KUALA LUMPUR: Payment solutions provider GHL Systems Bhd is banking on its transaction payment acquisition (TPA) segment to aggressively expand its footprint to other Asean countries, after it registered 127% on-year segment revenue growth following the acquisition of e-Pay Asia Ltd in February this year.

Its chief executive officer and executive director Raj Lorenz thinks good growth will only come about if it enters the small merchant segment in other countries, as margins in Malaysia, a more mature market, are relatively more compressed.

“Prepaid cards have been less popular in Malaysia simply because the size of the unbanked or marginally banked population is much smaller than in the Philippines,” Raj told The Edge Financial Daily in an email interview.

“Debit cards have not been that popular so far. But with active consumer education, coupled with a lower interchange [fee] proposed by Bank Negara Malaysia, I think there will be a shift in usage to debit cards.”

Interchange fees are part of fees paid by merchants for accepting payment cards. Hence, increases in interchange fees would hinder the expansion of point-of-sale terminals, especially among small merchants.

It was previously reported that under the Payment Card Reform Framework, BNM would moderate increases in payment card acceptance cost by capping interchange fees to certain ceilings, based on objective and transparent criteria. This is viewed by payment solutions providers, like GHL Systems, positively.

The group operates in three core businesses — shared services, solution services and TPA, with operations in Malaysia, the Philippines, Thailand and Australia.

Its bottom line in its third financial quarter ended Sept 30, 2014 (3QFY14) dropped 10.03% to RM1.82 million from RM2.02 million a year ago, even though its revenue more than doubled to RM45.74 million from RM17.25 million a year earlier.

Year-to-date (9MFY14), the group chalked up RM115.8 million revenue — with RM83 million or some 71.7% coming from TPA alone — compared with RM50.97 million a year ago, with RM11.3 million or 22.2% from the segment.

But the group’s earnings were dragged down by the group’s delayed TPA operations, particularly in Malaysia and the Philippines, said Raj, but he didn’t elaborate.

“We are, however, continuing to invest in people and systems to deliver this. Hence, there is a timing mismatch,” he said.

GHL Systems’ venture into Thailand has also been challenging, as the group saw its 3QFY14 revenue from its Thailand operation decrease 26.1% on-year to RM930,000 from RM1.26 million.

“The political situation there is tenuous and this has affected business generally,” Raj said, adding that the group, however, is in Thailand for the long haul and will deploy its resources appropriately until the environment improves.

GHL closed at 69.5 sen last Friday with a market capitalisation of RM444.43 million and is deemed an expensive counter with an estimated price-earnings ratio of 38.61.

“On the face of it, it seems high. The market has done the math and understands the potential growth opportunity that lies ahead. Admittedly, the market has given us a forward multiple and it’s now up to us to deliver on this opportunity,” he said.

Two weeks ago, GHL Systems announced that its subsidiary, GHL Systems Philippines, had been appointed by Omnipay Inc to acquire merchants for UnionPay International and JCB International, which marks GHL System’s entry into the direct merchant acquisition space in the country.

“In a country where there is a high proportion of unbanked or marginally banked people, prepaid cards are the answer,” said Raj.

The Philippines is now the second largest contributor to the group, accounting for 10.7% of its 3QFY14 revenue, with Malaysia being the largest at 86%.

GHL Systems Philippines chief executive officer and executive director Rey Maria R Chumacera said in a recent interview in Manila that the company was signing up or acquiring at least 250 to 300 merchants per month.

In the same interview, Omnipay president and chief executive officer Simoun S Ung said there were 7 million credit cards in the Philippines with a 2% penetration rate.

“The Philippines is about to enter a golden period. Our median age will hit employment age next year. So for the next 20 to 30 years, we will enjoy a period of strong economic growth, driven largely by strong domestic consumption, so we want to make sure we are ready to participate,” Ung said.

This article first appeared in The Edge Financial Daily, on December 22, 2014.