With its deal to form a merchant processor with Hongkong and Shanghai Banking Corp. Ltd., Global Payments Inc. has taken its first step into the rapidly-growing Asia Pacific region.
The Atlanta payment processing company said Thursday that it would pay Hongkong and Shanghai’s parent company, HSBC Holdings PLC of London, $67.2 million in cash to acquire 56% ownership of the new joint venture. The Hong Kong unit would control 44%.
HSBC agreed to contribute its existing merchant acquiring business, which has about 40,000 merchant customers across 10 countries and territories in Asia and which generated revenue of about $50 million last year.
James G. Kelly, Global Payments’ chief financial officer, said in an interview Thursday that the new venture would contribute about 5% to 10% of his company’s revenue next year. He said the deal is Global’s “opportunity to get into a number of rapidly-growing markets” where it has not been able to operate.
He pointed out that the region has the world’s two most populous nations, China and India. Even more important, Mr. Kelly said, China is modernizing its merchant processing business as it prepares to host the Summer Olympics in Beijing in 2008, and its hosting of the Games could prompt other countries in the region to update their merchant processing operations.
Unlike the United States, banks in the Asia Pacific region and Europe have traditionally done merchant processing in-house. But Mr. Kelly said he expects more of these banks to shift to the U.S. model.
Many Asian countries are adopting the EMV (Europay, MasterCard and Visa) smart-card-based security format to reduce fraud, he said. Such technical requirements of the merchant acquiring business “make it capital-intensive and expensive to operate,” and could drive banks to consider processing alliances or outsource their processing, he said.
Wayne Johnson, an analyst for the brokerage firm Raymond James Financial Inc., said that “what the banks are discovering is it requires a very specialized expertise for merchant processing to be done effectively and efficiently, and the third-party processors can provide the expertise at lower costs. The reason is scale.”
Outside of North America, Global Payments has been doing payment processing in the Czech Republic and Russia for about a year and a half, Mr. Kelly said. By expanding internationally, Global Payments is following the same path as other processors in the U.S. market, which is considered a maturing market, he said.
“The opportunities for growth tend to be in less mature, newer markets, and those tend to be today in Asia Pacific Rim as well as central Eastern Europe,” Mr. Kelly said. “It’s not as though we’re the only ones who’ve figured it out.”
He noted that when his company named itself Global Payments in 2001 after spinning off from Nationa Data Corp., it was operating only in the United States. With its international business growing, “we finally filled out the name,” he said.
Gwenn Bezard, a research director at the Boston market research firm Aite Group LLC, said processors “don’t have any choice — they have to go out of the U.S. to grow. Even though they might not capture any significant volume today, they have to lay the groundwork for future growth.”
