their custodial account in line with the number of tokens in circulation, and how GreenBox can increase the number of tokens in line with demand for them. They will have a national auditor compare the number of issued tokens to the number of dollars in the custodial account every 30 days, confirming it is 1:1, to maintain regulatory compliance.
4.The issue of reversing transactions
Transactions in GBT Tokens are also reversible – this is different from all the other major cryptocurrencies and stablecoins on the market. The decentralized nature, for example, of Bitcoin makes it secure; however, it also means that the transactions are not reversible. Once the bitcoins are transferred, they cannot be transferred back without the agreement of the person they were transferred to. This is a major problem when someone mistakenly sends cryptocurrency to the wrong account, or also in the case of chargebacks, refunds and fraud. Once the coins are sent, the transactions can’t be reversed unless both sides of the transaction agree. As GreenBox controls the ecosystem on which the GBT tokens trade, GreenBox can actually reverse transactions. Like other cryptocurrencies with decentralized blockchain technology, GreenBox’s transactions are highly secure; however, with GreenBox’s centralized control of the ecosystem, the company can also allow for reversible transactions and delete tokens.
Similar to other stablecoins, GreenBox will adopt usage and transaction fees. Whenever someone buys a product using GBT Tokens, GreenBox will receive a small percentage of the value of the transaction. These fees will be smaller than other stablecoins as to draw increased volume. As GreenBox controls the ecosystem behind the technology, however, instead of relying on Ethereum’s platform, they can afford to charge lower fees, as they don’t have to deal with the same onboarding and offboarding costs. GreenBox earns revenue whenever a transaction, an outgoing ACH or wire transfer occurs using their tokens. Whenever someone exchanges GBT Tokens for US dollars, another currency, or another cryptocurrency, GreenBox also receives revenues from exchange fees. Note that because USDC runs on Ethereum’s platform, Circle makes their money through on-ramp and off-ramp requests, and doesn't do so through transactions. GreenBox has developed and operates their own token ecosystem, which enables them to earn fees on transactions as well as on-ramp and-off-ramp fees. GreenBox management has also said they will gain custodial revenues from accounts holding GBT Tokens.
As GreenBox intends to use the tokens in their payment processing ecosystem, this increases the bottom-line margins for GreenBox’s payment processing business as well. Instead of purchasing other stablecoins and paying the requisite fees in the intermediary stage of their payment processing, GreenBox can use and issue their own token. This should increase the EBITDA margins of their payment processing business from 2.5% to 3%. That is the difference between earning $37.5m and earning $45m of EBITDA from $1.5B of processing volume.
Once someone owns tokens in their account, they can transact within the ecosystem instantaneously. This is attractive to banks, merchants, companies, and consumers. Because of GreenBox’s agreement with Visa, consumers can use tokens in the same way they use their Visa card. Using their issued visa card, they can pay Amazon (AMZN), Uber (UBER), sports betting organizations, and whatever else they spend money on using GreenBox Tokens. This is advantageous to both the merchants and the banks because of the instant settlement times and low fees.
Visa recently announced that they have recently started using stablecoin to settle some of their payments. They are starting with Circle’s USDC, but we believe due to GBT Tokens' technological and financial advantages, Visa and other major payment networks should begin to use GBT Tokens to settle payments as well. As these companies experience these advantages first-hand, GreenBox Tokens should capture increasing market share of the processing volume settled through stablecoin.
Potentially a large amount of the utilization of GBT Tokens will come from companies and banks that do billions of dollars a year in capital transactions. Transacting on the old legacy systems many companies use can take days, or even a week when transacting internationally. GBT Tokens would allow such transactions to occur seamlessly and instantaneously. Companies and individuals can also use GBT Tokens to convert their US dollars to foreign currency, reducing the high transaction costs involved. This is especially useful to banks that either have to pay fees, or transfer these fees to the consumer, when consumers visiting abroad pay for foreign products using their credit and debit cards. Pension funds, endowments, life-insurance companies all can also choose to hold capital in GBT Tokens in a regulated custodial low-risk yield account.
Deployment of the Tokens is planned for later in 2021, with a starting base of $100m likely funded through a joint venture. As demand for the tokens grows, GreenBox will issue more tokens and increase the size of their custodial account with their bank. To assess how quickly the number of GBT Tokens in circulation can increase, let’s consider the rapid growth of Circle’s USDC stablecoin:
Source: Circle’s Website
From August 2020 to March 2021, the number of USDC in circulation grew from ~1.5B to over $10B worth of coins. Remember that this is a stablecoin that has slower settlement times and larger fees than GreenBox’s upcoming token. GreenBox’s tokens can attract at least the same international currency transactions that Circle’s USDC does, and should attract more.
By March 2021, over $534B of USDC were transferred on-chain, which is equivalent to transaction volume. This represents turnover of over 7x per month (transaction volume per month over 7x the amount of coins in circulation).
Given GBT Tokens’ faster settlement times and lower fees, the growth in USDC transaction volume and circulation represent a potential benchmark for GreenBox. Given that stablecoins are also experiencing increased media and market awareness, we believe the GBT Tokens should grow to over 500m of number of tokens in circulation by the end of 2021 and over 1.5B in 2022.
Assuming 3-5x monthly turnover, this would mean that over $5B of transaction volume using GBT Tokens could occur in 2021 and over $50B of volume in 2022. In the recent token call, management said that revenues should be ~2.5% of deployed revolver seed capital per month, which scales as more tokens are issued.
If GreenBox can have more than 500m tokens in circulation by the end of 2021, and over 1.5B tokens by end of 2022, this would correspond to over $12.5m of revenue per month by the end of 2021 and over 37.5m of revenue per month by the end of 2021, or over $4m and $12m of EBITDA per month by the end of the respective years.
By the end of 2021, GreenBox plans to spin out GreenBox Token by IPO into the Nasdaq or another exchange, while GreenBox will still hold majority ownership over the spin-off.
If the tokens generate $10m of EBITDA for GreenBox in 2021, then the entire company could be doing $52m of EBITDA in 2021, with upside to our numbers in processing volume ramps.
Source: Created by author using data from Factset, and our own estimates for GBOX
PayPal and Square (SQ) are both payment processing companies that handle billions of dollars of processing volume. While PayPal and Square are much larger than GreenBox, both are growing slower than GreenBox and have lower EBITDA margins. Riot Blockchain (RIOT) is an example of a public company in the cryptocurrency space. While they are differently involved (cryptocurrency mining), we believe their valuation reflects the high multiples investors are willing to assign to public companies in the cryptocurrency space.
Source: Created by author
If GreenBox does 52m of EBITDA in CY2021 (off of 125m of Revenue), and the market recognizes GBOX’s good results by raising the EBITDA multiple to 20x, then the stock would be valued at $25 per share, or 86% return from today. If they continue to grow quickly into 2022, GBOX shares could be valued beyond $55 on 2022 numbers, or 326% return from today. These multiples are still below where PayPal, Square and Riot Blockchain trade.
If processing volumes continue to climb in 2021 and 2022, then GreenBox could produce more than 65m of EBITDA in 2021, and more than 110m in 2022. If the market values GBOX closer to how it values companies like PayPal, Square and Riot Blockchain, GBOX shares could rise over 490% on upside 2022 numbers.
On the other hand, if GBOX cannot acquire ChargeSavvy or their GBT Tokens do not experience the launch we expect, and if processing volumes do not climb much on a monthly basis in 2021 and into 2022, it is possible that GBOX will produce a minimum of 40m of EBITDA in 2021 and 60m in 2022. With EV/EBITDA multiples of 15x, that places the stock at $14.32 and $21.48, off of 2021 and 2022 respectively. This corresponds to a return of 8% and 61% from today’s prices, respectively.
We are bullish on GreenBox. In January they processed over $85m of volume, and these volumes should continue to grow quickly as the year carries on. Their planned acquisition of ChargeSavvy should add incremental EBITDA, and their GBT Tokens are set to become a large player in the cryptocurrency and stablecoin space. As the company continues to execute and produce significant dollars of revenue and EBITDA, we expect investors will revalue GBOX at much higher multiples. The company does not have institutional research coverage yet and is very under-owned by institutions. Now that the company is listed on the Nasdaq and has a $500m market cap, we believe this company is going to be discovered by larger institutions soon and the company will start to be valued more in-line with other fast growing, profitable payment companies.
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Disclosure: I am/we are long GBOX.