Global Themes / Global

Want exposure to booming EM digital payments? Consider these 10 listed names

  • Global digital payments transaction value is expected to grow by 40% in 2020; EMs are best-placed to benefit
  • Leadership in digital payments opens doors for companies to offer other wide-ranging services to their customer base
  • For the 10 listed digital payment names, we highlight KPIs, valuations and discuss each company in more detail

Global digital payments are expected to grow 40% this year, with 20% CAGR to 2023; growth in emerging markets could be faster still. While Alibaba and Tencent are undoubtedly the listed tech titans in EM, we highlight 10 other names that give more targeted exposure to digital payments outside of China. They are also much cheaper.

In Figure 2, we present the 10 listed digital payments companies along with revenue contribution from digital payments. Fawry and Cassava Smartech (EcoCash) have the highest revenue contribution from digital payments in our sample while Sonatel (Orange Money) and Scancom PLC (MTN Ghana, MTN MoMo) have the lowest.

Key performance indicators

In Figure 3 below, we highlight KPIs of the 10 names that provide digital payments exposure. M-Pesa leads in most of these indicators, while other interesting names in our sample include Pagseguro (the highest revenue per active customer), Mercado Pago (the highest take rate i.e revenue per transaction value) and EcoCash (strong transaction value per active user).

We think companies with successful digital payment platforms can also offer other wide-ranging services to their customer base include lending, insurance etc. which further aids the growth of these businesses.

Valuations

In Figure 4 below, we look at the valuations of these companies. BRAC Bank, MTN Ghana, Qiwi and Sonatel are trading below their historical median multiples while Fawry is trading at a significant premium. However, we note that the stock was only listed in 2019 so there is a limited trading history.

In addition, our sample companies trade at a much lower valuation than the two giant Chinese payment-linked companies. The median PE for our names is 15.0x, compared with 47.0x for Tencent and 38.5x for Alibaba, while the median Price/Sales is 2.9x, compared with 11.2x for Tencent and 8.1x for Alibaba.

Company profiles

bKash (BRAC Bank, Bangladesh)

Profile: bKash is a mobile money platform launched in July 2011 as a joint venture between Money in Motion LLC and BRAC Bank. In April 2018, Alipay became an anchor investor in the business (valuing bKash at cUS$0.9bn). bKash has 38.1mn total registered users and 22.3mn active accounts, and is a clear market leader with 77% market share in transaction value. Key shareholders of bKash include BRAC Bank (42%), Money in Motion (24%), Alipay (20%), the IFC (8%) and the Bill & Melinda Gates Foundation (7%).

Recent performance: During 2019, bKash witnessed c20% yoy growth in active customers and its revenue growth was 12%, but the company reported a loss of BDT625mn (compared to profit of BDT205mn in 2018) due to higher marketing expenditure. We think this increased outreach will be beneficial in the long-run, as it grows the user base and creates bigger entry barriers. Also, during 2019, bKash developed and released a new mobile phone customer app on both iOS and Android operating systems; bKash customers can now self–register, access their account information and effect transactions. A similar app for bKash agents was also released during the year.

Figure 5: bKash market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.

 

 

EcoCash (Cassava Smartech, Zimbabwe)

Profile: EcoCash is a mobile money platform launched in 2011 by Econet Wireless, but was spun-off to Cassava Smartech in 2018. Our of a population of c4.6mn (8.5mn adults) in Zimbabwe, EcoCash has 10.6mn total users and over 7mn active users, with an agents and merchants base of over 135k. EcoCash is the clear industry leader with over 90% market share of transaction value. Transaction/active users amounts to cUS4k, which is one of the highest in our sample. EcoCash is the flagship product of Cassava Smartech but the company also offers digital insurance and banking products. Key shareholders of Cassava Smartech include Econet group, Stanbic Nominees Pvt Limited and Old Mutual Life Assurance Company.

Recent performance: During FY2019, the revenues of EcoCash more than doubled yoy to ZWL389mn, with 20% growth in average revenue per user (ARPU). P2P transfers accounted for c50% of its revenues, while merchant payments were around 18%. Channel partners (agents, merchants, billers etc) also grew strongly, by 63%. In November 2019, EcoCash announced a major upgrade of its mobile money platform, increasing capacity, enhancing security and offering more automated selfcare services for its clients.

Figure 6: EcoCash market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.

 

Fawry (Egypt)

Profile: Fawry, the largest e-payments platform in Egypt, was founded in 2008. Its services enable its customers to pay their bills electronically, top up their mobile phone accounts, pay for e-tickets, cable TVs and similar other services. Through its P2B model, Fawry is enabling corporates and SMEs to accept electronic payments including payments through websites, mobile phones, and POS terminals. Fawry has 26.2mn total users and 25mn active users along with a network of 140,000 agents. Shareholders of Fawry include the Egyptian-American Enterprise Fund, Helios Investment Partners, MENA Long-Term Value Fund (MENA LTV), the IFC and others.

Recent performance: In 2019, Fawry achieved top-line growth of 45% to EGP884mn with revenue diversification; Although Alternate Digital Payments (ADP) still constituted 82% of revenues, Banking Services revenue grew from EGP24mn to EGP 67mn and Microfinance revenues reached EGP19mn in its first year of operation. Operating profit grew 191% to EGP145.4mn due to strong revenues and operational efficiencies. Fawry is investing heavily in expanding its merchant network and is spending more on POS technology. POS terminals increased to nearly 141K during 2019 (+35% yoy). The company was listed on the Egyptian Exchange in August 2019 with its IPO around 30x oversubscribed.

Figure 7: Fawry market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.

 

GHL Systems

Profile: GHL Systems is a leading ASEAN payment services provider with key operations in Malaysia, Philippines, Thailand, Indonesia, Cambodia, and Australia. The company's major market is Malaysia, which accounts for 78% of group revenue. The group mainly operates three segments, Transaction Payment Acquisition (top-ups, bill collections, direct merchant payments etc), Shared Services (sales and rental of EDC (electronic data capture) terminals) and Solution Services (sale and maintenance of hardware and software products). GHL manages and oversees more than 397,500 payment touchpoints across its ASEAN markets that enable payments through credit card, debit card, e-wallets, contactless payment, prepaid credit top-up and other similar digital payment services. Major shareholders of GHL include Actis Stark (Mauritius) Ltd (39% holding), Prantaka Ltd (13%), Creador IV L.P. (13%), Apis Growth 14 Ltd (10%).

Recent performance: 2019 revenues of GHL grew by 16% to MYR348mn with growth delivered mainly by Malaysia and Philippines. Transaction Payment Acquisition segment revenues grew by 12%, contributing 59% to group revenues. EBITDA margins of the company rose to 19.1% from 17.2% in 2018. Merchant footprints grew to 139k (from 38.0k in 2018). The emergence of QR-based e-wallets resulted in new domestic e-wallet players in 2019, especially in Malaysia. Although this increases competition in the e-wallet business, it bodes well for GHL’s other digital payments services as it increases the competitive edge in offering merchants an integrated omni-channel payment solution.

Figure 8: GHL market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.

Mercado Pago (Mercado Libre, Argentina)

Profile: Mercado Pago, launched in 2003, is the payments arm of Mercado Libre, the largest e-commerce ecosystem in Latin America based on unique customers. Mercado Pago is operational in seven key countries (Argentina, Brazil, Chile, Colombia, Mexico, Peru and Uruguay). Mercado Pago was initially launched to provide an integrated online payments solution to facilitate transactions on MercadoLibre’s Marketplace (e-commerce platform) by providing a mechanism that allowed users to securely, easily and promptly send and receive payments. However, looking at the market opportunities, the company later rolled out payment services to third parties (outside Mercado Libre Marketplace) and also allowed consumers to transfer funds to each other through its website or the Mercado Pago app. Mercado Pago has the highest take value [of our ten profiled companies?)] i.e revenue/transaction value.

Recent performance: 2019 revenues of Mercado Libre (consolidated) grew by 60% to US$2.3bn with growth mainly coming from Brazil (63% of revenues) and Mexico (12%). Revenues from Mercado Pago (payments arm contributing 42% to total revenues) grew by 22% in 2019. Total payments transaction value grew from US$18.4bn in 2018 to US$28.4bn in 2019. The mobile point-of-sale (mPOS) segment is the fastest-growing segment for Mercado Pago with transaction value growing by 126% in 2019.

In Q4 19, the company entered into a strategic agreement with PayPal. Mercado Pago will be now available as a payment method at PayPal’s merchants worldwide, allowing its users in Brazil and Mexico to purchase in other countries. In addition, Xoom will allow Mercado Pago users in Mexico and Brazil to receive remittances directly in their wallets.

Figure 9: Mercado Pago market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.

MTN MoMo (Scancom, MTN Ghana)

Profile: MTN MoMo was launched in 2009 by MTN Ghana and was a pioneer in mobile money in Ghana. MoMo is a clear market leader in Ghana mobile money with 98% market share of transaction value. Total registered users stand at 15.1mn while active users are 9.1mn. Services offered on this platform include money transfer, airtime top-up, bill payments, merchant payments, school fees payment, savings and investment, international remittances, link to bank account, insurance and ATM cash-out. The major shareholder of MTN Ghana is Investcom Consortium which is a subsidiary of MTN Group.

Recent performance: In 2019, revenues of MoMo grew by 28% (contributing 18% to total revenues) compared to MTN Ghana (consolidated) revenue growth of 23%. Active users grew by 10%, merchant and agents rose to 153k from 123k in 2018. P2P transactions grew strongly by 77% while Advance Services (remittances, microloans, pensions etc.) also increased by 77%. For 2020, some of the MoMo’s targets include: i) Securing a DEMI (dedicated e-money issuers) licence; ii) rolling out the MoMo Business and Market Place; iii) growing the MoMo merchants base to deepen digital payment; iv) growing Advance Services with a focus on remittances, savings & loans, insurance; v) rolling out apps for MoMo customers, agents & merchants; and vi) leveraging data to develop what the firm calls its 'banktech capabilities', ie, expanding its portfolio to offer other banking products.

Figure 10: MTN MoMo market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.

Pagseguro (Brazil)

Profile: PagSeguro, launched in 2006, is mainly an online or mobile payment-based e-commerce service. PagSeguro is the pioneer and leader in the Brazilian online payment market. In simple terms, PagSeguro is a payment 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 as per Ibope Nielsen Online.

Recent performance: Total revenue of Pagseguro grew by 32% in 2019 to BRL5.7bn and revenue from transaction activities (59% of total revenues) grew by 49% to BRL3.4bn with transaction volume growing by 50%. Profits of the company grew 50% to BRL1.4bn. Active merchant base grew by 27% while Pagbank active users grew by 46%. The company launched PagBank in the second quarter of 2019 and intensified its investments in product development and observed huge engagement; 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.

Figure 11: Pagseguro market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.

Qiwi (Russia)

Profile: Qiwi was launched in 2008 and is the leading provider of digital payments in Russia. It has an integrated network that enables payment services across online, mobile and physical channels. Qiwi provides its users convenient and accessible instruments for making all kinds of payments, which include e-wallets and cards; there are 134k active kiosks and terminals used by around 22mn active wallets customers on the platform. Annual payment transaction value is US$24bn with revenue per active user at US$23.

Recent performance: In 2019, the revenues of Qiwi grew by 29% to RUB39bn while revenues from the payment segment (contributing 78% to total revenues) grew by 30% to RUB31bn. The net profit of the consolidated entity rose clocked in at RUB4.9bn (up 34%). The number of active kiosks and terminals declined from 144k to 134k mainly because the market is evolving towards a higher share of digital payments, but at the same time the physical distribution network remains an important part of Qiwi’s infrastructure. For 2020, Qiwi expects total revenue to increase in the range of 3% to 13% while Payment Services segment revenue growth could range from -3% to 5%. Net profit is expected by the company to increase 10% to 30%. Betting and gaming is one of the major customer segment for the company, therefore Covid-19 could have a significant impact on that front.

Figure 12: Qiwi market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.

M-Pesa (Safaricom, Kenya)

Profile: M-Pesa was launched in 2007 by Vodafone group plc and Safaricom, the largest telecom company in Kenya. M-Pesa is a clear leader in mobile payments in Kenya, and is also a leading example of successful mobile money operators in the world. M-Pesa not only allows for P2P transfers and withdrawal, but also various other payment options, connectivity to formal banking and credit access. It has also facilitated international transactions and deepened financial inclusion in the country. In a country of 32mn adults, M-Pesa has 24.9mn active accounts with an annual transaction value of US$136bn (the highest in our sample). Major shareholders of M-Pesa are Safaricom and Vodacom. While for Safaricom, major shareholders are Vodafone Kenya Limited and the Government of Kenya.

Recent performance: Safaricom's FY2020 (March year-end) consolidated revenue grew by 5% to KES263bn while revenues for M-Pesa (which contributes 32% to Safaricom revenues) grew by 13% to KES84bn. Net profits of Safaricom were recorded at KES74bn (up 18%). Active customers of M-Pesa continued to grow, up 10% to 24.9mn, while transaction value rose 18% in 2019 to KES13.9trn with the number of transactions growing at a relatively lower rate of 8%. M-Pesa agents remained relatively stable at 173k (up 4%). We think growth numbers are lower than peers because the platform is already at the mature stage and penetrated. Future growth is now reliant on more use-cases and growth in merchant payment.

Figure 13: M-Pesa market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.

Orange Money (Sonatel)

Profile: Orange Money was initially launched in Côte d'Ivoire in 2008 and then expanded into other African countries including Senegal, Madagascar, Mali, Niger, Kenya, Botswana and others. It provides various payments services to its customers including cash-in and cash-out, airtime top-up, bills payment, P2P transfers and merchant payments. Orange Money currently has 14.2mn total subscribers with 6.9mn active making over 1mn transactions annually. Orange Money is part of Sonatel, which in turn is part of Orange S.A.

Recent performance: Sonatel's total revenues grew by 6% to XOF1086bn (USD1.9bn) while revenues from Orange Money (contributing 8% to Sonatel revenues) grew strongly by 33% to XOF83bn (USD143mn), representing a growing contribution of digital payments in the overall company’s revenues. Average revenue per user (ARPU) for Orange Money grew by 10% to XOF1,116 (USD1.9) per month. Active users of the platform grew 23% to 6.9mn. Orange Money is one of the main focus areas of the company as the company wants to increase the products and services on its platforms, therefore in future the revenues from this segment are likely rise further.

Figure 14: Orange Money market opportunity, KPIs and consolidated valuation

Source: World Bank, company accounts, central bank data, Tellimer Research. Revenues and transaction value are based on 2019 annual data; banking penetration, mobile subscriptions, cash penetration and active users are based on latest available numbers.


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