Elephant Talk Banks on Mobile

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By Josh Levine
Editor, Levine's MicroCap Investor

For investors seeking hyper growth, one of the ripest areas is mobile telecom.

The trends in the financial industry are especially favorable for one of my leading microcap companies -- Elephant Talk Communications (ETAK) and its security-focused ValidSoft subsidiary -- as they roll out their solutions in 2012 to counter electronic fraud relating to card, the internet, and telephone channels.

The shape of the banking industry is changing in many ways, but one that resonates for me is the adoption of new IT and mobile technologies by global banks. Several recent reports indicate that banks will be raising IT budgets as they increasingly shift resources into mobile technologies and services.

Elephant Talk and ValidSoft have focused considerable time and effort on partnerships, as well as securing new customers in Europe, the U.S. and South America. My confidence is unwavering for both the short and long term prospects of ValidSoft to complete and deliver on deals with top global banks.

Banks Raise IT Spending

The trends in the banking industry support my thesis for ETAK and ValidSoft, and indicate that banks are now preparing for big changes over the next few years and beyond.

For starters, IT spending by retail banks globally will increase by $3.6 billion in 2012, according to UK analyst firm Ovum. According to the firm's report, titled “Retail Banking Technology Spending Model Through 2016: Business Function Segmentation,” retail banks will spend $135 billion over the next five years on technology.

The technology investments will be mainly driven by the need to grow revenues and improve customer trust, said Ovum, but will also be driven by changing regulatory compliance. More specifically, the analysts said technologies related to risk management, anti-fraud, compliance, and performance management will experience growth of 4.6% this year, for a total of $6.1 billion globally.

Banks Must Embrace Mobile

The message from another report is that mobile banking has the potential to be a huge make-or-break option for financial institutions.

Over half of mobile phone owners will be using mobile banking within the next five years, according to Javelin Strategy & Research. Most of the biggest US banks already offer mobile banking to their customers, though credit unions and smaller banks have made only minor inroads.

In fact, 92% of the largest 25 banks in the US offer mobile banking, reports Javelin. They say institutions that lack mobile banking risk losing valuable customers to those that offer it.

Security is definitely a serious concern and likely a deterrent for some customers afraid of using mobile banking, but another report from comScore found that Americans are warming up to it. Contributing factors are the soaring popularity of smart phones and tablets, not to mention the sheer convenience of banking anywhere, anytime.

As for areas with the most potential to reduce costs or create new revenue, a Forrester report on banks strongly backs up the ValidSoft and ETAK business model. Forrester identifies two areas within the mobile channel: fraud prevention and marketing to customers.

Interestingly, surveyed banks reported that mobile banking already is playing a role in reducing fraud in a variety of ways -- ranging from simple transaction and security alerts to mobile authentication for bank transfers. While these methods have aided banks' efforts to battle the outrageous costs of fraud, ValidSoft offers a far more robust solution compared to what's currently used.

ValidSoft, Adeptra, and Global Banks

ValidSoft provides a layered, multi-factor authentication approach that includes voice biometrics (if appropriate) to verify high-risk transactions. The different layers are the equivalent to multiple, complex and varied firewalls, raising the bar incredibly high for any fraudsters. At this level of security it inevitably causes them to seek easier targets.

ValidSoft's partner, Adeptra, provides communications for services, fraud processing, marketing, and collections for major credit card companies and other customers. These include the majority of world-leading consumer finance organizations -- half of North America's top 10 financial institutions, seven of the leading 10 UK card issuers, and four of the top five Australian card issuers.

Adeptra hosted the annual Mobile Marketing Association's European User Conference in November. Fraud, collections and customer service specialists from more than nine countries participated to discuss cross-vertical innovations, opportunities and technology applications. The content, according to an Adeptra newsletter, included in-depth discussions and highlights of the Adeptra's future roadmap including a case study presentation from the head of fraud for one of World's largest banking groups.

The bank exec explained how they work with Adeptra to integrate other fraud solutions to deliver a truly enterprise wide solution, often without the need of internal IT resources.

The newsletter article described the elements as follows:

“The solution is being further enhanced to include 3D Secure transactions, securing the channel through SIM Swap and call forwarding. Anonymous proximity services to reduce false positives, Knowledge based authentication for step-up ID&V and finally using the agent interface for final call disposition and charge back stop. This is under pinned with the use of the Adeptra Decision engine as the source of data integration and aggregation.”

While I'm unable to confirm whether this description references ValidSoft's technologies and solutions, it's certainly a good bet. “3D Secure transactions”, “SIM Swap”, “Anonymous proximity services to reduce false positives” and “Knowledge based authentication” all suggest that ValidSoft is involved.

For the record, this bank is the fourth largest bank in the world by profits and eighth by stock market capitalization. What's more, it has 91 million customers and 13,660 branches, the largest branch network in international banking.

The bank also has of the most cutting edge technology and operations platforms in international banking. Geographically, the bank is diversified and evenly balanced between developed and emerging markets. Its presence is concentrated in 9 major markets: Spain, Portugal, Germany, the UK, Brazil, Mexico, Chile, Argentina and the US, and in most of these markets it has attained high market shares in retail banking.

If it is the global bank Adeptra and ValidSoft will eventually reveal as the first major financial institution to commercially adopt ValidSoft's solutions, then that will be a “the shot heard around the world” for Elephant Talk.

Meanwhile, there are plenty more reasons to be excited about the outlook for ETAK and ValidSoft.

If you would like to get the complete story about ETAK, download Josh Levine's Special Report.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , Technology

Referenced Stocks: ETAK

Josh Levine

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