In light of my last article "The Sleeping Giant" and recent events set in motion by the CEO Ed Starrs, I felt it fitting to name this article "The Awakening". There has been a slew of developments and I congratulate all those who recognized the tremendous opportunity that presented itself. If this is your first time hearing of MyECheck (OTC:MYEC), I highly recommend reading my 1st article before continuing, as everything previously mentioned is still relevant here.
For the better part of 2013 MYEC has been silent with few words from the CEO and even less action on the stock itself. But as of recently, the CEO Ed Starrs has been anything but silent in site of recent developments and has been an open book to all shareholders answering just about any question asked of him.
As previously mentioned, MyECheck is competing in a $44 trillion dollar checking market and at the moment, only has one competitor ACH (Automated Clearing House). ACH Direct has recently been renamed "Forte Payment Systems" on March 28th, which is an electronic network for financial transactions in the United States who at the moment of this writing, controls over 99% of all checks processed. Rules and regulations that govern the ACH network are established by NACHA (formerly the National Automated Clearing House Association) and the Federal Reserve. One may think checking is old school and on the way out, but in actuality it's a thriving and growing industry. Back in 2012, ACH processed 21 billion transactions in excess of $36 trillion. This industry consists of online bill payments, direct deposits from employers to employees, physical checks, money transfers, government payments and refunds among many others. Being such a large industry, it should be no surprise that Forte Payment Systems has been Named to Prestigious Inc. 5000 List for the Sixth Consecutive Year in 2013 seen here and has had a 3 year growth of 83% as seen here. One can look at the industry in a way that everyone who owns a credit card, has a checking account, but not everyone who has a checking account has a credit card.
An important step for the company at the moment, would be to become DTC (Depository Trust Company) eligible. Many investors have been unable to secure MYEC shares via their brokers due to not being DTC eligible as well as some of the world's largest market makers, so not being DTC eligible at the moment is a serious detriment to share holders. Some believed there was a DTC Chill in effect (which could be a sign for concern), but in actuality MyECheck is not currently registered with the DTCC and are in the process of doing so (possibly resolved before the publication of this article). As an overview, the DTC is One of the world's largest securities depositories, they hold trillions of dollars' worth of securities in custody. Not being DTC eligible means that the stock-Settlements cannot be done electronically through DTC, so Brokers have to go through Clearing firms for Settlement, which is costly and complicates Settlements. In addition to safekeeping, record keeping and clearing services, the DTC provides direct registration, underwriting, reorganization, and proxy and dividend services.
"If the DTC has cause to be concerned about a specific security currently processed through its system, it may place a "chill" status on the security"
As seen here, we can see Ed has been in the process of rectifying the issue, which will hopefully be resolved quickly.
Strive for dominance:
It's been said before, but I'd like to reiterate that we are not looking for any type of buyout here (organic growth will serve shareholders best), there have been many rumors and those who are hoping for a buyout by a larger entity such as EBay's PayPal (NASDAQ:EBAY), Google's E-wallet (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) or even Apple (NASDAQ:AAPL). It's important to remember that most online electronic money payment and transfer processors are competing in a saturated $1 trillion dollar market. Granted when you look at the small portion of transactions we are processing at the moment, money speaks volumes. But I believe MYEC is just on the verge of greatness. When all is said and done, I hope that MyECheck is able to establish partnerships with one or all of the aforementioned companies as it would be a mutually beneficial partnership (each company would save more in fees than MYEC would benefit from each transaction). But it's important to remember that each could be but 1 customer to MyECheck, not bigger.
What we do know is that large entities are actively developing solutions at the moment in attempt to penetrate this large (mostly monopolized) industry. We can see the big players are each looking to separate and establish themselves as leaders in the industry (for front end processing, which is not in competition with MYEC), the race is on and partnership with a leader in the next cutting edge payment processor such as MyECheck could be a game changer for any of the above mentioned companies.
As we can see from this Forbes articles (here and here) Companies like Apple, Google, Amazon, Samsung and PayPal are looking to set the bar higher in order to capture more market share. We do know that Mr. Starrs plans to release an app that will work with biometric readers (which would work nicely on Samsung's upcoming release of the Galaxy 5S or with Apple's recent release of Touch ID technology for the iPhone).
Currently it is also rumored that Apple is looking to launch its next big thing which is expected to be called iCash, fellow Seeking Alpha contributor Kyle Spencer has revealed telling signs that Apple has been silently taking steps in recent patent filings intent on moving out of virtual space and infiltrate Point-of-Service transactions in order to rival against PayPal and in direct competition to the joint mobile payment space Samsung and PayPal are set on entering. You can view his article here Apple has consistently through the years shown that they'd rather be trend setters, not followers as seen here they reject and defy standards yet again by refusing to accept NFC technology or Google Wallet, perhaps in search or preparation for the next new thing. Further telling information can be found here as to the direction Apple is headed
"it's also potentially the key that could unlock the long-promised (but little delivered) mobile payments revolution."
Many may not be aware, but Apple's fastest growing business is that they're building a national shopping infrastructure (discussed here)
"iTunes, iBooks and the app stores. Sales of extra, non-Apple "stuff" via Apple's products were up 19% to $4.4 billion in Q1 2014."
"But as Business Insider has noted before, Touch ID has a much more important application as a business. Because it makes your phone almost completely secure, the iPhone suddenly becomes an almost perfect mobile payments device."
It's also interesting to note in recent PR about MyECheck 3.0, one of the key features being developed uses biometric authentication
"Future security technologies being developed now include 'Biometrically Authorized Device Signatures'"
"After over 10,000,000 fully electronic checks processed, MyECheck has never had a fraud complaint or refund, and security protocols and new technologies in MyECheck Version 3.0 will help ensure we continue to stay ahead of fraud."
PayPal clearly prefers when customers pay via checking accounts rather than credit cards because the fees are lower, hence why the default PayPal method is your checking account. Ironically, there have been many times in which there have been credit card "glitches" on PayPal checkouts. Rumors of a PayPal deal have been shot down by Ed Starrs several times, but as MYEC captures more and more market share, more and more PayPal transactions will inevitably get processed using the Check 21 solution.
Amazon has also actively been taking steps to assert itself in the market as well as seen here. And it should also come as no surprise that Amazon removed PayPal as a payment option (which once existed)
"Today, some more details about the deal: A source close to the situation confirms that Amazon bought the technology and the engineering/product team of GoPago, but none of the existing point of sale business and current merchant relationships."
One of MyECheck's long standing partnerships with CardinalCommerce Corporation (which is a privately owned, global leader in enabling authenticated payments, secure transactions and alternative payment brands for both eCommerce and mobile commerce) is also looking to make a move in the Point-of-sales (POS) market, as seen by their recent patent filings here and here. which are a filings for "alternative payment implementation for electronic retailers" in which merchants would be able to provide a variety of alternative payment options to customers in the eCommerce space such as Google, PayPal, Bill Me Later, MyeCheck, Secure Vault Payments, and other alternative providers. And for "Open wallet for electronic transactions" which should make it easier for the consumer to secure a transaction without disclosing too much private information across different payment methods.
Each of these companies have a game plan they plan to follow, it would appear as though the market is in a flux and all players want to end up on top. Big players are making big moves, which may or may not include alliances with MYEC. But it sure looks like interesting times ahead. As you can see here our CEO also has a plan of his own and if he's able to execute it, there is no telling how far we can go. As we can see, MYEC will offer 3 types of payment solutions to meet as many client requirements as possible with turnkey integration.
1) As a backend or wholesale processor to MPSPs (Mobile Payment Service Providers). These include payment processors, e-wallets, stored value, and large merchant proprietary payment systems. The MPSP integrates with MyECheck in the traditional manner.
2) As a MPSP with a comprehensive solution for POS purchases on mobile devices.
3) As a licensor of customized mobile payment solutions.
Merchants only require an internet connection, a PC running Intuit (NASDAQ:INTU) QuickBooks with a bank account in order to use MyECheck. Ed's decision for easy integration with QuickBooks should have a huge impact on market penetration as well, as seen here, QuickBooks holds 85% retail market share in small business accounting software and 94.2% of the business accounting market.
"Money is going mobile, and the race is on to control the flow of bits and cash across a billion Smartphone's and at millions of online and physical locations. Research firm Gartner estimates that mobile payments will top $720 billion a year by 2017, up from $235 billion last year. The upside remains enormous: Humans made $15 trillion worth of retail transactions in 2013. Whoever ends up with controlling interests in this new digital ecosystem will reap billions in transaction fees, collect massive amounts of consumer data and control the type of targeted advertising that makes marketers drool. Giants such as Apple, Amazon, Google, Visa and MasterCard all want to be your mobile digital wallet"
Many countries outside of the U.S. have much faster transaction times than the ACH typical 1 to 3 business days, but the banking industry in the United States have lagged and resisted change. But Ed Starrs has positioned his company in such a way, that it should be difficult for the banking industry to ignore much longer. Not only does MyECheck provide nearly instant transactions (typically 1 to 3 seconds), the process is also more secure, guaranteed and doesn't allow for typical fraudulent activity with fewer returns.
MYEC has also set itself apart from the competition by charging only 1% transaction fees compared to the typical 2.5% charged by ACH with a cap of $5 per transaction. So with a maximum charge of $5 per transaction that would mean companies processing electronic checks of $500 or less would save more money per transaction than MyECheck makes on each transaction. With checks in excess of $500, MYEC doesn't make any additional revenue. That means with a typical ACH transaction of $1000 the fees paid would amount to $25, which would only cost $5 with MyECheck.
Now if the front end savings in service charges weren't enough, MyECheck has many fraud deterrents built into the system as well, most notably related to chargebacks. As we can see from the 2010 LexisNexis "True Cost of Retail Fraud Study" (you can register for a free copy of the report) The impact of fraudulent charges to the financial industry and merchants are extremely high.
"According to financial institutions, the volume of chargebacks has grown so significantly in the past few years that issuing the chargeback amount back rather than process them all is a less costly option. The chargeback process can be arduous for both retail merchants trying to recoup fraud losses and the financial institutions that are trying to cover their customers."
"more than 1 in 4 indicated suffering more fraudulent chargebacks (26%)"
"Retailers are losing over $100 billion in fraud losses each year, mostly due to identify theft and chargebacks."
"For every $100 in fraudulent transact ion, merchants are paying a "true" cost of $310 in total losses (fraud multiplier effect of 3.1)"
Yesterday vs Today:
MYEC had began building a successful business years ago and had 2 banks which had agreed to implement MyECheck's Check 21 processing, First Regional Bank (which had 8 branch locations) and Public Savings Bank (which had 1 sole location). Unfortunately, during the economic downturn which began in 2009, both banking partners failed and MYEC lost more than 95% of their income through no fault of their own.
On April 3rd, 2013 MYEC signed a check processing agreement with The Bank of Kentucky (NASDAQ:BKYF) which currently operates 33 branch offices and 57 ATM's and Ed has confirmed on Facebook that they already have more than one banking partner (which has yet to be publicly disclosed). Additionally, with the recent launch of MyECheck 3.0 electronic payment system Mr. Starrs has essentially mitigated the risk of bank dependency which previously existed. Now MyECheck is successfully using the new platform to deposit real time electronic payments into customer accounts at Bank of America (NYSE:BAC), Chase (NYSE:JPM), and many other banks. Investors asked questions in regards to MYEC's connection into the Federal Reserve and we were told that MYEC was issued its own ETI (Electronic Transaction Identifier) routing number (you can see an email exchange between a share holder ABA Registrar here)
When MYECs 2 bank partners failed back in 2010 and 2011, the CEO had to make a difficult decision, declare bankruptcy and walk away, sell the company along with its patent for a fraction of its value, or struggle through and find a way to regroup, restructure and refocus the business. Well, Ed did not chose the easy path by any means and has been relatively silent for the past 4 years. He has shown through the years that he is a man of integrity and someone who knows the true value of his patent.
It came as a surprise to many share holders when Ed began to publish several press releases in April 2013 including:
- Signing a check processing agreement with the Bank of Kentucky
- Signing a check processing agreement with Spindle Inc.
- Signing of a multi-million dollar deal with Corporate Merchant Solutions
- A service agreement with Karmen Consultants Group
- Announcement of a new licensing model
Before going silent yet again. But a group of private investors compiled a list of 50 questions which was submitted to the CEO, who intern responded to 36 of those questions which can now be found on the company's website here. At the time, it was a welcomed response and telling of many events to follow. Re-reading the Q&A today tells a completely different story, the CEO has acted on many of the questions as described.
Ed Starrs began PRing new telling information on the company on a weekly basis as of February 13th:
- MyECheck Announces Share Buy Back and Retirement of One Billion Shares of Common Stock
- MyECheck Launches Version 3.0 Check 21 Electronic Payment System
- MyECheck Announces Patent Sub-Licensing and Software Licensing Deal with GreenPay LLC for mobile payments used for the purchase of legal Marijuana
- MyECheck engages Bruce Smith CPA to audit finances in preparation for up-listing
- MyECheck Launches Application for Government-to-Government Payments, Certifies With State of California, Registers in BidSync
- MyECheck Announces Three New Licensees of Its Real-Time Mobile Payment Platform
- Itonis, Inc. Signs App License Agreement With MyECheck, Inc. for Medical Marijuana Point of Purchase App
- Itonis, Inc. Signs App License Agreement With MyECheck, Inc. for Medical Marijuana Point of Purchase App
- MyECheck to Provide Fully Electronic Check Services to the iCard1 Network
The implications of all recent developments have yet to be factored into the PPS (price per share) to the full extent. What we know so far is that The Bank of Kentucky is larger than both banks MyECheck previously had prior to their demise in 2010 and 2011 (both banks had a total of 9 branch locations, where the Bank of Kentucky has 33 branch offices and 57 ATM's). Also, on page 53 of their 3rd quarters 10-Q report filed by BKYF we can see the following quote (which did not previously exist in other financial filings)
"The increase in service charges and fees was the result of certain new charges implemented in 2013"
Then if we pay attention to the date of the agreement between MYEC and BKYF of April 3rd, which would have commenced during the 2nd quarter which coincidentally shows an increase in service charges which correlates well with the time of the deal (as shown below)
2013 1st Quarter Report - Decrease in Service Charges of ~$70,000 for the same period in 2012.
2013 2nd Quarter Report - Increase in Service Charges of $270,000 (6%) for the same period in 2012.
2013 3rd Quarter Report - Increase in Service Charges of $774,000 (11%) for the same period in 2012.
2013 4th Quarter Report (8k) - Increase in Service Charges of $460,000 (20%) for the same period in 2012.
Since the announcement of the Spindle Inc. deal, The CEO has released a follow-up announcement via Facebook that the deal fell through. It would appear as though Spindle has been poached by another company CheckAlt that's offering the new Check 21 service (most likely violating MYECs patent). It's also interesting to note that at the time he was willing to sign licensing agreements with entities processing upwards of $100 million per year, now MYEC is negotiating with larger entities processing upwards of $100 million per month
CMS (Corporate Merchant Solutions) is an exciting deal which will generate in excess of $250,000 per month for MYEC. CMS is a leading processor of electronic transactions for major corporations. Unfortunately there have been difficulties putting this solution in place. All that is known at the moment is that Ed has told investors that the problem resides with CMS. But knowing that this deal should generate in excess of $750,000 per quarter should have a dramatic effect on MYECs bottom line.
Karmen Consulting group is a major provider of financial services. It has established entities in the areas of payroll processing, bill payment solutions, tax preparation and IRS representation, and marketing. Expected revenue to MYEC is valued at approximately $500,000 annually (or $125,000 per quarter)
As per the new licensing model announced by MyECheck, very little has been publicly disclosed in regards to the development of signed deals until recently. But investors received a seemingly forward looking statement in the Q&A answered by the CEO
"the majority of fees to be generated from licensing fees"
"The short-term focus is on going live with a few large merchant services customers and licensees that can generate very large transaction volumes. Most of our sales leads come from resellers, and we are starting to build a sales organization to manage the resellers. We also have relationships with resellers that have yet to be engaged."
With the new 3.0 payment platform they have made significant enhancements to the security and functionality and can quickly integrate with any bank in the US Federal Reserve banking system. In addition, they are now successfully using the new platform to deposit real time electronic payments into customer accounts at Bank of America, Chase, and many other banks. Other features of MyECheck 3.0 include plug-ins for mobile commerce apps, easier and faster customer integration. The new 3.0 platform has made MYEC more robust and less dependent on bank contracts to generate revenue. As more businesses become aware of the significant advantages they will have over traditional ACH payment processing, they will begin to seek out ways to process Check 21 payments regardless of the banking institution they use. Customers will also enjoy the service as many online vendors don't ship parcels until after the funds have cleared (so items may ship 1 to 3 days sooner, depending on the supplier)
We also know from social media communications such as twitter and Facebook, MyECheck has begun development of their own iPhone and Android apps expected to be available in mid May. The 1st versions of the applications will only allow transactions between customers and merchants, but Mr. Starrs plans to develop subsequent apps to allow for peer-to-peer money transfers between anyone in the U.S. in real time. They are also adding a provision for the unbanked to be able to use the system by pre-funding an account on the MyECheck system. MyECheck also plans to add e-wallet, stored value, credit-line (with a low interest loan), and international capabilities to the mobile payment system after initial launch. Ed has also mentioned on Facebook that there are apps in development which are geared towards online gambling as well
In my view, with the proposed and easily accessible low interest line of credit which will soon be offered by MyECheck, the company may soon be in a position to challenge the credit card industry and gain traction in the Multi-trillion dollar credit card industry and compete against the likes of MasterCard (NYSE:MA), Visa (NYSE:V), American Express (NYSE:AXP), as well as many others. In which they could generate transaction fees, as well as income from the low interest loan offered.
The Green-Pay deal in itself has huge implications for MYEC. The legal marijuana industry is currently estimated at about $1 Billion to $1.5 Billion annually however it is expected to grow to about $40 Billion to $120 Billion annually very rapidly as more states legalize marijuana for both medical and recreational use. This of course is in excess of the current $44 trillion dollar checking industry. The legal marijuana industry has been in a type of limbo for quite some time, several states have legalized the purchase of prescribed medical marijuana, but it had still been considered illegal by the federal government. Even after most obstacles had been lifted, there was big issues in the industry due to the government preventing the payment of the substance via cash and they had not set acceptable guidance for credit, nor debit card purchase either. But on February 14th the FinCEN (Financial Crimes Enforcement Network) issued instructions to financial institutions on the processing of payments (see here).
There may also be plans in the works to service the Canadian industry for medical marijuana which will have new laws enforced (Marijuana for Medical Purposes Regulations) as of April 1st prohibiting tens of thousands of individuals previously licensed to grow their own need for medical marijuana at home, forcing consumers to buy their weed from a small number of tightly regulated commercial grow operations.
Also worth noting, PayPal serviced the medical marijuana industry until October 2009, when they chose to exit the questionable industry (see here), now that the Feds have lifted restrictions and the industry has been more widely been excepted, MyECheck has strategically allied itself to fulfill a need.
Mr. Starrs knows the implications of this un-serviced industry and the monetary implications for MyECheck and was quick to drop hints to investors that it was soon going to be serviced by MYEC. He began following known people in the industry via twitter, he was the first to share the news disclosed by FinCEN and had a standing agreement with GreenPay PRed in less than 2 weeks following new government rules. Now if the medical marijuana was MyEChecks only source of income, MYEC would be considered a success story and once GreenPay begins processing payments on May 15th 2014. We will be looking at a substantial revenue source for the company and help propel the share price to new highs (pun intended).
Audited financials is but a formality for MYEC, they know it's a necessity to gain investors confidence and were fully audited up until 2009 and is one of the requirements for up-listing which is the intent of Ed Starrs for the future of the company. To up-list to OTCQX, the requirements have recently changed, the bid must stay above 10 cents, now only for 30 days (old rule required 90 days), rule modifications can be seen here, and financials need to be audited, all other conditions can be seen here (End of year financials released on March 31st were not audited, but will presumably be by May 15th for Q1/2014 filings)
With the recent launch of G-Pay specifically targeting government-to-government (which is a plug-in to MyECheck 3.0), MYEC is now the only fully electronic payment service capable of processing transfers from government owned bank accounts which will be sold to federal, state and local government entities. MYEC has already been certified by the state of California as a qualified vendor and is eligible to bid on contracts and are also registered in the BidSync system to bid on all eligible government contracts. It is important to note, that The company has previously (in 2008, see here) bid on and was awarded a California contract to process payment data for CalSTRS (as of February 2014, CalSTRS had assets of approximately 180.8 billion, see here). As of September 2011, CalSTRS is the largest teachers' retirement fund in the United States CalSTRS is also currently the eighth largest public pension fund in the world.
The PR on March 28th of 3 new license deals for mobile payments with InterPay Inc, Sierra Global LLC and Itonis Holdings (OTCPK:ITNS) is yet another progressive move for the company and signs of what is yet to come. Some of the key points to take away from this include:
Sierra Global LLC is a provider of custom banking software solutions to non-US banks to enable US commerce outside of the US
Itonis, Inc. today announced that it has signed a Licensing Agreement with MyECheck, Inc. for Itonis to acquire a software license for MyECheck's patented mobile payment app that will facilitate point of purchase transactions for medical marijuana, gambling, and general retail sales. Itonis will be the first and only payment services with a solution targeting the Medical Marijuana industry in Southern California
Itonis announced on April 1st it has Joined the National Cannabis Industry Association to Advance Into the Medical Marijuana Products and Services Sector
Users can transfer funds to any other User on the system in real-time, or to a Merchant Point of Sale application
Optional features for each User will include a Virtual Bank Account that can be funded on the fly from any checking account for free, or by cash at one of our partner loading stations.
The system can also issue foreign debit cards outside of the US for instant global funds transfers and cash out from ATMs world-wide.
There is much to be appreciated from the latest Financial report which should help propel the company forward, including;
"MyECheck is developing and will be launching a mobile Person to Person(P2P) payment system in 2014"
"Anyone with or without a checking account will be able to use the Mobile Payment Service and obtain an Electronic Bank"
"A User only has to register one time to make payments to any Merchant Point of Sale application on the system
Once registered, a User app is issued a unique secure token that is transmitted by the User to authorize transactions on the systems"
"The amount of money spent over the last year on research and development is estimated at zero."
"During 2013, the Company has had limited sales and marketing resources and intends on hiring a Vice President of Sales and Marketing in April 2014"
"The licensing model is a distinct competitive differentiator therefore details of the plans and licenses are confidential trade secrets and not subject to public disclosure."
With today's announcement to service the iCard1 Network, Mr. Starrs has shown a steady progression to solicit & attract new clients on an ongoing basis;
MyECheck will facilitate the funding of electronic bank, e-wallet and debit card accounts on the global iCard1 electronic banking and payment network.
iCard1 is a global leader in the development and deployment of private closed loop electronic banking and payment networks for governments, banks and corporations worldwide. Closed loop networks exist independent of the major brand commercial credit networks such as Visa, MasterCard, American Express and debit networks Star, Cirrus and Maestro.
This agreement with iCard1 to provide our exclusive capabilities demonstrates our commitment to partner with leading technology providers of high strategic value. We are very optimistic about the revenue prospects for this agreement and the additional opportunities created through this partnership.
iCARD1 is a full service business-to-business cash-card service bureau; composed of visionary, innovative and highly-experienced professional business managers and technology experts with a proven track record encompassing over twenty five years in the prepaid/debit/cash card/e-wallet and communications field both domestically in Canada, USA, Asia, Latin America, Europe and Africa.
We also know that the federal reserve is in the process of revising current check processing related to the Check 21 act which was enacted on October 28, 2003 and then became effective in October 2004. On February 4, 2014, the Board of Governors of the Federal Reserve System took the final step before creating a new law that will define a new payment official instrument called the "electronic check". They are now indirectly pushing the banking industry towards implementing the Check 21 act across all institutions (in other words pushing banks towards adopting MyECheck) see here
Though there is no monetary value to the government's proposed change as of today. The implication of change here is larger than any singular event for the company and should be the catalyst that allows for mass adoption of the technology from the financial institution as a whole. Unfortunately this sector is slow moving and as per this document, institutions and individuals have until May 2nd, 2014 to submit any comments pertaining to the new proposals, but barring any meaningful detriments to the new process, it would appear as though the government is ready for a change.
The Board is proposing the foregoing amendments to Regulation CC pursuant to its authority under the EFA Act and the Check 21 Act. The proposed rule is necessary to have Regulation CC reflect the substantial transition in the collection of checks from a largely paper-based process to one that is virtually all electronic. The proposed rule reflects the prevalent manner in which checks are now collected and returned. The full benefits and cost savings of the electronic check- processing methods facilitated by the Check 21 Act cannot be realized so long as some banks continue to employ paper-processing methods. The objective of the proposed rule is to encourage all banks to collect and return checks electronically.
Based on December 2012 data regarding checks returned through the Reserve Banks, the Board estimates that 69 percent of small depository institutions had at that time made arrangements to receive returned checks electronically, whereas 31 percent had not.
Banks are steadily adopting electronic check handling methods, however, and the Board expects that a substantially higher percentage of small depository institutions will have made arrangements to receive electronic check returns by the time the a final rule becomes effective.
On Facebook we received Ed's interpretation of what the new proposed law means
"In short, the new rules say that electronic checks are real checks, just like paper ones, and the same rules apply, that was a gray area because the technology is new and there were no rules yet for electronic checks. This meant banks were leery to jump in until the Fed established who is liable for bad checks. The new definition establishes the warranties, in other words what bank is liable for bad checks. This is the key to open the floodgates for banks and businesses to use this new payment method"
There is also a recent Forbes article covering the subject. One can only imagine the implications these changes to the law would have in store for MYEC
"The opportunity exists to improve speed and efficiency of payment and to maintain payment system safety in the face of escalating threats," the paper's introduction said. "The Federal Reserve Banks believe that collaboration and engagement with the industry is the foundation of any enduring strategic improvement to the U.S. payment system…"
As stock traders, most here have gotten wind of a hot stock, or breaking news which may have great implications for a given company and wanted to move on the lead and realize it could take days to clear funds to their online brokerage firm. I believe the time of waiting will soon come to an end. The 1st brokerage firm to partner, or process MyECheck transactions will likely see a spike in new business, not to mention all the fees saved (E-Trade (NASDAQ:ETFC) and Ameritrade (NASDAQ:AMTD) come to mind). Many active investors have been contacting their brokers inquiring about the service. Soon enough, one or more will realize all the benefits in migrating away from ACH payments
MyECheck profits mostly by the volume of transactions, one good fit in our view would be a deal with java giant Starbucks (NASDAQ:SBUX) who have generated over $1 billion in transactions in 2013 (see here) and rapidly growing. With its recent acquisition of Teavana in October 2013 (which had over 300 stand-alone stores as of November 2013), Starbucks now has access to an additional $90 billion global tea market (see here). Obviously other large volume industries such as Doughnut shop chains, gas stations and grocery store chains, or companies who bill customers monthly like telecoms, electrical, mortgages will benefit greatly by receiving funds sooner with lower overhead.
Online gambling has also been a touchy subject in recent years, but recently it has become legal to do so in several states (see here), but at the moment payments to online casinos have not allowed for credit card processing. I believe this is because the use of credit could over-extend certain gamblers, the risks are inherent, so is currently limited to checks and ACH money transfers which we know MyECheck is gearing up its solutions at the moment to gain market penetration.
"Today, though, legalized online gambling is on the upswing. Nevada, Delaware and New Jersey regulators allowed online casinos to open in 2013, and other states -- California, Pennsylvania, New York and Illinois among them -- have discussed the idea and could consider it in 2014. Some members of Congress have even introduced bills to legalize online poker nationally."
"For now, most of the alternatives to fund gaming accounts are more cumbersome: sending in personal checks, bank transfers and ACH withdrawals."
Some have speculated as to the strength of the patent 7389912 held by Ed Starrs, I have thoroughly reviewed the patent (not that I am a patent expert) but it looks to be iron clad to me. Obviously, the Check 21 act itself cannot be patented, but the process of creating electronic checks and how it's handled, can be. The only questionable oversights that are not covered in the patent is for mobile payments, nor Point-of-Sales, but fortunately, I feel that it is more than adequately covered by covering all aspects to the issuing of electronic checks, real-time verifications and processing of those electronic checks. It also covers all type of transactions
"to acquire physical product, a service, digital media, or digital content; and the financial institution is one of a bank, savings and loan (S&L), credit union, or Federal Reserve."
As well as covering the information from the user being received through a graphical user interface (and since this is all done virtually, it would be difficult to work around these parameters). Then again, another shortfall in my view of the patent is that there is no mention relating to peer-to-peer transactions
We've also received the following Q&A on the topic covered on Facebook
"Question: You've stated your front end is generic and back end patented. New owner of stock in Myecheck . My only concern: Can your patent be 'tweeked' by larger company and used, or are the parameters of patent solid and ground breaking enough not to be stolen and used by others?
Answer: Thanks great question, patents can't be tweaked once granted but some can be circumvented by not infringing on any claim in the patent. My belief and that of my attorney is that you cannot create an electronic check without infringing on exclusive rights granted to me by the UD government"
There is also a connection that has been potentially uncovered between MYEC and EVO Snap (a subsidiary of EVO Payments International). EVO is among the largest fully integrated merchant acquirer and payment processors in the world. EVO operates as a payments service provider for both face-to-face and e-commerce transactions for all major credit cards, debit cards, commercial cards and electronic bank transfers. EVO is active in nearly 50 markets and 120 currencies around the world (see their bio here, there are a lot of good facts covering EVO USA, Europe and Canada which are helpful to help grasp the size of this entity and potential impact to the bottom line for MYEC if this connection pans out). We can also see mention of Check 21 here in which it's stated "This facilitates faster funding on a wider variety of checks with fewer restrictions than ACH", are they referring to MYEC?
The connection was established by beginning with MYEC's old partnership with IP Commerce Inc. which was formed back in 2008 (see here). In September of 2013 EVO Payments International acquired a perpetual software licence from IP Commerce forming EVO Snap (see here). The software license allows EVO to expand its ability through its proprietary processing platforms to support the software community, including point-of-sale, mobile, and e-commerce developers, with the tools necessary to develop a broader suite of multi-channel, multi-service solutions needed to serve EVO's worldwide base of merchant customers.
Coincidence or not, it's also very interesting that Peter Osberg, a former executive at IP Commerce and head of EVO's new integrated payments group called EVO Snap, is also a founding member of GreenPay Network LLC (AKA http://www.mj-pay.com/, see here)... You will have to evaluate the connections for yourself. But this is someone who has used and recognizes the value added.
Many view this company as it was many years ago, but I prefer to look at MYEC as a new company in order to keep expectations objective.
MyECheck's Q3 results depicted just the beginning steps of generating revenues. The Company posted quarterly gross income of $580,314 and quarterly net profit of $553,609. The company reducing total debt from $804,320 to $302,100. In the six month period ended September 30, 2013, the Company has reduced total debt by $902,220. (find Q3 financials here)
End of year financials start to show us a better view of the company's progress and potential for the future (the annual report can be found here and a 2nd version directed at investors can be found here). The Executive summary and 2013 Financial Highlights provide an excellent insight into the company's current standings and direction
We expect 2014 to be a high growth year for MyECheck, particularly in the third and forth quarters when transaction revenue from current licensing deals starts to be realized
"For the twelve months ended December 31, 2013, net profit was $1,018,693 with revenue from operations at $439,233. Total liabilities were reduced by $718,365. For the 3 months ended December 31, 2013 (Q4), net profit was $465,083 with revenue from operations at $361,402 and total liabilities were reduced by $168,239."
As of Feb 7th the O/S of 3.086 billion (2 billion belong to the CEO) which the float of 1.032 billion shares. We also know from the filings, that they reduced the accounts payable by $53,252 in exchange for 6 million shares bringing us to approximately 1.038 billion shares in the float. Additionally, the company has approximately $5 million accumulated deficit giving them a good tax reduction going forward.
One huge factor which is not taken into account on the balance sheets is the value of the IP (Intellectual Property) which could be easily be valued somewhere upward of $1 billion which most people have seemed not to factor into the PPS.
With the current PPS at or around 0.05/share based on 3.094 billion fully diluted shares (gives us a market cap just over $167 million and a Price to Earnings (P/E) ratio of approximately 152), but based on the size of the market ($44 trillion check processing + $1 billion and growing marijuana industry + a possible billion dollar online gambling market + begin competition against the credit card industry) the apparent rapid growth of the company(Revenue grew by roughly 388%), we could easily see a P/E of 500 or greater, which would result in a PPS at or above $0.1645 / share as of today with extremely high growth prospects. With the known launches of Green Pay and Apple/Android apps to be launched by mid May, any entry under $0.12 would be considered a good entry point.
Many investors have set expectations too high and with recent appreciation, it's no wonder many are taking profits, but in my view there is a tremendous buying opportunity at the moment that cannot be ignored. Once the fear has gone, investors will realize the value of what they own and the stock will continue to appreciate from here.
Income / Shares outstanding = earnings/share
1,018,693 / 3,094,000,000 = 0.000329
PPS / earnings/share = P/E
0.05 / 0.000329 = 151.975
Factor in growth giving the company a P/E of 500:
P/E * earnings/share = PPS
500 * 0.000329 = 0.1645
We've seen many examples in recent past of companies reflecting large swings in Price to earnings, Tesla Motors (NASDAQ:TSLA) comes to mind. Currently sitting at a P/E of 168.27, but in the not too distant past it had an outrageous P/E of 1,296.71. Why? because they brought something big to the market which investors recognized and it was up to management to execute. They innovated the market through their technology and 0% emissions eclectic cars, with a style the market was asking for.
With MYEC we are in a similar situation, we have an innovative product which is patented that both merchants and clients need and want (fulfilling ease of use, speed and efficiency, guaranteed transactions, with lower fees and overhead, with the added anti-fraud protection). Where we differ is that MYEC has significantly less overhead costs of operation (no cost of manufacturing, parts and fewer employees), TSLA will need to constantly need to engineer new products to evolve and stay current in order to maintain or grow market share. They also have to invest significantly more into marketing and dealerships with the constant threat of competition innovations possibly taking market share as well as the threat of market conditions playing a role in their bottom line (in a recession, customers may reduce the demand for luxury vehicles). TSLA is also limited by both the speed in which they can manufacture the cars to meet the demand and by the amount of people shopping for luxurious high-end green technology cars.
There are any number of catalysts that can cause a chain reaction to the PPS (much like a snowball rolling down a hill). Below is a list of catalysts I expect to see for MYEC over time. All of which have been previously been discussed, but it would come as no surprise to me if we get ongoing unexpected news of clients in sight of all the benefits of switching to the Check 21 solution provided by MyECheck
- Quarter after Quarter growth
- Up-listing to OTCQX
- New sub-licensing deals for processors of $100 million in funds per month
- Go-live of Corporate Merchant Solutions
- Partnership with 1 or more of the large players looking to penetrate the POS market
- Expectancy and deployment of patents registered by Cardinal Commerce Corporation
- Commence of MYECs mobile product strategy and acceptance from QuickBooks users
- The eventual (in my opinion inevitable) up-listing to the NASDAQ
- Launch of GreenPay LLC in mid May
- Winning of government contracts with G-PAY for electronic processing
- New iPhone/Android apps (several in development now, 1st version due mid May)
- Penetration into online gaming
- Start competing against the credit card industry with low interest line of credit
- Law change from the federal reserve for electronic checks
- Signing of large merchants, retailers, telecoms or electrical companies
- Reveal of a connection with EVO Payments International
- New Bank agreements
- Mass adoption from the financial industry and merchants
- Becoming DTC eligible
There is always risk whenever buying stock in any individual company (as compares to bonds or ETFs), but I feel Mr. Starrs has mitigated the risks through deployment of MyECheck 3.0 making them 'practically' bank independent. I also feel that this industry is less susceptible to market corrections during bad market conditions because employees will continue to be paid and bills will also be paid. The larger MYECs customer base and more widely this technology is accepted and penetrates the market, the lower the risks will become.
It's also important to remember that companies don't make changes to their backend processing system every day. So what we can expect is constant growth quarter after quarter as we gain new clients (worst case we should see no change). We are not in a service industry where MYEC would constantly need to bid on contracts with the risk of losing and there is no need to revisit established partnerships (unless it were to devise a new service). We are also not in a produce/merchant industry which may fluctuate seasonally or by supply and demand. Remember, MYEC is helping clients move away from ACH (a slow, expensive and fraud ridden system), so at no time would we expect to hear of an MYEC client leaving to return to ACH.
Now that the price per share has passed 10 cents (assuming we remain above 10 cents per share for the next 30 days), MYEC should be eligible to up-list to OTCQX prior to release of Q1/2014 results due May 15th 2014. It's unclear if there have been any new revenue streams which would cause a significant spike to revenue at this point for Q1 (new client integration can often take less than 2 weeks, so if new contracts are established, the scenario could change quickly). But due to stability in this industry, we can expect worst case situation to be status quo with the previous quarter, showing stability at this point would in itself be a good thing for MYEC. My estimates lead me to believe with the company becoming DTC eligible and up-listing to OTCQX could easily raise the PPS to above 30 cents.
By mid May is when we can expect things to kick off with introduction of GreenPay in the medical marijuana industry and new mobile apps for both iPhone and Android phones, along with quick adoption by small merchants, thanks to the easy QuickBooks integration which I expect to dramatically increase MYECs bottom line going forward into quarters 3 and 4 (According to U.S. Census Bureau out of 5.8 million employer firms in the U.S., 89.7% were made up of 20 workers or less and 99.7% had 500 employees or less). Also factoring in the possible go-live integration of Corporate merchant solutions, these revenue streams alone could generate upwards of $3.5 million/month (or $10.5 million/quarter), which would certainly justify a price per share in excess of $1 in such a rapidly growing company.
If MYEC can further expand its market penetration by securing any new Bank contracts, government contracts, expansion of its sub-licensing contracts or manage to negotiate a contract with any number of the large companies previously discussed, MYEC will have to be re-evaluated all over again.
At the current time I consider any entry under $0.12/share leading up to Q1 to be a good investment, they have shown to have a strong business model with a strong track record up until 2010 when things went wrong for MYEC. They've taken actions to mitigate the risks from the past and are off to a good start. In all likelihood as the technology gets industry reorganization and is more widely deployed, I'm certain this company will once again return to its rightful place on the NASDAQ. It's not every day you have the opportunity to buy a penny stock with such stronger prospects.
Disclosure: I am long MYEC.