Last week Monday, 21st May, BusinessDay reported on the NGN11Billion fraud perpetrated via eTranzact, a payments solution provider. They settle real-time transactions using a multi-channel electronic payment system. This definition will be necessary as we try to understand the unsaid things behind the story to date.
Also note that eTranzact is one of the only 7 technology companies (out of 170 companies, as at March 31, 2018) listed on the Nigerian Stock Exchange (NSE), a feat they accomplished in 2009, six years after they were incorporated as a Private Limited Liability company.
TMI: Even one of her major counterparts, Interswitch which started operations before them is yet to be listed, although their intended 2016 IPO got delayed and promises to happen “before the end of 2019”, according to Akeem Lawal, Divisional Chief Executive Officer for switching and processing in an interview. Theirs is expected to be a dual-listing in London and Lagos.
What being publicly quoted implies is; any negative news or reputational scandal could easily and quickly hurt your stock price and market capitalisation as the market reacts. How does it work? Investors start taking a position (long, short or hold) on your company. Many investors will short (aka short-sell) the stock. Here, they borrow the shares, sell them immediately (at the current price which if successful, will turn out to be a higher price than what they will buy it back for) in hopes of buying it back when the price is much lower (because they expected it to have fallen as a result of recent announcements). Thus, that enormous supply of a company’s share is what then leads to the low prices, following the laws of demand and supply. It’s like a vicious cycle, where the market needs people to sell their shares (done at a higher price) so they can be a surplus and then they will be able to buyback when prices are low.
However, in trying to salvage the situation, the eTranzact Management followed up with a press release on a major national news outlet, ThisPaperLive denying the fraud allegations and announcing changes to its management. This I believe was done to win the confidence of the market. To reassure them that they were on top of the situation.
It is quite disturbing that eTranzact shares have traded on a flat line almost all through the month of May. With the highest price being 4.55 and the lowest being 4.35 with a modal price of 4.35. The recent news did not seem to spur market forces to action, as things remained as-is before and after the announcement. Perhaps, it has to do with the trading habits of stockbrokers in this part of the world? where they might not be day traders.
Financially, eTranzact International PLC was not facing a dip in profits. As their net income (after tax) fell by -53.63% from NGN449.49m to NGN208.41m. This comes despite a 12.28% increase in revenues from NGN10.40bn to NGN11.68bn over the past two years. Their income statement as of December 31, 2017, reveals they incurred a total cost of revenue of NGN9.96bn compared to NGN7.5bn in 2016. Likewise, their Selling, General, and Administrative (SGA) expenses went up by 1.3% from NGN1.6bn in 2016.
From a source knowledgeable on the matter who has asked to not be named for privacy concerns, he complained that the regulatory requirements placed on them make it such that in splitting profit from financial transactions done via their platform, the banks earn a more profitable ratio than they do. Meanwhile, he claims they do all the major weight-lifting. He is convinced that this was the Central Bank’s way of trying to cut back on the profit they made in 2015 (NGN705m income after-tax).
Since the first Economic and Financial Crimes Commission (EFCC) arrest of Mr. Michael O. Obasuyi, Managing Director of Smartmicro Systems Limited published on 12th April 2018, by the Head, Media, and Publicity of the EFCC, Mr. Wilson Uwujaren via Sahara Reporters. This is the first time they will be revealing the name of the electronic Payment Processor, eTranzact. One could assume investigations are actually on-going on this case and it’s not being abandoned.
Yet to be released, is the name of the “First generation Bank” that was the holder of the Pre-funded Settlement account. Should the name be released? Could they also be at fault? Or are they indemnified?
Find out in the next part of this story – Yes, eTranzact is liable according to Anti-Money Laundering regulations but is the Bank associated also liable? Is there more to this story that could help us understand this case better. If not for anything so that upcoming Switching companies do not fall into such negligence again.
Kindly comment below if you have questions you will like answered.
