China’s Prepaid Card Industry Reshuffling

by Terry X Xie 0

On January 25, 2011, SYSCAN (a 2D bar codesolution provider in China) issued a circular announcing theacquisition of Country Praise, a prepaid card business operating inChina.

According to the press release:

Country Praise and its subsidiaries are engaged in prepaid cardoperations, including issuance of the cards in Mainland China andset up sales offices in nine major cities, including Beijing,Shanghai, Shenzhen and Chengdu. Following the acquisition, SYSCANTechnology will be able to tap the prepaid card market in MainlandChina, and capture enormous opportunities in the fast growingelectronic payment service industry and domestic consumptiondemands in Mainland China, leveraging its self-developed 2D barcodetechnology.

According to the Sale and Purchase Agreement, the initialconsideration of the acquisition is HK$150,000,000, consisting of aCash Consideration of HK$80,000,000 and HK$70,000,000 payable byway of issue and allotment of the Consideration Shares. Totalconsideration can be adjusted according to the sale of prepaidcards of Country Praise, transaction amounts executed and netprofit.

Since August 2008, Country Praise has issued over 240,000 prepaidcards and there are more than 4,500 stores throughout Chinaaccepting its prepaid cards for payment of goods and services fromcardholders.The acquisition is justthe latest example of a series of investment activities in China’sbooming prepaid card market coming at a time when the industry isundergoing a major reshuffle. Last year, the central bank announcednew regulations requiring all non-bank payment service providers toobtain a license from the central bank to continue operationsbeyond September 2011. Among others, one major qualification isthat at least CNY30 million registered capital is required, andthis number increases to CNY100 million for operations in more thanone local market. Almost none of the existing prepaid cardcompanies in China had enough registered capital when the newregulation was announced. And, the capital requirement has forcedall prepaid card companies in China to seek additional funding,cease operations, or sell off their businesses. The investmentcommunities, both domestic and international, have shown stronginterest in the market. Mercator has learned that more investmentactivities are currently underway, and a part of them will befinalized and announced in the first half of 2011, leading to thedeadline of September 2011.
Mercator’s research shows that in 2009, over CNY1,368 billion(about US$208 billion) was loaded onto various prepaid cards andaccounts in China. And that number is expected to increase to aboutCNY1,600 billion in 2010. More information about China’s prepaidcard market can be found in Mercator’s upcoming report Prepaid CardMarket in China 2010. This report will provide a comprehensive andin-depth analysis of the prepaid card market in China, covering awide range of topics including (but not limited to) market sizingacross multiple categories and segments, business models, industrylandscapes, regulatory risks, and challenges andopportunities.

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