Anthony Speciale Stock Market Analyst

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How This Branchless Bank is Pioneering a Brand New Industry

Boy, have I got a winner for you today! This one is cheap as measured by earning and assets, it’s got good momentum and it comes to us courtesy of our friends in the great white north.

It’s a Canadian bank that just did its US initial public offering (IPO) back in September and has more than doubled over the last year. But it’s still cheap!

I love banking stocks. We all know that. I get really excited about great bank stocks, and I think this is one of them. But here’s the kicker… This bank has a massive presence in two industries that are seeing incredible growth: Digital assets and cybersecurity. They’re huge in both of these spaces.


VersaBank (VBNK) is Canada’s first digital-only, branchless bank. They’re doing business with a lot of financial technology companies using unique deposit products and unique lending products to generate business and grow without a single branch.

They’re working with retailers, financial technology providers and, increasingly, other financial institutions. They’re also getting really active with some digital currency exchanges.

The funding is really interesting. They’re working with lots of brokers all over Canada to attract deposits, but they also have an insolvency deposit plan where they are banking with insolvency and bankruptcy professionals to hold assets of companies that are being reorganized through bankruptcy.

They tailer their program to fit the need of the insolvency industry, and it’s become a rapidly growing business because they are catering to them, structuring the accounts and providing the services that the insolvency professionals need to meet the demands of the courts and their clients to process all of the claims and safeguard the assets through the process.

These are zero-cost deposits. They are not paying any interest on those accounts, just services, so that really helps them keep their net interest margins down.

Then, flipping over to the lending side, they are primarily working with financial technology folks and retailers for point-of-sale financing for larger consumer items. Loans are approved on the spot. This is a very cool business.

They are funding the loans and providing the infrastructure to get the underwriting done, but most of the default risk remains with the retailer that initiated the transaction. They have no loan losses in the portfolio so far, even though it is direct-to-consumer larger ticket items, which would normally show a bit of a loss rate. But there are none because of the way this is structured.

They’re also working on rolling out a very unique program that’s going to offer point-of-sale financing for homes and condos in the Canadian market and someday maybe the United States. They’re providing the underwriting expertise to immediately approve home loans.

So, they’re working with builders, mortgage brokers and development salespeople to provide this financing, and they’re really targeting people coming from outside Canada that have substantial wealth but no Canadian credit track record, which can often be a problem.

They’re providing this financing right on the spot, helping the broker or builder get the deal closed and financed as quickly as possible. We think that will see widespread acceptance.

They’re also going to grow that point-of-sale financing business in the US market over the next year or two, and I think that’s going to give them another valuable source of business because that’s been a very fast-growing market. I think they can be very competitive because they have direct bank funding for the program.

Again, this is a branchless bank doing great, interesting things on both the deposit and lending side. But they have a product called DRT Cyber, which is a wholly owned cybersecurity subsidiary based in Washington DC. They work with financial institutions, corporations and government agencies to provide cybersecurity for sensitive data and systems.

This is a massive business, with $133 billion in global spending on cybersecurity this year. From 2019 to 2024, it’s estimated that the total cost of cybercrime is going to be over $8 trillion. Tons of money is going to be spent on this, and it’s one of the most exciting areas of the markets to me.

Everything that we do, touch and use in today’s digital world requires cybersecurity. That’s everything from your computer system to your bank account to your car and even that new smart refrigerator. Pretty much everything is using some type of online presence these days, and it all is going to need protection.

They are going to use DRT Cyber’s expertise to launch the VersaVault, a digital safety deposit box for securing crypto assets, blockchain assets and sensitive and important digital documents. They’re going to work with crypto exchanges and investment funds, and they plan to roll out this product globally.

I think this has the potential to be massive because they’re using the front-end cybersecurity product to keep the crypto assets safe from being hacked, as we’ve seen happen all too many times. They also have a digital boundary group that does mobile app security testing as well as social engineering testing.

The stock is up big over the last year, so this is definitely a smooth, up-and-to-the-right momentum stock. But it’s only trading at 12 times earnings and 1.1 times book value at current prices, so it’s cheap on an earnings basis and an assets basis, especially for the industry it’s in.

It’s a unique model and the only branchless bank in Canada. It’s going to be a leading digital bank in Canada. I think the financing business is going to expand very well in the US, which will provide a source of very high growth going forward. This is a potentially massive winner.