Magazine article American Banker

Many Hurdles for Global Payments' Venture in Asia

Magazine article American Banker

Many Hurdles for Global Payments' Venture in Asia

Article excerpt

Global Payments Inc. is expanding into Asia through a joint venture with Hongkong and Shanghai Banking Corp. Ltd., but is doing so slowly.

The deal, which was announced in September, finally closed last week. Paul R. Garcia, the Atlanta processor's chairman, president, and chief executive, said on an earnings conference call Friday that the deal had to go through a regulatory approval process in 10 Asian countries and territories.

Global Payments paid HSBC $67.2 million in cash for a 56% ownership interest in the venture, and HSBC contributed its merchant acquiring channel.

The joint venture will provide credit and debit card payment processing to more than 45,000 merchants across Asia, Mr. Garcia said. The companies also formed a 10-year marketing alliance that includes having HSBC refer new merchant customers to the venture.

Mr. Garcia said that one of the new business' first tasks is to convert its "existing technology systems onto a more efficient, leading-edge platform." That project could take four years to complete.

It is doubtful the venture will help Global Payments' profit anytime soon. Mr. Garcia said that financial issues in several Asian markets could put a damper on its revenue this year. About 70% of the joint venture's revenue comes from Hong Kong and Taiwan, which he described as "attractive" but mature compared with such emerging markets as China and India.

Credit card issuers in Taiwan have had considerable loan losses on credit cards this year, "which has caused these banks to issue fewer cards than in the past, thereby impacting the merchant acquiring market," Mr. Garcia said.

Joseph C. Hyde, Global Payments' chief financial officer, said the HSBC joint venture would have a dilutive effect on his company's merchant services margin in fiscal 2007, though "we expect the acquisition will be nondilutive to earnings per share. …

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