Blender Financial Technologies LTD

Regulatory News Service • Apr 4, 2023

INDEPENDENT EQUITY RESEARCH

BLENDER FINANCIAL TECHLOGIES LTD

04.04.2023

Key events in Q4 2022 and recent months:

• During 2022, Blender expanded activity of placing credit at points of sale (BNPL Buy Now Pay Later). Today, the group is spread over thousands of points, including points of sale of leading chains such as KSP, Diezenhaus, Bug, iDigital and more.
• In March 2023, the joint venture with Bank Hapoalim Blender Pay BNPL began operating.
  • o Blender received initial financing of NIS 40 million to start operations in 2023.
  • o In January 2023, the company received a license to provide credit to operate the project
  • o Blender owns 80% of the issued and paid-up capital of BNPL, with the remaining 20% held by Bank Hapoalim. The car credit sector, in which Blender specializes in providing credit for second-hand and "0 km" cars, continued its growth in 2022. In February 2022, the company raised a line of credit from Bank Mizrahi Tefahot of NIS 50M to finance loans for car purchases with insurance.
• In 2022, the company worked to obtain a dedicated banking license in Europe (through the purchase of the LTL Credit Union) which, if obtained, would allow the company to provide credit by accepting deposits from customers. However, in November 2022, the company was informed that the Central Bank of Lithuania would not grant LTL the license and as a result the company cancelled the purchase transaction and received back the funds it paid for the transaction. Against this backdrop, the company decided to continue to rely on credit lines from large institutional and financial bodies for the purpose of establishing credit in Europe. Also, the company has frozen the placement of new loans in Latvia as part of the actions it takes to reach profitability.

2022 Financial Overview

here.

• Cash and cash equivalents decreased by approx. 51.4% to approx. NIS 31.5 million, mainly due to the return of the deposit of approx. EUR 5 million for the cancellation of the LTL purchase.
• Revenues increased by approx. 75% to approx. NIS 31 million, mainly due to the almost doubling of credit activity commissions and significant growth in credit brokerage activity (growth of approx. 56% YoY). The increase in income is a positive sign of the expansion of the company's activities.
• Net loss decreased by approx. 18% to NIS 17.2 million, mainly due to growth in revenues, despite an increase in operating expenses. The decrease in net loss compared to the previous year indicates that the company is moving towards profitability.
• The gross adjusted revenues in Israel (NON-GAAP) amounted to approx. NIS 52.3 million in 2022, an increase of approx. 61.7% compared to 2021.
• The balance of the loan portfolio in Israel amounts to approx. NIS 613 million, as of December 31, 2022 - an increase of 56% compared to December 31, 2021.
• The volume of loans made in Israel approx. NIS 406 million in 2022, an increase of 91.3% YoY. In Q4 2022, loans in Israel amounted to approx. NIS 126.8 million – a figure that embodies a rate of credit positions in the amount of more than half a billion Shekel a year.
• The number of paying customers in Israel increased to approx. NIS 56.9 thousand, as of December 31, 2022, an increase of 41% compared to NIS 40.3 thousand on December 31, 2021.
• For the first time, beyond a sectoral profit for the first time since its establishment, the credit brokerage sector ended 2022 with a sectoral profit of approx. NIS 3.6 million, compared to a loss of approx. NIS 4.4 million in 2021.

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

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 a contemporary user experience along with 24/7 customer support. Furthermore, digitization allows financial entities to offer lower prices and fees without harming their profitability. However, consumer confidence and regulatory challenges are the main obstacles to the adoption of innovative fintech solutions in the financial world. This is where a blender comes into play. The company develops innovative technology for providing consumer credit,

The company received global recognition (awards, conferences, and praise) in the industry, which strengthened consumer confidence in its integrity. Blender uses machine learning and artificial intelligence (AI)-based tools to optimize financial operations such as risk assessment and profile analysis of borrowers and lenders. One of the main results is the reduction of fraud cases to almost zero numbers, which allows focusing on the direct risk factors of the customer.

In addition, the EMI license of the European Union in the company's possession, allowed it to make crowdlending opportunities available to its customers, and the possibility to participate in the financing of large infrastructure projects such as a project to establish hydroelectric power plants.

Key Focus Area:

Underserved Credit Markets

(Primarily in developed, emerging and western world countries)

Key Function: Streamlined and low-risk cross-border lending services

Blender has a very low ratio between credit system employees and customers of about 1/1,000, five times better than the average in the banking sector in the European Union. In addition, the company's advanced technological platform allows it to reduce operating costs and offer attractive prices for its financial services. The company offers various loans (with flexible repayment options and minimal fees) in two main channels, B2C and B2B2C. While in Europe, Blender serves as a Balance Sheet Lender, in Israel the company currently operates as a Marketplace Lender.

In Israel, after signing agreements with hundreds of retailers, Blender is considered a leader in the field of digital consumer credit with a deployment of about thousands of distribution points - BNPL where the company today has a unique solution on e-commerce sites that allows fast and simple digital credit. In addition, Blender is expanding its activities in the field of credit for the purchase of a car in Israel, known for its concentration and high profit margins, which is already deployed in approximately 450 car dealerships in Israel and Europe. Also, the company works to raise funds from a variety of different sources, thereby reducing its financing costs and supporting its growth.

As part of its strategy, Blender is working to establish its position as a company that provides digital credit solutions.

We see Blender Financial Technologies Ltd. as an excellent opportunity for investors seeking to invest in innovative fintech companies, and specifically in a company that provides services to a market that is in accelerated growth (the non-bank credit market). Furthermore, the company plans to expand its digital credit services, in order to reach its full potential its growth in the coming years.

Company Overview

Blender Financial Technologies Ltd. (TLV: BLND), is an international fintech company that provides credit and innovative 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 credit company focusing on two main segments: (i) Buy Now Pay Later (BNPL) and (ii) Auto Loans.

The company has developed a propriety automatic 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 1.4 billion in loans, as of 31.12.2022. 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.

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 technological platform is expected to challenge the existing monopoly in the credit market, where the banks and credit card companies mainly control consumer credit. The technology allows borrowers to get a loan quickly and simply without the need to visit any branch, mainly in the B2B2C model through channels such as BNPL and credit for car financing. Blender, among other things, differs from other companies in that it provides borrowers with the ability to repay the loan at any time at zero cost alongside a transparent and user-friendly loan processing process.

In addition, Blender has gained significant recognition in the industry. The company was ranked among the top 100 startups in Asia and Europe and was selected by the London Stock Exchange to participate in the ELITE program. In 2023, the company was ranked in the ranking of the fastest growing companies in Israel by Globes.

Below are the awards and accolades the company has won:

2020 "Efma-Capgemini Financial NewTech 2020 Watchlist" – Wealth Management category 2020 – Israel" (CV

2020 Award: "Most Trusted Small Loan Provider,

Magazine)

2019 Red Herring 100 Awards

2017 Blender's CTO and board member recognized among Forbe's list of 30 Under 30 Most Promising Young Entrepreneurs

2016 Selected to participate in the Elite Program of the London Stock

Exchange

2016 Award: Red Herring 100 Awards

2015 Award: leading Israeli fintech company

2015 Shortlisted among Top 100 Leading Global Fintech Innovators

2015 Blender's CEO and board member recognized among 40 Under 40 Most Influential Figures

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.

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.

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 2020-25 600.0
500.0
400.0
300.0
200.0
100.0
0.0	2020	2021	2022	2023	2024	2025
Digital Payments	480.9	506.9	528.2	545.4	557.5	569.8
Personal Finance	23.5	29.8	34.9	38.9	42.3	46.0
Alternative Lending	1.2	1.3	1.3	1.4	1.4	1.4
Alternative Financing	0.1	0.1	0.1	0.1	0.1	0.1

About Frost & Sullivan

Frost & Sullivan* is a leading global consulting, and market & technology research firm that employs staff of 1,800, which includes analysts, experts, and growth strategy consultants at approximately 50 branches across 6 continents, including in Herzliya Pituach, Israel. Frost & Sullivan's equity research utilizes the experience and know-how accumulated over the course of 55 years in medical technologies, life sciences, technology, energy, and other industrial fields, including the publication of tens of thousands of market and technology research reports, economic analyses and valuations. For additional information on Frost & Sullivan's capabilities, visit: www.frost.com. For access to our reports and further information on our Independent Equity Research program visit: www.frost.com/equityresearch.

*Frost & Sullivan Research and Consulting Ltd., a wholly owned subsidiary of Frost & Sullivan, is registered and licensed in Israel to practice as an investment adviser.

What is Independent Equity Research?

Nearly all equity research is nowadays performed by stock brokers, investment banks, and other entities which have a financial interest in the stock being analyzed. On the other hand, Independent Equity Research is a boutique service offered by only a few firms worldwide. The aim of such research is to provide an unbiased opinion on the state of the company and potential forthcoming changes, including in their share price. The analysis does not constitute investment advice, and analysts are prohibited from trading any securities being analyzed. Furthermore, a company like Frost & Sullivan conducting Independent Equity Research services is reimbursed by a third party entity and not the company directly. Compensation is received up front to further secure the independence of the coverage.

Analysis Program with the Tel Aviv Stock Exchange (TASE)

Frost & Sullivan is delighted to have been selected to participate in the Analysis Program initiated by the Tel Aviv Stock Exchange Analysis (TASE). Within the framework of the program, Frost & Sullivan produces equity research reports on Technology and Biomed (Healthcare) companies that are listed on the TASE, and disseminates them on exchange message boards and through leading business media channels. Key goals of the program are to enhance global awareness of these companies and to enable more informed investment decisions by investors that are interested in "hot" Israeli Hi-Tech and Healthcare companies. The terms of the program are governed by the agreement that we signed with the TASE and the Israel Securities Authority (ISA) regulations.

For further inquiries, please contact our lead analyst:

Dr. Tiran Rothman T: +972 (0) 9 950 2888 E: equity.research@frost.com

Disclaimers, disclosures, and insights for more responsible investment decisions

Definitions: "Frost & Sullivan" – A company registered in California, USA with branches and subsidiaries in other regions, including in Israel, and including any other relevant Frost & Sullivan entities, such as Frost & Sullivan Research & Consulting Ltd. ("FSRC"), a wholly owned subsidiary of Frost & Sullivan that is registered in Israel – as applicable. "The Company" or "Participant" – The company that is analyzed in a report and participates in the TASE Scheme; "Report", "Research Note" or "Analysis" – The content, or any part thereof where applicable, contained in a document such as a Research Note and/or any other previous or later document authored by "Frost & Sullivan", regardless if it has been authored in the frame of the "Analysis Program", if included in the database at www.frost.com and regardless of the Analysis format-online, a digital file or hard copy; "Invest", "Investment" or "Investment decision" – Any decision and/or a recommendation to Buy, Hold or Sell any security of The Company. The purpose of the Report is to enable a more informed investment decision. Yet, nothing in a Report shall constitute a recommendation or solicitation to make any Investment Decision, so Frost & Sullivan takes no responsibility and shall not be deemed responsible for any specific decision, including an Investment Decision, and will not be liable for any actual, consequential, or punitive damages directly or indirectly related to The Report. Without derogating from the generality of the above, you shall consider the following clarifications, disclosure recommendations, and disclaimers. The Report does not include any personal or personalized advice as it cannot consider the particular investment criteria, needs, preferences, priorities, limitations, financial situation, risk aversion, and any other particular circumstances and factors that shall impact an investment decision. Nevertheless, according to the Israeli law, this report can serve as a raison d'etre off which an individual/entity may make an investment decision.

Frost & Sullivan makes no warranty nor representation, expressed or implied, as to the completeness and accuracy of the Report at the time of any investment decision, and no liability shall attach thereto, considering the following among other reasons: The Report may not include the most updated and relevant information from all relevant sources, including later Reports, if any, at the time of the investment decision, so any investment decision shall consider these; The Analysis considers data, information and assessments provided by the company and from sources that were published by third parties (however, even reliable sources contain unknown errors from time to time); the methodology focused on major known products, activities and target markets of the Company that may have a significant impact on its performance as per our discretion, but it may ignore other elements; the Company was not allowed to share any insider information; any investment decision must be based on a clear understanding of the technologies, products, business environments, and any other drivers and restraints of the company's performance, regardless if such information is mentioned in the Report or not; an investment decision shall consider any relevant updated information, such as the company's website and reports on Magna; information and assessments contained in the Report are obtained from sources believed by us to be reliable (however, any source may contain unknown errors. All expressions of opinions, forecasts or estimates reflect the judgment at the time of writing, based on the Company's latest financial report, and some additional information (they are subject to change without any notice). You shall consider the entire analysis contained in the Reports. No specific part of a Report, including any summary that is provided for convenience only, shall serve per se as a basis for any investment decision. In case you perceive a contradiction between any parts of the Report, you shall avoid any investment decision before such contradiction is resolved. Frost and Sullivan only produces research that falls under the non-monetary minor benefit group in MiFID II. As we do not seek payment from the asset management community and do not have any execution function, you are able to continue receiving our research under the new MiFiD II regime. This applies to all forms of transmission, including email, website and financial platforms such as Bloomberg and Thomson.

Risks, valuation, and projections: Any stock price or equity value referred to in The Report may fluctuate. Past performance is not indicative of future performance, future returns are not guaranteed, and a loss of original capital may occur. Nothing contained in the Report is or should be relied on as, a promise or representation as to the future. The projected financial information is prepared expressly for use herein and is based upon the stated assumptions and Frost & Sullivan's analysis of information available at the time that this Report was prepared. There is no representation, warranty, or other assurance that any of the projections will be realized. The Report contains forward-looking statements, such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions. Undue reliance should not be placed on the forward-looking statements because there is no assurance that they will prove to be correct. Since forwardlooking statements address future events and conditions, they involve inherent risks and uncertainties. Forward-looking information or statements contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from current projections. Macro level factors that are not directly analyzed in the Report, such as interest rates and exchange rates, any events related to the eco-system, clients, suppliers, competitors, regulators, and others may fluctuate at any time. An investment decision must consider the Risks described in the Report and any other relevant Reports, if any, including the latest financial reports of the company. R&D activities shall be considered as high risk, even if such risks are not specifically discussed in the Report. Any investment decision shall consider the impact of negative and even worst case scenarios. Any relevant forward-looking statements as defined in Section 27A of the Securities Act of 1933 and Section 21E the Securities Exchange Act of 1934 (as amended) are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. TASE Analysis Scheme: The Report is authored by Frost & Sullivan Research & Consulting Ltd. within the framework of the Analysis Scheme of the Tel Aviv Stock Exchange ("TASE") regarding the provision of analysis services on companies that participate in the analysis scheme (see details:

www.tase.co.il/LPages/TechAnalysis/Tase_Analysis_Site/index.html, www.tase.co.il/LPages/InvestorRelations/english/tase-analysis-program.html), an agreement that the company has signed with TASE ("The Agreement") and the regulation and supervision of the Israel Security Authority (ISA). FSRC and its lead analyst are licensed by the ISA as investment advisors. Accordingly, the following implications and disclosure requirements shall apply. The agreement with the Tel-Aviv Stock Exchange Ltd. regarding participation in the scheme for research analysis of public companies does not and shall not constitute an agreement on the part of the Tel-Aviv Stock Exchange Ltd. or the Israel Securities Authority to the content of the Equity Research Notes or to the recommendations contained therein. As per the Agreement and/or ISA regulations: A summary of the Report shall also be published in Hebrew. In the event of any contradiction, inconsistency, discrepancy, ambiguity or variance between the English Report and the Hebrew summary of said Report, the English version shall prevail. The Report shall include a description of the Participant and its business activities, which shall inter alia relate to matters such as: shareholders; management; products; relevant intellectual property; the business environment in which the Participant operates; the Participant's standing in such an environment including current and forecasted trends; a description of past and current financial positions of the Participant; and a forecast regarding future developments and any other matter which in the professional view of Frost & Sullivan (as defined below) should be addressed in a research Report (of the nature published) and which may affect the decision of a reasonable investor contemplating an investment in the Participant's securities. An equity research abstract shall accompany each Equity Research Report, describing the main points addressed. A thorough analysis and discussion will be included in Reports where the investment case has materially changed. Short update notes, in which the investment case has not materially changed, will include a summary valuation discussion. Subject to the agreement, Frost & Sullivan Research & Consulting Ltd. is entitled to an annual fee to be paid directly by the TASE. Each participant shall pay fees for its participation in the Scheme directly to the TASE. The named lead analyst and analysts responsible for this Report certify that the views expressed in the Report accurately reflect their personal views about the Company and its securities and that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation or view contained in the Report. Neither said analysts nor Frost & Sullivan trade or directly own any securities in the company. The lead analyst has a limited investment advisor license for analysis only.

© 2023 All rights reserved to Frost & Sullivan and Frost & Sullivan Research & Consulting Ltd. Any content, including any documents, may not be published, lent, reproduced, quoted or resold without the written permission of the companies.