Global Payments Inc. this summer hopes to begin processing renminbi payment card transactions in China after securing approval to do so from China UnionPay and the People’s Bank of China, the company announced yesterday afternoon during its third-quarter earnings conference call. It has a few hoops to jump through first, however.
Initially, Global Payments plans to acquire debit transactions made in Beijing, Paul R. Garcia, the processor’s chairman and CEO, told analysts, noting no other Western companies process renminbi transactions in mainland China.
Eventually, the Atlanta-based company could process transactions throughout China, one analyst notes as a possibility.
But just securing permission to process transactions in Beijing took time on its own. “We’ve been working on this for years,” Garcia said. “We’re going to be the first Western company to do this. But we still have some heavy lifting to do.”
Global Payments also joined the Beijing Bank Card Market Coordination Committee at the encouragement of China UnionPay and the People’s Bank of China, Garcia says. The processor must receive the approval of similar committees in other cities before it can expand its business in China, Garcia said, citing Shanghai as the company’s next target city.
HSBC, Global Payments’ UK-based bank partner, must become a member of the Beijing committee before the company can begin processing transactions, Garcia said. That application process is under way, “and consequently we are hopeful that will be offering China UnionPay card-acquiring services to Chinese merchants this summer,” he said.
Once the initial approval is reached in Beijing, approvals to offer services in other Chinese cities could “happen in pretty short order,” Garcia added.
The potential is “massive,” Garcia said. China UnionPay estimates there are 2 billion debit cards in China, he says.
Global Payments already works with China UnionPay in Taiwan (
Currently, Global Payments’ China business serves only international merchants, though in Hong Kong and Macau the processor works with merchants of all sizes, Garcia said.
Global Payments’ mainland China business potentially is “very substantial,” says analyst Robert Dodd of Memphis, Tenn.-based Morgan Keegan & Co. “But it will take a while to play out.” Debit cards make up the bulk of China UnionPay’s cards in China, Dodd says.
Global Payments’ China acquiring business could generate between $5 million to $15 million in incremental revenue, Christopher Shutler, an analyst at Chicago-based William Blair & Co. LLC, notes in an April 1 research note.
“The opportunity could be larger when and if Global is able to do its own processing in China, which sounds like a good possibility, within the next year or two, and if it is able form a referral relationship with a bank,” Shutler notes.
Garcia during the call also noted the recent hiring of Jeffrey S. Sloan, a former Goldman Sachs &Co. partner, as president beginning June 1 (
“I’ve been recruiting him for 10 years, ever since I met him,” Garcia tells PaymentsSource. “He knows our space exceedingly well.” Sloan handled Global Payment’s 2000 initial public offering.
Sloan’s expertise will be useful in planning Global Payments’ growth strategy, including acquisitions, Garcia says.
Sloan’s hiring has analysts speculating Global Payments will increase its acquisition activity. “This management hire makes it increasingly likely that Global will become more active in the [mergers-and-acquisitions] front over the balance of … 2010 and into 2011,” Shutler wrote.
Sloan’s connections may be the company’s biggest benefit, suggests Morgan Keegan’s Dodd. “Anyone can overpay for an acquisition,” Dodd says. “If you don’t want to overpay, you have to have better contacts to find acquisitions without getting into a bidding war.”
Sloan’s experience heading Goldman’s financial-technology group will help in that regard, Dodd says.
For the third quarter ended Feb. 28, Global Payments is reporting net income of $48.5 million, reversing a $106.8 million loss for the same quarter last year. Revenue totaled $398.5 million, up 10.8% from $359.5 million.
Revenue was up in all regions. In North America, including Canada and the United States, merchant-services revenue totaled $293.3 million, up 6.9% from $274.4 million. International merchant-services revenue grew by 23.7%, to $105.3 million from $85.1 million.
Growth among Global Payments’ independent sales organization fueled much of the improvement, Garcia said.
“Their growth has been impacted significantly,” Garcia said. “Here’s the difference: They still grow. They’re still adding business.”
