Strategy Note /

EM digital payments infrastructure: Six companies spearheading the charge

  • Digital payments infrastructure companies are the backbone of the new economy; lockdowns have accelerated digital uptake

  • Scalable business models are delivering an attractive mix of double-digit top line growth and double-digit margins

  • EM firms are trading at a steep discount to DM peers, despite arguably better prospects given weaker financial inclusion

EM digital payments infrastructure: Six companies spearheading the charge
Rahul Shah
Rahul Shah

Head of Financials Equity Research

Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Tellimer Research
17 September 2020
Published byTellimer Research

We have previously highlighted the importance of payments infrastructure in accelerating e-commerce in emerging markets and the strong growth that some of these payment infrastructures companies are seeing. We follow up on this work by highlighting six EM-focused listed payment infrastructure companies with scalable business models and high growth potential:

Strong share price performance reflects Covid-19’s accelerating impact on digital adoption

An equally-weighted portfolio of these names has more than doubled since March, substantially outperforming the broader market. An alternative portfolio of other EM payments infrastructure names (that we highlight later in this note) has performed even more strongly.

Breaking this down into individual stock performance ytd shows that all but two of the payments shares have strongly outperformed the broader market. The outperformance of EM firms is again apparent with Rendong, NKN KCP and Yeahka the high fliers.

What is digital payments infrastructure?

We have previously highlighted the rapid development in fintech and digital payments throughout emerging markets; Covid-19 is turbocharging their growth. Most of these digital payments systems use their own or dedicated technology and have their own regulatory status. In contrast, infrastructure or payment gateway firms effectively rent their technology out to whoever needs it (and most likely without the knowledge of the end-user).

Digital payments infrastructure companies allow merchants and other institutions to accept payments from their customers in a variety of methods including cards, mobile/ digital wallets and bank accounts. This includes both traditional infrastructure services like POS devices and modern payment methods through online/ digital channels.

Here, we focus on the online part of the payments infrastructure story: it is growing rapidly due to e-commerce, but is also much more scalable. We have observed that many companies offer both; our profile of Huifu later in this note vividly highlights the different growth trajectories of both these payment infrastructure models.

To better illustrate the payments value chain, we present the process flow below. Firms like Alipay are well known to their consumers, but there is a lot of infrastructure in the background they will be less familiar with.

Digital payments process flow

Source: Yeahka prospectus, Tellimer Research

Top line KPIs

In the table below, we provide key revenue performance indicators for these six listed EM digital payment infrastructure plays. Transaction value tends to be higher for the Chinese payments players, but the overall take rate (revenue/transaction value) is lower; it is a large, but competitive marketplace.

Pagseguro has a strong take rate due to its focus on small and micro merchants, as well as consumers, while Stoneco, which focuses on bigger merchants, has higher revenue and transactions per merchant.

Operating KPIs

We present below the key operating performance indicators of the selected names. Brazil’s Stoneco and Pagseguro have the highest gross and net margins; Stoneco earns higher revenue per client while Pagseguro has a higher take rate. GHL spends most on selling and admin expenses, which could reflect its geographical diversity; it has to spend more on customer acquisition in locations where it is not the natural market leader. Stoneco and Pagseguro experienced the highest net margins last year.


Below we show valuation metrics for our six highlighted EM digital payments infrastructure stocks. Stoneco trades at the highest valuation multiples, justified by its strong revenue and profit growth, and above-average margins. Huifu trades at lower multiples, which likely reflects its slow revenue growth in 2019, as well as its low net margin.

Other EM payment infrastructure names to consider

While researching this topic we came across some other interesting payment infrastructure companies that either did not qualify on our growth/size criteria or where we struggled to gain sufficient information to include them in our main list. As highlighted previously, these names have attracted significant incremental investor interest in recent months.

Valuation multiples for these companies are shown below. Despite the year-to-date outperformance of these names, valuations do not appear stretched (other than at Rendong Holdings, which has delivered good top-line growth in H1 20 also).

Developed market peers have also seen strong share price performance

To help place our six highlighted EM payments infrastructure companies into context, we replicate some of the above tables for developed market proxies.

As these tables show, developed market payments infrastructure companies are also experiencing strong growth, but their valuations are much more elevated than their EM peers.

Company briefings

We briefly profile the six highlighted companies below, and discuss their recent performance.

GHL Systems (Malaysia)

Profile: GHL Systems is a leading ASEAN payment services provider with key operations in Malaysia (78% of revenue), Philippines, Thailand, Indonesia, Cambodia, and Australia. The group operates three main segments: Transaction Payment Acquisition (online payment gateway, card payments, wallet services etc, 59% of group revenue), Shared Services (sales and rental of EDC (electronic data capture) terminals, 38% of revenue) and Solution Services (sale and maintenance of hardware and software products, 3%). GHL manages and oversees more than 397,500 payment touchpoints across ASEAN that enable payments through credit card, debit card, e-wallets, contactless payment, prepaid credit top-up and other digital payment channels.

Recent performance: GHL’s 2019 revenues grew 16% to MYR348mn (US$84mn) with growth delivered mainly in Malaysia and the Philippines. Transaction Payment Acquisition segment revenues grew 12%, Shared Services grew 29% and Solution Services declined 18%. The EBITDA margin rose to 19.1% from 17.2% in 2018. The merchant footprint grew to 139k (from 38k in 2018). The emergence of QR-based e-wallets has resulted in new domestic e-wallet players, especially in Malaysia. Although this increases competition in the e-wallet business, it bodes well for GHL’s digital payments infrastructure services as it increases its competitive edge in offering merchants an integrated omnichannel payment solution.

Hightech Payment Systems (Morocco)

Profile: Hightech Payment Systems (HPS) was established in 1995 in Morocco and is currently operational in more than 90 countries with major activity in Africa (44% of revenues) and Asia (22% of revenues). Its flagship product is PowerCARD, which is a suite of software solutions that cover the entire payments value chain and enable payments through HPS’s omnichannel solution. The company earns revenue from the initial subscription to these systems; it also provides subscription upselling, maintenance and licence services to its customers. Over 400 institutions (such as NDB Bank, BMCE Bank) are using PowerCARD, which generates 74% of revenues. Other activities include Processing (switching services, 10% of revenues) and Services (control and performance of information systems, with notable expertise in software testing and qualification, 16% of revenues).

Recent performance: 2019 revenues grew 8% to MAD720mn (US$75mn), Solutions (ie PowerCARD) revenues grew 13% and Processing saw 22% growth, but Services revenues fell 13% due to delays in contract renewals. Operating profit grew 14%, with operating margins rising 90bps yoy to 17.6%. However, higher financial expenses and some extraordinary charges limited bottom-line growth to just 2% (MAD93.8mn, US$9.8mn). In 2020, the company targets solid revenue growth, an improving operating margin and accelerated diversification of the business.

Huifu (China)

Profile: Huifu was established in June 2006 and was listed on the main board of the Hong Kong Stock Exchange in June 2018. It provides payment services to small and micro merchants in China, as well as to larger customers in the aviation, health, education, logistics, retail, funds, industrial chains. Huifu supports cross-border e-commerce and also provides account services, marketing services, data services, and financial value-added services that can fully meet merchants' all-round needs. Integrated merchant acquiring is the main activity (76% of revenues) followed by software services (SaaS, 14%), industry solutions (9%) and cross-border businesses (1%).

Recent performance: 2019 revenues grew 13% to RMB3.7bn (US$534mn), with the strongest growth in the SaaS segment (+1010%); recent upgrades to its SaaS services helped lift transaction volumes 926%; 255 new corporates were onboarded in this segment (to total 392 institutions). In contrast, integrated merchant acquiring posted weak top-line growth of 3%, but its gross profits rose 26% due to a 10ppt rise in margins as a result of the launch of digital operation services. Also, the company reduced its operating costs by 12%, largely via a 20% reduction in staff. The company also launched innovative, tailored API-based business solutions. Overall profit stood at RMB242mn (US$35mn) in 2019, up 40%.

PagSeguro (Brazil)

Profile: PagSeguro, launched in 2006, is mainly an online/ mobile payments-based e-commerce service in Brazil, where it is the pioneer and market leader. The company is a payments facilitator for entrepreneurs, sellers and buyers; any person or entity can create an account on the platform through which they can receive and make payments easily and safely. Pagseguro provides different payment options to buyers and sellers such as credit cards, online debits, bank slips, deposit accounts and transfers between PagSeguro accounts. The platform has 9.2mn active users with an annual transaction value of US$29bn. PagSeguro belongs to Universo Online (UOL) group, the largest internet portal in Brazil, as per Ibope Nielsen Online.

Recent performance: Total revenues grew 32% in 2019 to BRL5.7bn (US$1.5bn). Revenue from transaction activities (59% of total revenues) grew 49% to BRL3.4bn, with transaction volume growing by 50%. Financial income revenues (36% of revenues, derived by paying discounted amounts to merchants for earlier than scheduled payments) grew by 44%. Profits increased 50% yoy to BRL1.4bn (US$346mn). The active merchant base grew by 27% to 5.3mn. The company launched PagBank (digital banking services including payments, lending, etc) in the second quarter of 2019 and reached 2.7mn active users by year-end. 50% of PagBank’s clients use at least three products from PagSeguro’s ecosystem, while the PagBank app is opened an average of 11 times a week by active clients.

Stoneco Ltd (Brazil)

Profile: Stoneco was incorporated in 2014 and listed on Nasdaq in 2018. It is a leading provider of financial technology solutions in Brazil (mainly in the payments area) to empower merchants to conduct electronic commerce seamlessly across in-store, online, and mobile channels. Stoneco operates five companies: i) Stone – primarily focused on providing POS solutions for accepting payments; ii) – which helps small business owners accept online payments quickly; iii) mundipagg, a full-featured e-commerce gateway that connects e-commerce sites to the payment network of their choice; iv) Equals – a smart financial management platform structured to serve companies dealing with multiple payment methods with full transparency; and v) Cappta – which can be installed on any tablet, cell phone or computer and is integrated with the POS devices, enabling businesses to work with various brands, issue receipts and automate their payments system to get more control on sales.

Recent performance: Total revenues rose 63% yoy in 2019 to BRL2.6bn (US$652). Transaction Activities and Services revenue, which contribute 43% of total revenues, grew by 51% yoy while Financial Income (earned by paying discounted amounts to merchants for early payments, 50% of revenues) rose by 60% yoy. The primary driver of higher revenues was the strong growth in transaction volume (+55% to BRL129bn (US$33bn), with market share rising 2ppt yoy to 8%) and a rise in the number of active merchants (+84% yoy to 495k). Profits increased 163% yoy to BRL804mn (US$204mn). In Q1 20 Steoneco launched a new product, TON, to service micro merchants with a complete ecosystem including cash-in/cash-out solutions, digital accounts and financial products.

Yeahka (China)

Profile: Yeahka is a payments-based technology platform in China providing payment and business services to merchants and consumers. The company has c14% domestic market share in transactions (1.3% in terms of transaction value) and ranks 10th among China’s third-party payment service providers. Yeahka’s platform provides merchants with one-stop access to a wide variety of payment methods and channels; its QR-code payment services support over 500 issuers covering most of the e-wallets in China, including WeChat Pay, Alipay etc. Apart from payment services, the company also provides technology-enabled business services, including: (i) merchant SaaS products, helping businesses improve their operational efficiency; (ii) marketing services, allowing merchants to effectively reach their target markets; and (iii) fintech services, which cater to customers’ financial needs. Yeahka conducted its IPO in June 2020, and it plans to use the proceeds for: i) sales and marketing expenses to increase its customer base in China and overseas; ii) expanding its technology-enabled business services line; iii) enhancing research and boosting its technological capabilities; and iv) working capital needs.

Recent performance: Revenues grew 141% in 2019 to RMB2.3bn (US$327mn) with payments services business revenue (c90% of the total) growing by 115% to RMB2.1bn while technology-enabled business services revenue (c10% of the total) grew 611% to RMB177mn. Within the payments service business, app-based revenue contributed 75% of revenues and grew by 190% in 2019, while traditional payment services (like POS) contributed 25% with only 21% revenue growth. Operating margins grew by 12ppt to 15.3% due to a combination of controlled selling and research and development expenses and significant transaction volume growth (93%).