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IP - Quarterly analysis update report, target price remains at NIS 52.1

Company: Blender Financial Technologies LTD Date: 2022-04-03 Language: English Register to download
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INDEPENDENT EQUITY RESEARCH

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### **BLENDER FINANCIAL TECHLOGIES LTD**

coverage report [here.](https://www.frost.com/research/equity-research/blender/)

03.04.2022

**Key events in the passing months and Q4 2021:**

- On November 1, **Blender and Bank HaPoalim** concluded negotiations and signed an agreement in which the companies **will establish a jointly owned company**, of which **80% will be owned by Blender** and 20% Bank HaPoalim, with the purpose of providing consumer credit to private individuals at physical and virtual points of sale in Israel in all sectors of the economy (aside from those that will not comply with the joint venture's risk policy.)
	- The joint company will be established for either a period of 12 months or until the amount of loans reaches NIS 40 million, whichever comes first. This joint venture is viewed as a pilot – the intent is that the collaboration will last far beyond a year.
- On November 21, the company received a **fourth line of credit of EUR 5 million** for its European activity from **Eiffel Investment Group**.
	- The amount joins the three previous investments from Eiffel, whose total line of credit to Blender is EUR 18 million. The amount in the current transaction will be used to provide consumer credit for Blender operations in Lithuania.
- Blender's gross (NON-GAAP) revenues in 2021 amounted to NIS 41 million, a growth of 23.2% compared to NIS 33.3 million in 2020. The growth stems from a significant increase in organic activity, expansion of areas of activity, acquisition of activities abroad and signing of substantial collaborations.
- The company's revenues grew 21% from 2020, from NIS 33.6 million to NIS 40.7 million in 2021. This increase in revenues, coupled with a decrease in operating expenses, led to a decreased net loss of NIS 20.89 million in 2021, compared with a net loss of NIS 24.19 million in 2020.
	- As of December 31, 2021, the company had **cash/cash equivalents** of NIS 64.93 million, which is a significant increase from NIS 11.08 million in 2020. The balance of Blender's **loan portfolio** continues to grow and amounts to approximately NIS 562 million (weighting the balance of the credit portfolio of the Lithuanian credit corporation LTL, whose acquisition was completed in 2022). This is a 78% growth in the volume of the portfolio weighted by the LTL transaction or an organic increase of 43% compared to December 31, 2020.
- On January 16, 2022, the company completed the acquisition of 76.85% of the shares of LTL Kredito Unija, a Lithuanian credit union. The company holds a certificate in principle for the conversion of its activity from a credit union to a bank, specializes in credit for real estate and business in Lithuania, manages deposits of approx. 35 million euros and a credit portfolio of approx. EUR 32 million, and has equity of approx. EUR 2.4 million. This acquisition triples Blender's credit portfolio in Europe and shortens the procedure for obtaining a pan-European banking license.

For further details on the company and its markets, please read our initiation of

## **Investment Thesis**

The financial world is undergoing a digital transformation, with more and more services and transactions happening online. Both the general public and SMEs are looking for better financial products with more accessible and transparent payment solutions. Due to changes in consumer demands and needs, SMEs increasingly adopt financial technology or FinTech solutions to improve processes and automate the financial payment services they offer consumers. Specialized software and algorithms are utilized to manage financial operations better, and consumers increasingly use computers and smartphones to streamline interactions with their financial service providers. FinTech solutions do not require physical branches and enable financial institutions to serve a broader clientele while using their existing employee base. As a result, they can provide specific and targeted financial products while reducing operational costs, becoming more cost-competitive than traditional market players.

Digitization of the financial world enables up-to-date user experiences, along with 24/7 customer support. With digitization, financial organizations can charge less without compromising their profitability. However, consumer trust and regulatory hurdles present the primary obstacles to adopting innovative FinTech solutions in the financial world. This represents an ideal opportunity for Blender, which develops innovative technology for providing consumer credit. It is currently in a progressive stage of the process of obtaining a license to operate a pan-European digital bank, including deposit insurance under the *European Deposit Insurance Scheme* (EDIS). The company aims to leverage respected sources of low-cost capital by raising deposits at a low rate, mainly from western European countries. This is expected to reduce its cost base significantly. Moreover, receiving a banking license would allow the company to operate seamlessly across the European Economic Area as both a lender and a deposit issuer, without the need to obtain a new license in each country.

Blender utilizes machine learning and artificial intelligence-enabled tools to optimize financial operations such as portfolio development, risk assessment, and lender and borrower profiling. Its key focus area is underserved credit markets, providing streamlined and low-risk cross-border lending services. One of their primary outcomes is the near-elimination of fraud, allowing the platform to focus on the direct risk factors of each client. The company has received multiple industry awards and accolades, testifying to its integrity and enhancing consumer trust.

Last but not least, with the EU EMI license that the company holds, Blender can empower its clientele to participate in crowdlending opportunities, funding large infrastructure projects like hydroelectric power plants.

Blender has a very low employee<sup>1</sup> -to-consumer ratio of 1:1,000, five times better than the EU banking average. In addition, the company's advanced technology platform enables it to reduce operational costs and offer attractive prices on its financial service products. The company provides various loans (with flexible repayment options and minimal charges) via two main channels, B2C and B2B2C. Blender acts as a balance sheet lender in Europe and a marketplace lender in Israel.

In Israel, after signing agreements with hundreds of retailers, Blender is considered a market leader in the BNPL segment. In addition, Blender is expanding its activity in the highly profitable and centralized auto lending segment. The company also continues to seek diversity in its funding sources to reduce the cost of funding and support growth. The company recently signed an agreement with Bank HaPoalim to jointly establish a company to provide consumer credit to private individuals. The purpose of the joint venture is to provide consumer credit to private individuals at physical and virtual points of sale in Israel in all sectors of the economy.

In Europe, becoming a fully-fledged digital bank that provides deposit and lending services would enable the growth of the company's loan portfolio, significantly reduce its cost of capital, and facilitate the growth of the company's activity. The company is expanding its activities in Central Europe as a balance sheet lender to new countries to encourage this growth.

As part of its strategy, Blender acts to solidify its position as a global digital banking company, among other things, by expanding its existing operations in Europe to countries such as Poland and other countries in the coming years. The company is established and active already in Poland. Blender is also working to enlarging its financial services portfolio by raising deposits from the public, which will significantly reduce the group's capital costs starting from 2022.

We view Blender Financial Technologies Ltd. as a great opportunity for investors seeking to invest in an innovative FinTech company, specifically one that provides services to the under-served and fast-growing non-

<sup>1</sup> The company's credit division employees

bank credit market. Furthermore, the company's plan to expand into digital banking services also strengthens its potential growth value in the coming years.

## **Company Overview**

**Blender Financial Technologies Ltd.** (TLV: **BLND**), is a publicly-traded global FinTech company that provides innovative credit and financing solutions to tens of thousands of customers according to their preferences and needs. The company operates through two main arms: the Israeli and the European. The Marketplace Lending activities, which launched its operations in 2014, are under the Israeli arm. The Balance-Sheet Lending activities are under the European arm, including the countries of Lithuania, Latvia and Poland. Later on, the company plans to expand to new geographies.

Blender is a global digital banking company focusing on two main segments: (i) **Buy Now Pay Later** (**BNPL**) and (ii) **Auto Loans.** 

The company has developed a propriety customer onboarding and credit rating system named **Rating2.0TM** for its digital credit activity. The Rating2.0TM performance characteristics include **instant and accurate fraud detection, data collection from various open databases, data collection from multiple official databases, advanced creditworthiness assessment process, and enhanced cybersecurity**.

Blender's platform has been used to provide over NIS 800 million in loans, as of Q4 2021. Using its platform, the company has demonstrated its ability to enter different countries quickly, and seamlessly interface with the required databases. In the future, the company could quickly expand to additional countries and present significant growth.

**The company's digital banking activity is currently focused mainly in Europe. Blender is at an advanced stage of the application process for a specialized banking license in Europe.** Also, the company has expanded this year to a new and significant European country - Poland (an office has been opened and a credit license has been obtained). **Upon obtaining the banking license, Blender would have access to serve all EU citizens, a market of over 500 million inhabitants.** 

Blender has an EMI (Electronic Money Institution) license in European Union, allowing it to grant certain types of loans, transfer funds, and offer white label solutions throughout the European Union. Blender also holds a CCP (Consumer Credit Provider) license that allows it to provide credit directly in Europe.

For its Israeli marketplace lending activity, the technology suite developed by the company is called **DirectMatchTM**. The technology suite is essentially a portfolio builder designed for spreading out the lender's

fund among a large pool of different loans. The DirectMatch portfolio builder excels in **increasing** the **investor's spread of risk, interest rate, and ease of use**. Further, DirectMatchTM also ensures that a borrower gets the best deal. The technology uses a proprietary **state-of-the-art matching algorithm** capable of assessing real-time market conditions and creating a unique loan portfolio optimized for those conditions.

Blender's technology platform is expected to challenge the existing market monopoly in the credit market, where banks and credit card companies mainly control the consumer credit market. The technology **enables borrowers to get a loan quickly and simply without the need to visit** any branch mainly at a B2B2C model in channels like BNPL and Auto Loans. Moreover, Blender differentiates itself by providing borrowers with the ability to repay at any time at zero cost along with a simple, user-friendly, and transparent loan processing and costing. Also, Blender has received **significant industry recognition**, which speaks volumes about its growth potential. The below-given table provides a tabular representation of the company's awards and accolades:

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**2016**

Award: Red Herring 100 Awards

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**2015**

Award: **leading Israeli fintech company**

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**2015**

Shortlisted among **Top 100 Leading Global Fintech Innovators**

Blender's CEO and board member recognized among 40 Under 40 Most Influential Figures

**2015**

# **Digital Banking Market Overview**

### **Global FinTech Markets:**

The global market for FinTech is growing at a significant rate owing to the emergence of new digital banks and the adoption of digital banking methods by traditional banks. The transaction volume on digital banking platforms is expected to grow from US \$6.84 Trillion in 2020 to 13.92 Trillion in 2025. While digital payments are the largest segment and are expected to account for most of the market even in the future, personal finance is also expected to witness noteworthy growth in the forecasted period.

![](_page_7_Figure_5.jpeg)

The digital payments segment is expected to account for more than 3/4th of the revenues of the global fintech market during the forecast period.

### **European FinTech Market:**

The European market for FinTech shows signs of impressive growth after recovery from Covid induced lockdowns which resulted in negative growth for online banking service providers. The transaction volume in the region is expected to reach 2.36 Trillion in 2025 from 1.07 Trillion in 2020.

![](_page_8_Figure_2.jpeg)

The user base of FinTech applications in Europe is growing at a staggering pace as more and more individuals gravitate towards contactless banking and personalized banking services along with increased ecommerce transactions. The combined user base of FinTech applications is expected to grow from 505.64 Million to 617.32 Million users in 2025.

| Europe FinTech Market, Number of Users, By Segment 2020-25<br>600.0 |       |       |       |       |       |       |       |
|---------------------------------------------------------------------|-------|-------|-------|-------|-------|-------|-------|
| 500.0                                                               |       |       |       |       |       |       |       |
| 400.0                                                               |       |       |       |       |       |       |       |
| 300.0                                                               |       |       |       |       |       |       |       |
| 200.0                                                               |       |       |       |       |       |       |       |
| 100.0                                                               |       |       |       |       |       |       |       |
| 0.0                                                                 |       |       |       |       |       |       |       |
|                                                                     | 2020  | 2021  | 2022  | 2023  | 2024  | 2025  | CAGR  |
| Digital Payments                                                    | 480.9 | 506.9 | 528.2 | 545.4 | 557.5 | 569.8 | 3.5%  |
| Personal Finance                                                    | 23.5  | 29.8  | 34.9  | 38.9  | 42.3  | 46.0  | 14.4% |
| Alternative Lending                                                 | 1.2   | 1.3   | 1.3   | 1.4   | 1.4   | 1.4   | 3.1%  |
| Alternative Financing                                               | 0.1   | 0.1   | 0.1   | 0.1   | 0.1   | 0.1   | N/A   |

## **About Frost & Sullivan**

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