Banking & Finance

Electronic point of sale market facing challenges

Technology is evolving, with traditional POS terminals becoming increasingly passe

PUBLISHED : Monday, 21 December, 2015, 1:21pm
UPDATED : Monday, 21 December, 2015, 1:21pm

It’s a tough time in the electronic point of sale (POS) market as regulatory crackdowns push suppliers to the limit.

On top of that, technology is evolving, with traditional POS terminals becoming increasingly passe and new methods expanding the market.

As a result of both of these factors, the shares of China’s third-largest POS manufacturer are plummeting – down about 25 per cent from where they were earlier this year.

PAX Global has seen its shares drop to HK$8.51 from a high of about HK$14 in July.

But analysts think investors are being overly cautious with the shares, placing them below their proper value.

In the global e-payment market, the largest player is Ingenico, a European company that has seen its stock price steadily rise and stay high over the past year. In France, its shares are currently trading at 119.45.

“Ingenico still keeps very good positions and is also upgrading both their technology and their products and their payment-related services, rather than purely manufacturing hardware,” CCB International analyst Eric Qiu said.

Yet the second-largest player, US-based VeriFone Systems, has seen a similar stock plunge to PAX Global, dropping on the New York Stock Exchange to about US$27 a share, almost their lowest in two years.

Growth in recent years has been driven by the increasing penetration of lower-tier merchants
Cherry Ma, CLSA

CLSA technology analyst Cherry Ma said there had been an increasing number of smaller players in the market, challenging the big players.

“The fourth quarter is traditionally a high season for the POS market in China,” Ma said. “Growth in recent years has been driven by the increasing penetration of lower-tier merchants.”

Regulation issues have also featured highly for merchants operating on the mainland. Ma said the stricter rules put in place by the People’s Bank of China to govern POS transactions were potentially worrying shareholders.

“In 2015 ... the People’s Bank of China issued a paper to regulate or crack down on the unlicensed merchant acquirers in the market,” she said. “All these regulations point to the management of systemic risk in the payment value chain, protecting the shareholders.”

But Qiu said markets may be misunderstanding the latest crackdown as an unexpected event.

“The payment industry, including bank cards and eftpos machines, is always under strict regulations by the People’s Bank of China and sometimes it will strengthen regulations ... it’s not new and the players in this market should have adapted to that,” he said.

New technology also poses a challenge for PAX Global and other providers, who are working to keep up with the growth in online payment methods.

“In addition, a third-party payment service, Lakala, has announced a new product called SmartPOS and it is set to totally replace the current machines,” Qiu said, adding that it was causing people to worry about the future of traditional POS machines.

Yet despite this, analysts say there is room for growth in the major POS players’ stocks, with Qiu saying PAX Global was still in a fairly decent position.

“The global markets has become the real revenue maker for PAX and growth by the end of this year will see it pass the China market for revenue,” he said. “I think the growth in the overseas market is still quite intact.”