To The Moon

A payment processing company in a niche market. In US, plasma donor get paid which comes in a prepaid card.

Paysign (‌$Paysign Inc(PAYS)$‌) is a vertically integrated provider of prepaid card products and processing services for corporate, consumer and government applications. This is a small cap company of $94.9mil market capitalisation.

PAYS principal target markets for processing services include prepaid card issuers, retail and private-label issuers, small third-party processors, and small and mid-size financial institutions in the United States and Mexico.

PAYS in its annual report mentioned : “The prepaid card market is one of the fastest growing segments of the payments industry in the U.S.” This was agreed by a research report on alliedmarketresearch.com “Prepaid Card Market By Offering (General Purpose Card, Gift Card, Government Benefit/Disbursement Card, Incentive/Payroll Card, and Others), Card Type (Closed Loop Card, and Open Loop Card), and End User (Retail, Corporate, and Government/Public Sector): Global Opportunity Analysis and Industry Forecast, 2021–2030”, which forecast global prepaid card market size was valued at $1.73 trillion in 2019, and is projected to reach $6.87 trillion by 2030, growing at a CAGR of 18.2% from 2021 to 2030.

As PAYS does not have own banking license to issue open-loop prepaid cards, their cards are offered to end users through their relationships with bank issuers. This can be a risk to the business.

Basically open-loop cards are cards can be used to receive cash at ATM locations by PIN; or purchase goods or services by PIN or signature at retail locations virtually anywhere that the network brand (Visa, Interlink, Plus, MasterCard, Maestro, Cirrus, Discover and Pulse, etc.) is accepted. While closed-loop cards can only be used at a specific merchant. And restricted-loop cards can be used at several merchants, or a defined group of merchants, such as all merchants at a specific shopping mall.

How is revenue generated?

As an end-to-end payment processor and prepaid card program manager, PAYS derive the revenue from all stages of the card lifecycle. These revenues can include fees from program set-up; customization and development; data processing and report generation; card production and fulfillment; transaction fees derived from card usage; inactivity fees; card replacement fees; program administration fees; and settlement income.

PAYS reported revenue in three segments: Plasma industry (88%), Pharma industry (11%) and Other (1%). (Fraction of revenue by segment from year 2021 figure).

Turn profitable again in Q4 2021

Due to the COVID-19 outbreak which had caused plasma center closures, and the stimulus packages signed into law during 2020 and 2021 reduced the incentive for individuals to donate plasma for supplementary income, PAYS was suffering loss. In Q4 2021, PAYS has turned profitable with $0.1mil net income, although full year is still a loss. Full year net loss has decreased from loss of $9.1mil to loss of $2.7mil.

By the key metrics, PAYS business has gradually improved.

- Gross Dollar Volume Loaded on Cards: $1066mil in year 2021, vs $968mil in year 2020.

- Conversion Rate on Gross Dollar Volume Loaded on Cards (2021 vs 2020):

-> revenue conversion rate: 2.76% vs 2.49%

-> gross profit conversion rate: 1.38% vs 0.96%

-> net profit conversion rate: (0.25%) vs (0.95%)

As in management’s discussion: “The increase in Plasma revenue was primarily due to an increase in plasma donations and dollars loaded to card as COVID-19 related government stimulus payments were phased out, donation centers reopened, and mobility restrictions were lifted during the year.”

Taking input from the two articles below, a person can donate up to 104 times a year and receive $100 per donation, that is $10.4k. If we take half of that, it is $5200, still a huge sum of money. Therefore, we can expect the plasma revenue will increase more due to more people will want some extra income to keep up with the expanding living cost when US inflation rate hits 40-year high at 7.9%.

From an article from bitcoinmagazine.com “OCTAPHARMA LAUNCHES PILOT TO GET PAID IN BITCOIN FOR PLASMA DONATIONS”, OctaPharma launches a 32 location pilot that pays bitcoin for plasma donations that allows plasma donors to receive $100 of bitcoin for their donations up to twice a week. Donors need only create a Swan Bitcoin account, or provide the email associated with their already existing account to the representative at OctaPharma.

From an article from theatlantic.com “How Blood-Plasma Companies Target the Poorest Americans”, the industry thrives in the U.S. in particular because the country allows compensation of donors (many countries do not) and has some of the least restrictive plasma regulations in the world. In the United States, a person can donate up to 104 times a year, while in much of Europe, donors are limited to 45 times in a year.

An article from seeking alpha.com “Paysign: The Plasma Toll Booth” mentioned PAYS operates in a duopolistic environment with Onbe (formerly Wirecard). From PAYS annual report, PAYS currently services approximately 35% of the plasma collection centers in the United States. They exiting the Q4 quarter with 366 centers. This compares to 340 centers at the end of 2020.

From the recent Q4 report, the cost of revenues increased by 13%. Management explained: “The increase was primarily due to the increase in plasma transactions, as many of the plasma transaction costs are variable, which are provided by third parties who charge us based on the number of transactions that occur during the period.” I think this worth some attention as this can affect the net income.