FINANCE: UnionPay Zooms In Korea, Wanda Buys Into 99Bill
Bottom line: Wanda will face a steep uphill climb in electronic payments following its purchase of 99Bill, while UnionPay will continue to grow rapidly overseas as more Chinese travelers and businesses go abroad.
Two big news bits from the electronic payments space are in the headlines as we round out 2014, led by news of a major new acquisition by property giant Wanda Group just days after a Hong Kong IPO for its core shopping mall unit. The other new revolves around industry giant UnionPay, which has feasted on outbound Chinese tourist and business spending to pass larger global rivals MasterCard (NYSE: MA) and Visa (NYSE: V) for issuing credit cards in nearby South Korea.
The common theme to these 2 stories is that electronic payments are booming in China, fueled by a new generation of consumers and businesses that like to purchase online and pay for everything with debit and credit cards. As a China resident, I can personally testify that many young Chinese seem to do a majority of their shopping online and spend less time at brick-and-mortar stores. And when they do purchase items at stores and restaurants, many prefer to pay with bank cards even for small purchases.
That trend is fueling a rise in companies like Alibaba (NYSE: BABA) sister company Alipay, which allow consumers to conduct such transactions. It has also proved a boon for UnionPay, which most third-party e-payment companies like Alipay must use to actually settle their transactions. UnionPay has enjoyed a government-granted monopoly on the domestic transaction settlement business for years, though Beijing is now moving to open up that market to competition.
All that said, let’s jump into the latest sector news with the headline that Wanda is buying a controlling stake in e-payments provider 99Bill for 2 billion yuan ($320 million). (English article) There’s not much additional detail, though I expect the stake is probably in the 30-50 percent range, and would value 99Bill at as much as $1 billion. Online search giant Baidu (Nasdaq: BIDU) was reportedly in talks to buy this stake just a month ago, but it appears that Wanda has moved in since then and became the preferred suitor. (previous post)
The reports also don’t state which of Wanda’s many units is making the purchase, but I doubt it’s the Dalian Wanda (HKEx: 3699) property arm that made its trading debut in Hong Kong this week. Instead, Wanda could ultimately put its 99Bill stake together with an e-commerce joint venture that it announced in September with Internet giants Tencent (HKEx: 700) and Baidu, as part of its bid to diversify beyond its core real estate business. (previous post)
Wanda’s diversification drive looks like a good idea in theory, and I would generally commend it for its choice of good business partners. Still, the company will have to work hard to catch up with other industry leaders like Alipay in the competitive e-commerce and electronic payments spaces.
Next let’s look at the UnionPay news, which focuses on the company’s aggressive global expansion over the last 5 years into most major western and developing markets. UnionPay has chosen a relatively smart strategy of pairing with local partners in the markets it targets, with a particular focus on places with high concentrations of Chinese tourists and businesses.
According to the latest reports, UnionPay has used that strategy to issue 10 million credit cards in South Korea, enough to push it past Visa and MasterCard to become the country’s largest foreign credit card issuer. (English article) In this year’s third quarter, UnionPay processed nearly 60 percent of all transactions in South Korea using foreign credit cards, up from just 17 percent 3 years earlier.
All of this data comes from UnionPay itself, and the fact that it hasn’t given any actual money amounts tells me the figures are probably still quite small in a South Korean market that is relatively closed to foreign banks. Still, the company’s big inroads to the market over the last 3 years do reflect the growing trend of overseas spending by Chinese consumers and tourists. If that trend continues, which seems likely, I expect we’ll see UnionPay continue growing quickly overseas and gain more share on Visa and MasterCard over the next 5 years.
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