Crunchfish AB (publ) (CFISH.ST) Q3 FY2025 Earnings Call Transcript & Summary

We will talk about Crunchfish and with Crunchfish. Normally, I stand beside Joachim Samuelsson, but unfortunately, due to traffic problems, he is not here in the studio with me, but he has managed to join us from his car. Very welcome, Joachim.

Martin, yes, I know. I know. The highway driving south to Malmo for an hour. It's a car accident here, half an hour north of Malmo.

Yes. But, I mean, let's talk about Crunchfish and the Q3 report that you released just this morning and other events that's happened lately. And please also, I encourage all you viewers who is watching to send in questions in the question function below. We will address them as we go along.

But let's start, Joachim, you've traveled extensively lately, presenting at various events, your new approach. How has it been received, do you think?

It's been a great time. We've been very active. We were -- major events were the one in Bahamas, the Annual CBDC Conference. I think that was a great success. We were just contacted actually yesterday by Bank of Bahamas who wanted to start discussing about integrating with their SandDollar, which I think is a good thing. The SandDollar is the first CBDC project in the world, really. And they never -- they want offline because they're an island state with many islands, but don't have it yet. So it started there, but then it was Sibos, first time we were there, a huge event in Europe, and then, it was GFF as well early October. I think these were the 3 main events that we were present at. So very active and a lot of conversations. I'm glad we did it. We needed to get out with -- we have a good message, and we needed to spread it, and we have during Q3.

So why do you think -- I mean, it's the new approach that have changed your perception of your solution? Or is it something else?

Well, it is the story that we talked about it in our Q1 report and the Q2 reported well that we are going to market in a new way, that we are approaching payment networks to -- we realize that we need to get integrated in the infrastructure of that payment network. And when we have achieved that, then we could sell to all the payment services that is using that network. That's the strategy. That's our turnaround that we announced in Q1, and that's the path we are on. And we needed to get out that story. It's the same solution. It's just that we have changed the way we go to market, and that's -- it's important to get to much more networks, and we have. When before we started here, we were very focused on India and how we can work in India. And we were worried that -- because it's taken a long time in India, how can we get to other markets as well given the long time it's taken in India. But now, I think there is at least now 20 potential payment networks that we are in dialogue with, with our solution. So that has broadened substantially from where we were before.

And as you say, August and September were very busy and the press releases from the company were plentiful, and it's been a bit more quiet in October. So what have you been up to lately?

Well, the reason why it is such a difference is that in September -- August-September, there were a lot of exhibitions. And we -- there is a lot of exhibitions -- around those exhibitions, we are doing a lot of press releases. But October, we did announce things that we were at GFF. Now, it's actually moving here as well. So now, I need to actually -- I need to put down my phone and then take off the -- see if I can take off the video to proceed. I'll do that, and I will respond to your question, hang on.

Yes.

So after these 2 major events, Sibos and GFF, there is so much to follow up on. And I think, we -- this is not sort of something we can press release that we are following up on all those discussions. So I would say there's been a lot of hard work. The other major thing we are working on is what we announced sort of mid-September that we are integrating with, what we said, a world-leading payment network. And that -- there is -- it's sort of meetings every second day in that respect. So we are busy with that all the time.

So things are moving on, not only traffic at the moment.

Things are moving on. It's just that it's nothing worthy of -- yes, things are moving on. Just because it's -- we're not press releasing it doesn't mean that things stopped working, really. It's just a lot of -- yes, I would say there's a lot of activity.

Yes, I see. And if we turn to the report, the headline in the report is about the network integration in India. Does this mean that your solution has been fully integrated in NPCI's payment infrastructure?

We are working on it. We -- there is -- we announced this in mid-September this -- that we have this project. And we are working with that integration. This is where we have meetings sort of every second day. It was a meeting yesterday, it's a meeting today. And so we are in this project that this is -- it's not a done integration yet. We are working on that project.

Yes. Is it complicated? Or is it just a normal business of things?

I wouldn't say it's, well, complicated. It's big. The project involves, obviously, us, who are coming with a solution that they would like to integrate. It involves NPCI who are the -- they are integrating in their payment network, are receiving components as they call it. This is a terminal that we have said is the ability to receive payments and that needs integration, both in the common library in the front end, and there is a back-end integration as well. And then, we have agreed to -- with NPCI to involve 2 banks in this project as well. One is IDFC, and another one is Axis Bank. Axis is one of the 4 largest banks of India. They are part of it. And in the background, there is RBI because this is for the digital rupee. So RBI is involved in a way because it's their product. It's -- even if NPCI implements the solution, RBI needs to be sort of also approving things that is happening, but they have -- they are behind it, they have approved it and they like what we do. So this is going on right now. And it's a big project, but yes, plodding along as it should be. Yes.

So is this the same project that RBI is -- are pushing for banks to handle offline payments? Or is it a side project or a different project? Could you just describe it for us how it's all connected?

Well, this is a project that RBI, we have -- we long have a good dialogue with RBI. And they have said that in order to implement this, you need to talk to NPCI because NPCI are the ones that are building our -- the infrastructure for the digital rupee. And now we have -- and that's what we announced that we have the -- got this project with NPCI. So this is the next generation infrastructure for the digital rupee that we are busy working with NPCI to implement. It's -- yes, what can I say? It's -- there were things shown at the GFF that we were in October, but that was already planned for before we came with this project. So that was previous generation, I would say, but we are working on what will now come next as the infrastructure for the digital rupee.

Okay. So could you tell us anything about the time plan for the project that you're in with them?

We are -- I would say it will be -- we will have this infrastructure in place with NPCI in Q1. This is what's the project plan. The first phase of the project was to write in a way the project plan. And that is done, and that's been approved. And now we are in the -- setting the specs for it, then it will go into development, and then, there will be a few weeks of testing. That will be quite a short phase. And that will be done for -- with IDFC and Axis for use cases, both for P2P that you pay from a person to another person, but also for P2M that you pay from a person to a merchant. So Q1 is where this project will be sort of ready for prime time to roll out to where other banks can sort of also join.

Yes. And you obviously have discussions with several banks. And I just wonder if they don't choose your solution, is there any alternative? Or have they developed their own solution? Or is there any competition?

Are you thinking of the banks now?

Yes, the banks, next step.

I think the solution is in 2 parts. This is, again, according to our new strategy that there is one part which goes into the network, and that becomes like a standard in the payment network. So that's -- that will only be -- there won't be different standards. The payment network, which is owned by -- for the digital rupees owned by RBI and is developed by NPCI, there will be one standard. We are part of setting that standard with NPCI that will be for everybody. Then the strategy is that the banks are then free to choose a secure wallet for their users so they can make payments in that payment network that -- yes, in that standard that the payment network has provided. There, the banks are free to choose alternative sort of solution. But I think we have a good chance given that we are part of actually setting the standard of what the network will do. But the -- there is -- this is where there will be competition that banks can choose other solutions that conform with this strategy or this standard that we're setting in the network.

Yes. That is actually what I wondered in the next step, there would be some sort of competition between your solution and other solution.

This is -- yes, that's possible. Here, our -- we hope our patents will play a role as well. We are getting some key patents. They are at the final stage of being approved in India, and they could play a positive role for us as well. But the idea is to create sort of one standard in the payment network and then have the ability for the banks and payment services to choose what secure wallet they need -- they want to have for their users so they can make off-line payments.

Yes. And speaking of different infrastructures, we have a question regarding the cooperation with CMA Small Systems for some specific markets, like Pakistan. Or is it more general, this collaboration?

This is broader. They have about -- they are already in about 10 payment networks around the world. And they -- in many of those countries, they go in on a national level, essentially delivering the system that the country is using for real-time payment systems, like NPCI is sort of doing. They're providing the UPI system in India. CMA is delivering that infrastructure for other countries. And this is why this partnership is good for us because we are becoming a partner of someone that play the role of NPCI in -- at least as a technology provider to a local sort of equivalent of NPCI. I wouldn't say they are NPCI, but they are -- they deliver the payment platform that those countries are using to do their payment system. And in those payment systems, there are requirements for offline payments, and this is where we come in.

Okay. I see. So PayNet is also a similar player, like CMA.

They are less of a player on a national level, but they have major banking relationships in the Philippines. And so we -- in the Philippines, we are using them as a -- working with them as a way to get interest from the national payment switches that they can set a -- yes, set a precedence. But there, we are further away from the national payment level than we are with the relationship with CMA because the CMA delivers directly the national payment switch of several countries.

I see. So let's go back to India for a moment and just talk about the project that's rolling. And you say Q1 is your projected endpoint. Will we -- could we expect some revenue from users in this project in Q1? Or what's your forecast?

It depends on how we structure, in a way what we will be able to engage the bank with. We can do deals with the banks for earlier revenue, but I would say the majority of the markets, there are 21 banks currently in the -- for the digital rupee, and RBI has made it mandatory for those banks to have an offline solution. They need to move, and we can certainly talk to them. Whether we will get revenue from that may -- all these other banks before we have -- get this project approved, I think that will probably be difficult. The one that we are closest to would be Axis Bank, who has already agreed to be part of it. But there is also all the banks they are working with a technology partner who helps the bank to implement their payment system. And Axis has one payment technology partner, they call Olive. They are now becoming a partner of us as well. And IDFC Bank, they have another one. The name is Sarvatra. And they have, Sarvatra, 7 other banks. Olive have 4 other banks. So here is an opportunity to work with those technology partners who are working with the banks to get our -- because they are -- at the end of the day, they will help the bank with this integration on the banking side of this solution. So here, we have a chance to -- in this project work with 2 of those technology providers that, in turn, serve more than half of the banks that eventually will have this solution. So this creates an opportunity for us as well. So they are -- it's still a bit early days, but we are well aware that we are -- want to have revenue, and we are looking at ways of accelerating on how to get to those -- to get the revenue as early as we can.

Yes. So working with those technology partners could be a way to reach broader and faster.

Yes. We don't have to go to 21 banks one by one. I think we can work with a technology partner and then via them reach. Olive have 4 banks, for instance. Sarvatra, as I said, have 7. That's 11 out of the 21. And then there are -- we met at GFF some of the other technology providers as well for the other banks as well. So we are -- we see that as a way to more quickly actually get our solution into those banks via those technology partners.

So there are also some sort of revenue sharing, I would imagine, with those technology partners.

It could be. We haven't defined those yet. We -- it's still -- as I said, at GFF in October, we met with Olive and Sarvatra and another player as well. And they -- we haven't discussed any sort of model yet. They make money out of doing the integration with the banks. They are -- they have a lot of consultancy services for the banks, and they are selling their own platform, and we're going to strengthen that platform now so it can include also offline payment that they can deliver to the bank.

Okay. We've received a question from a viewer regarding hackathon, and why it is prolonged? Didn't Crunchfish already won the offline module?

Well, the RBI, they do hackathons every year. And the hackathon they do this year is a -- it's a hackathon for actually the entire system. They want to get a grasp of the entire system. We are currently working with the NPCI on the network side. We are working on that standard that will be set on the network side. But there will be, as we have said earlier, also on the banking side. So they are going now in this hackathon and asking the market really, give us a solution, and they've said that it should be secure, it should be scalable, which I take it, it will probably -- it's hard to do that scalability unless it's software. So I think they are endorsing our software approach, and they want it to be interoperable, which is -- means that it needs to be interoperable in the first place with UPI as well in the Indian market. And that means that they will need to go away from sending a token from -- in offline mode because then it will never be interoperable. They will go for the approach that we have patented, and it's our approach where you do an IOU. You have payment instruction, which you send from me to, say, you Martin in an offline mode. And then that later settles. That is that mode that India is now going for. Previously, they actually were sending tokens in offline mode, but they are now moving towards the design that we have -- yes, that has been our way of -- our approach all along that rather do a payment instruction or an IOU in offline mode. So RBI is asking the market for -- give us ideas for this entire solution. I think we are a good fit already because we are on the network side, but there is still, as we said, where -- your question before, Martin, will there be competition? So there will still be on the banking side, secure wallet that is needed there as well. And I guess, they are just scanning the market to see what will people come up with. But I think we are in a good position given our project, which is approved by RBI, that we're working with NPCI into the -- on the network side. But then there is still the issue of -- on the banking side, what will be the solutions there as well. So we will go in and present what we are working on, which includes what we're going to do on the banking side, but also what we do on the network side. That will be our proposition into the carving a hackathon.

Yes. And the ongoing project is obviously is a proof of concept for the whole approach, I guess.

What was your -- I didn't...

Yes. I mean, the ongoing project, the NPCI, is something that you can showcase, not only in India, but elsewhere as well. We have a question regarding the SEPA system -- SEPA payment, and there were earlier talks about with Microsoft. Any outcome on this or updates?

We don't have -- with Microsoft, I can't recall that we have talked about Microsoft when it comes to -- yes, we're not doing anything with Microsoft within sort of payments. SEPA is sort of the European sort of system. And we have dialogues in Europe, as we have released that we were one of the pioneers that showed our way of doing offline payments with a reserve pay and settlement approach. We have shown that for ECB in the digital euro sandbox. And we are in -- yes, we -- that is what we think is the better approach in offline payments. I think that's what's happening right now in India, where they are going away from an approach where they are not having tokens to be sending offline mode, which essentially is a digital bank note. They're going for digital IOUs instead, which is the approach that we've been arguing for all along. I think Europe is -- they have announced in Q3 here that the winner was DNB, and this was on a spec that they developed back in 2023, 2024. Now, yes, they will -- there is a lot of momentum around doing this. I think it will be hard to get scalability and interoperability with this approach in Europe. But we have this IOU approach, which now India is going for, which I hope to position us well for Europe as an alternative to what they're currently doing with their digital bank numbers.

Yes. So why do you think Crunchfish didn't win? Why did it choose this other solution, do you think?

Which one? In...

In Europe, yes, sorry.

Because it was specified as a digital bank note approach. They decided on digital bank notes, which means that you do offline payments where you have -- just like you hand over a banknote, you have finality. You are done. There is no settlement whatsoever. The approach that we have always -- the approach we are going for, which I think is where the market actually is going towards. I think India is a great example of that, because they've tried doing the approach with digital bank notes, but they've given it up, and they're going now for the approach that we've been saying, and this is -- which has what's called a deferred settlement that there is a settlement step. You reserve money, you move basically a payment instruction or an IOU and then you settle. That has always been our approach. But the specification that was done by ECB was more or less saying we want offline finality. So they went for that architecture from the start. And that has never been our approach. We think for scalability reasons, for interoperable reason, it's not a good approach.

I see. Let's stay for a moment in Europe. In your report, you mentioned something -- an organization called P19. What is that?

Well, we were invited by Bank of Austria in relation to the digital euro into a meeting in Austria at their central bank, the Oesterreichische Nationalbank. We were -- and this was a meeting that was organized by the Central Bank of Austria, but also an organization called P19. I don't know what 19 really stands for, but they call themselves the P19 payment circle. And it is -- I think, it is an Austrian organization that has been put together for driving innovation when it comes to payments right now, and they were emphasizing what the pioneers have been -- have done for the digital euro. And as you know, we are one of the pioneers, so we were invited to discuss what's next now with the digital euro. And I talked about that, that, yes, there is a decision on offline payments for doing digital bank notes. But it will be difficult then to do scalability and to do interoperability. Isn't that what you're interested in? And I think the conversation was, yes, these are important. So yes, but the solution you're building right now is not delivering that. However, you can do it with these conditional payments that we as a pioneer have been showing. And we had that dialogue with the P19 organization and the Oesterreichische Nationalbank around this.

Okay. So, physically, Joachim, where are you now? Are you able to switch on video? Or how is it going on the...

I'm moving now, but I need to -- I'm still on the highway. So I need to drive off of the highway in order to stop. But I think I can do that. I'm coming to the next.

Okay. Just wondering, I think the viewers are tired of watching at me -- watching me all the time. But let's move on to some of the financial issues in the report and/or at least news during the -- in Q3, you raised SEK 40 million in a directed share issue with the credit facility also of SEK 10 million with warrant exercise in March that could add another SEK 12 million to SEK 16 million. How long will this funding take you?

It will take us through 2026 as we have communicated in a worst-case scenario that we're not getting any revenue, but the money itself is sufficient for -- to the end of 2026.

And in the report also, we were a bit surprised by the higher external costs. It was a bit higher than our estimate at least. Could you describe what -- could you explain what that was caused by?

Yes. Well, one of the things is all the exhibitions. Traveling costs and the exhibition itself probably account for SEK 300,000 of that. But the main part, SEK 700,000 is actually that we had during that quarter, we had higher patenting costs. And that follows a little bit the -- that follows the schedule around patents really that some patents were due for -- that we had to extend them for going national, and that usually has sort of quite a high cost to when we are going from an international PCT phase into a national phase. That's usually, say, SEK 300,000 given how many countries we choose to nationalize our patenting.

Welcome back, by the way. Nice to see you again. And on the other hand, the personnel costs were lower than our forecast. Are you comfortable with the level of this segment in Q3 and going forward?

Yes, we're not hiring right now. I think the level that you saw, it is somewhat also affected by vacation period that is -- a lot of people take vacation in July, August so that's certainly part of it as well. But then we were having lower costs because now all the people from the Gesture side has left the business. So now the full effect of that is seen. And yes, I think we're not hiring. So the level that you see is the level that I think we are budgeting for the -- yes, coming period here in terms of personnel.

Yes. I'm running out of questions. And let's see if there's any other out there from the viewers. We've talked about many of the topics. We have a question regarding the business model. Have you -- I mean, have you validated that towards shareholders during the quarter, someone asks?

Validated the business? I don't understand the question. We have explained it with shareholders. We had a lunch talk, and we -- I had a presentation, which was an investor presentation up at Stora Aksjedagen, where we talked about the business model during -- that was all in September. So I don't know if we discussed the business model. Essentially, our business model is based on a subscription-based model that we -- it's per user per annum. That's what we have with IDFC. But we are also in discussing of adding to that a component where we will make money out of the interest on the amount of money that people have reserved. This -- the user is not getting interest, but the money is still with the banking system, and that creates an opportunity to get part of that interest as part of our -- the money we make out of our solution.

Okay. Thank you. Well, no further questions have arisen. And I think it's time to wrap up things. As a final question, if I ask you to summarize the quarter, what are the 3 most important takeaways would you say?

I think -- yes, the main thing that has happened is that we are what we have always worked for, get our product into the infrastructure of the leading network in the world in India is sort of a great -- that's a great achievement of this quarter. We are starting with it with the digital rupee, and they now have the same sort of architecture for the digital rupee that they go for this reserve pay and settle, which they also can use for UPI. So this really opens up the opportunity to make money out of our system in India. That is great for us. But given that we are getting ourselves into this network of India -- of NPCI of India that is happening, that is opening doors all over the place. And the other takeaway is that we are now in dialogues. I think I said it earlier, I think there is about 20 payment networks right now in the world, where I think half of them we have come further in our discussions, and we will start sort of taking steps towards now even integration. I hope to announce more of those steps soon. And that means that we are getting an even wider footprint around the world with our technology. And that means that as a subsequent step, we will be able to address all those payment services in those networks as well. So we are -- the achievement that we're getting in India is sort of really quite a remarkable achievement of us that we are getting into the -- in such a leading place as India with our technology, it's very strong. And now that opens up for revenues locally in India and then later on into other networks and then revenues on those as well. So we are -- I think we have -- we turned the corner. It's been really exciting that the new strategy that we announced here in May that it has already then got us to where we are right now, which is much further along that sort of track that we announced in the Q1 report. So I'm happy with that. And then now, it's just about executing and getting our product spread. The other last thing I would say is that feeling that we're having, not just with India, but there was a note from Bank of England as well that clearly says that they will not go for a digital banknote in terms of a digital pound. They won't have that in offline mode, but they will go for an approach with deferred settlement. Again, another testimony of that more and more people are understanding that the approach that we've been saying all along where we have all our patents is the approach that is winning ground in the market. I think Europe is the exception now going full speed ahead with a solution that is actually implementing digital banknotes for Europe, whereas I think many other places, many important other places are going for an approach which is based on deferred settlement, which has been our recommendation for offline payments all along.

Okay. Well, thank you very much, Joachim. And it seems as if -- even if you don't press release everything, things -- you're busy coming quarters...

Yes, we're very busy. we're very busy. I would say we are more busy than ever right now. And certainly, our tech team are working really long hours right now to not only support what we're doing here in India, but presenting with new payment networks around the world with our solution. So it is very busy times at the moment, it is.

So thank you very much, Joachim, for joining, and drive safely to the office. Thanks, everyone, who's watching. And please don't forget to subscribe to our YouTube channel, so you don't miss our next update. Thank you all. See you later.

Thank you, Martin. Thanks.