PayPal Australia's lucrative position in the local ecommerce payments market is under threat from Melbourne-based electronic money services provider, iSignthis Limited.
iSignthis is the best-performed financial services stock on the ASX financials index this year, having rallied from a low of 14 cents at the start of January to a record close this week of A$1.21.
The share price rallied more than 17 per cent on Wednesday after chief executive John Karantzis signalled that the company was on track to post its maiden profit in the second half of 2019.
The iSignthis business posted a net loss of $700,000 in the six months to the end of June following a 50 per cent rise in revenue to $7.5 million.
Most of the group's income generation is presently occurring in Europe, where iSignthis operates through electronic money licences issued by several European regulators.
The country's newest billion-dollar company recently applied to APRA and the Reserve Bank to secure authorisation to widen its payments activities in Australia.
If the application is approved, iSignthis will become only the second holder of a purchased payments facilities licence in Australia alongside PayPal. The special licence would give iSignthis the status of an approved deposit taking institution, with the only restriction being that it could not pay interest on funds held in customers' accounts.
Karantzis says he is positioning the business to give local retailers and consumers a cheaper alternative to traditional payments networks operated by the major banks and global card schemes.
The business model is similar to PayPal's offering where retailers refer customers wanting to make online purchases to an external payments platform.
After verifying the consumer's identity iSignthis issues electronic money that the customer uses to pay for goods and services at the referring business's website.
"Our business is aiming to disintermediate the traditional merchant servicing networks by erecting a new ecosystem for customers and businesses to transact," he said.
"All we are doing is providing a payment method outside of the traditional processes."
A critical building block of the iSignthis business model was set earlier this month when the company secured principal membership of the Visa card scheme in the Asia Pacific region.
The deal enables iSignthis to act as a merchant acquiring institution, process card not present payments and make settlements on behalf of merchants from all institutions that issue Visa cards.
The arrangement enables iSignthis to collect fees on every transaction it processes on behalf of its online retail partners.
ISignthis will be able to fully leverage the Visa deal in Australia after it secures the payments licence from APRA and an exchange settlement account from the Reserve Bank.