Deal focus: EQT bets on bank cards

On the surface, China’s third-party payment services market seems to offer few prospects for anyone apart from Alipay and WeChat Pay. They have different origins: The former is a byproduct of Alibaba Group’s dominance in e-commerce and the latter was built on Tencent Holdings’ strength in social networking and online gaming. But together they control around 93% of the market.

Despite the popularity of payment by scanning a QR code on a mobile phone, many consumers still rely on bank cards and so small and medium-sized enterprises (SMEs) cannot afford not to accept payment in this form. According to China UnionPay, the transaction volume for payments made via point-of-sale (POS) machines reached RMB36 trillion ($5.3 trillion) last year. This is not far short of Analysys International’s projected mobile payment transaction volume of RMB44 trillion.

As such, competition in the POS space, specifically systems that read and process payments from credit or debit cards, is just as fierce as in mobile payments. Beijing-based VBill is among the leading players. The eight-year-old company recently sold a minority stake to EQT for RMB378 million ($55.8 million), hoping that the private equity firm can help it to expand its market share in China’s lower-tier cities as well as in overseas markets.

“We were impressed by VBill’s historical growth. The company’s payments business has expanded at a rate of 100% a year for the past three years, while some other companies in the segment have grown more slowly,” says Martin Mok, a partner and head of EQT’s Asia mid-market strategy. 

VBill generates nearly half of its revenue from service charges paid by SMEs that use POS devices, while the rest comes from other services such as mobile and online payments. The company posted a 92% year-on-year increase in revenue to RMB1.7 billion in 2017 as transaction volume – from over 2.4 million active merchants – reached a record RMB1.1 trillion. Net income rose 42% to RMB190 million.

Overseas expansion is expected to help maintain this high level of growth, with Vietnam, Brazil and Indonesia among the possible targets. “VBill can gain industry insights and client data from its sister company Pax Global which sells POS machines to these countries,” says Mok. 

VBill plans to expand beyond payments into areas like microscale consumer lending. “This segment currently almost accounts for nothing in the company’s business lines, but we want to develop it into a meaningful contributor to its revenues,” says Mok.

While there are some well-established players in the consumer lending business, including US-listed Qudian, Mok believes VBill’s strength is based on the fact it doesn’t belong in the peer-to-peer (P2P) space. The company will lend primarily from its balance sheet, while in the future financial institutions, especially banks, are expected to serve as funding sources.   

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• Topics
• Greater China
• Expansion
• Financials
• Technology
• China
• EQT Partners
• Growth capital
• Financial Services