Key risks
Agreement/regulatory changes adversely impacting interchange revenues
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Company’s revenues are largely dependent upon Banks sharing a part of interchange on the co-branded cards. Banks currently share a significant part of the interchange with ZAGGLE as they get float on the card balances,
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they get to bundle value added products along with bank’s own core products which creates differentiation viz competition
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Any change in the agreement/Regulatory environment can adversely impact the interchange revenues.
Slowdown in new customer acquisition
- If any of the above 4 growth levers stops working for Zaggle, business could see lower growth rates
Change in Tax laws
- The risk isn’t that significant but might impact Zaggle to an extent
Incentives and cashbacks as a proportion of program fees do not decrease across products
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A key thesis for EBITDA margin expansion is that incentives and cashbacks will moderate over time across each product as these incentives and cashbacks are largely linked towards onboarding and activation of new customers to drive usage of ZAGGLE’s products.
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With Zoyer having a higher incentive payout currently (at above 80%), we expect overall incentives and cashbacks as a proportion of program fees will increase over the next couple of years. However, if the proportion of Incentives and Cashback’s doesn’t decline that the operating leverage may not play out but earning growth can be in line with the revenue growth.
Increase in competitive landscape
- There are many start-ups as well as incumbent entities globally that are offering spends management solutions. As the spends management ecosystem matures, there could be an increase in competitive intensity thereby impacting growth for ZAGGLE. Given the customer low churn rate in this business, it is essential that the company focuses on onboarding clients at an accelerated pace.
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