Between 2014 and 2015, global noncash transaction volume increased by 11.2% to reach 433.1 billion. China now holds the number three position globally for the same metric, third by volume to the US and Europe. Emerging Asia (which includes the just mentioned China but also includes for Taiwan, Thailand, the Philippines, India, and Pakistan) will account for 43.3% of global non-cash transaction volume by the end of next year.
Right now, mature markets account for 70% of total volume, while emerging markets account for the remaining 30%. It's the latter, however, that's going to account for the vast majority of industry (volume) growth over next five years. To illustrate this, during 2016, mature market growth rate came in at 6.8%. Emerging market growth hit 21.8% during the same year and is expected to expand by between 25-30% this year alone.
As an investor, there are numerous companies that offer exposure to the growth of the industry as a whole. Companies like PayPal Holdings Inc (NASDAQ:PYPL) and Square (NYSE:SQ) dominate the US market, while also maintaining a strong presence in Europe and – over the last 24 months – have appreciated in line with industry expansion.
While this industry-wide approach might satisfy some, however, the more rewarding approach to this space right now would be to look for a company that offers a direct exposure to the part of the industry that's growing the fastest – the Emerging Asian market.
US-based payments processors are attracting considerable market attention in line with the industry-wide growth but – perhaps rooted in the size of their domestic market – look to be primarily focusing resources on domestic growth.
In contrast, non-US payments processors are actively chasing expansion not just in the US (generally by way of acquisition or merger in the region) but also in some of the high-growth markets that the above statistics point to as being potentially rewarding for the companies doing the expanding and the shareholders that are funding the expansion.
Outside of the US, then, two companies dominate the payments space and both have, in recent years, made a point of reaffirming their respective focus towards the Asian markets. These are London based Worldpay Group PLC (LON:WPG) and German based Wirecard AG (DE:WDIG).
Up until a couple of weeks ago, both of these companies made for compelling exposures to the payments processing industry and – specifically – the Asian side of the market as outlined above.
On July 5, however, Worldpay announced that it was set to be bought out by U.S. credit card payments firm Vantiv Inc (NYSE:VNTV). The deal sees the latter pick up the former for a little over $9 billion and – from the perspective of an investor looking to pick up a non-US based exposure to the market – sees it taken off the table as an option.
This transaction leaves Wirecard as one of the only billion dollar payments processors headquartered in Europe and makes the company attractive as a potential exposure to space for a variety of reasons.
For those new to the company and by way of a quick introduction, in its native European market, Wirecard is a payments processing giant. The company, which is headquartered just outside of Munich, was founded in 1999 and as of 2016 has more than 3,700 employees globally. CEO is Markus Braun, who has held the position since 2002 and – prior to taking the helm at Wirecard – served as head of e-strategy at KPMG.
At the end of 2016, Wirecard had more than 25,000 customers from a range of industries, a transaction span of more than 100 currencies and connection to more than 200 international payment networks (banks, payment solutions, and card networks).
During 2016, the company generated €1.05 billion revenues, up from €800 million, €626 million and €500 million during 2015, 2014 and 2013 respectively. Net income for these years came in at €267 million, €143 million, €108 million and €83 million during 2016, 2015, 2014 and 2013 respectively.
Cash on hand at the end of March 2017 was €1.45 billion, up from €1.33 billion recorded at the end of 2016.
Put simply, this is a cash-rich, profitable company with a very large network of customers and clients, generating more than a billion dollars in annual revenues and that has seen steady expansion in both top and bottom line across the last five years.
That’s the numbers – what about operational advance?
During 2016, Wirecard made two key acquisitions that serve to underline its aggressive expansion strategy; a strategy that falls in line with the rapid expansion of the underlying industry and that keeps it neck and neck with some of its US domestic peers.
The first of these was the acquisition of a Brazilian mobile payments processing company called Moip Pagamentos S.A. Moip is an eight-year-old Sao Paulo-based company with more than 150 employees that has developed a leading payment platform for small and medium-sized retailers in South America. During the fourth quarter of 2015, the Company surpassed the threshold of BRL 1 billion (around €270 million) in annual TPV (total payment volume) serving close to 100,000 customers in Brazil alone.
For Wirecard, the acquisition served as an entry into the Brazilian market also enabled the company to roll out its payment and issuing product lines in Latin America.
The second acquisition and the more important of the two from this author's perspective came in June 2016, when the company announced it had reached a definitive agreement to acquire Citi Prepaid Card Services. This marks the company's first expansion into North America and brings with it an already-on-board customer roster of more than 2,500 US clients. The deal took a while to close out but eventually completed in March this year.
So what about the emerging markets space?
Wirecard is already heavily involved in emerging markets, having spent the better part of the last decade making strategic acquisitions of financial entities in India, Indonesia, and Singapore. Each of these has brought with it an established client base and, just as importantly, a domestic framework on which to build into the markets in question.
In March this year, the company announced, a second Citigroup Inc. (NASDAQ:NYSE:C) transaction that saw it pick up the latter's Asia Pacific (APAC) customer portfolio for merchant acquiring and includes the entire customers for merchant acquiring services in Singapore, Hong Kong, Macau, Malaysia, Taiwan, Indonesia, Philippines, Thailand, India, Australia and New Zealand. All in, the customer portfolio of Citigroup's merchant acquiring business in the 11 markets involved in the deal includes over 20,000 merchants spread across airlines, financial services, luxury goods, retail, technology, and telecommunications.
The deal won't close until 2018, but it's it's a sharp and decisive move on Wirecard's part and one that – just as did the Citi deal in the US – gives the company a springboard into the fast-growing Asian markets.
Importantly, it's not just retail investors that have recognized the potential of this one. On July 12, Goldman Sachs (NYSE:GS) issued a buy rating with a target of €78. A day earlier, HSBC reiterated its target of €75. Also on July 12, Independent Research GmbH put a target on the company of €68. For reference, Wirecard closed out at €64.14 on July 12.
Bottom line here is that Wirecard makes for an attractive exposure to the rapidly growing Emerging Asia markets in the payments processing space. It's a profitable, well-capitalized company with a substantial, and established, global client base and a spate of buy ratings from analysts at leading institutions.
Further, if the recent Worldpay transaction is anything to go by, it might be in line for acquisition near term.