Going into the business at the time was risky, admits Tay, but intuitively they were sure that this was a business that could be capitalised - Tay
HOW many times have you gone into a store, seen something that you like, only to find out that they don’t accept credit cards? The next question is how many of you actually take the trouble to go back and buy the item? The answer to that is probably not very many.
It may seem obvious but the fact remains that business is only done when payment is made. Surely then facilitating easier payments for customers should be a top priority for businesses.
Fully aware of this, GHL Systems Bhd commenced its operations about four years ago, spearheaded by four individuals: Tay Beng Lock, Yeng Fook Hoo, Joshua Tan Siew Meng, and Goh Kuan Ho with the specific purpose of taking advantage of the huge potential (and weakness) in the business of payment.
“We basically saw the opportunity to play a big role,” says GHL Systems group managing director, Tay Beng Lock. “We focus on payment solutions and services and to facilitate payment transactions. There is a huge potential in the payment business. It’s been there for centuries with a whole history from barter to paper cash and now to card. So it’s something that is always evolving.”
GHL Systems, now a leading payment services enabler, basically sought to act as a middleman between retail merchants and financial institutions that provide credit services. Traditionally, banks dealt directly with merchants, which could be tiresome, as they had to undertake all aspects of recruitment as well as provide support services. GHL Systems thus decided to take on the aspects of recruitment and the provision of support services.
They started by securing a distributorship of electronic draft capture (EDC) terminals while at the same time establishing a partnership with one bank.
In a year, GHL Systems had already established itself as a key player in the business and today, it provides credit, debit, stored-value, loyalty and medical card solutions to retail merchants nationwide.
GHL Systems has also partnered with the country’s top ten banks, three major telecommunication companies, two leading loyalty programme operators and two retail petroleum players providing various payment services and solutions.
They also facilitate e-commerce transactions through its payment-hosting service, PayDirect. It is a distributor of EDC terminals manufactured by global market leader VeriFone Inc and is the largest third party/non-financial institution EDC terminal provider in the country.
Whoops! – the first prepaid reload services in the country – is also a product of GHL Systems. The group’s products can basically be categorised into three major areas: software products, hosting services and hardware products.
Presently, the parent company of four wholly-owned subsidiaries, GHL EFTPos Sdn Bhd, GHL Payments Sdn Bhd, GHL Transact Sdn Bhd and Payment One Sdn Bhd which in turn has a 44 per cent stake in Card Pay Sdn Bhd, GHL Systems became a public limited company in July 2002 and is en-route to be listed on the Malaysian Exchange of Securities Dealing and Automated quotation (Mesdaq) market of the Kuala Lumpur Stock Exchange sometime in April.
Going into the business at the time was risky, admits Tay, but intuitively they were sure that this was a business that could be capitalised upon as global trends were pointing towards a cashless society. Furthermore, it was an area in which the level of competition was extremely low.
“We were quite ahead of time but our intuition was strong because this was what’s happening globally,” explains Tay.
“Also the barrier to entry is very high and so it is difficult for others to enter. We were originally in the PC (personal computer) business where there were so many competitors but when we entered (into) this business, the competition was in single-digit, only about 4 or 5 as the industry is very specialised.”
The group soon established itself as a dominant player. According to Tay, since it commenced operations, GHL Systems has achieved double-digit growth. For the seven months ended Dec 31, 2001, the group achieved a turnover of RM9.5 million while its net profit was RM1.5 million. For the ten months ended Oct 31, 2002, sales stood at RM21.3 million while the net profit was RM2.17 million.
But there is still tremendous potential to be achieved. The card payments industry, says Tay, is changing rapidly. In the near future, all magnetic-based bank-issued cards will have to be replaced by chip-based cards, with the first implementation to commence in 2003, as directed by Bank Negara.
Visa and MasterCard, meanwhile, require all credit cards in Malaysia to be converted into EuroPay-MasterCard-Visa (EMV) standard chip-based cards before 2005. This will also require a conversion of EDC terminals to EMV terminals.
As of 2002, only 8,000 of an estimated 35,000 of these terminals had been converted and this alone is expected to exceed GHL Systems' 2002 estimated market share by about 50 per cent.
The group has thus already commenced negotiations with acquiring banks to market its EMV compliant products and services.
“Bank Negara’s directive is very encouraging for GHL Systems as there is a huge market for the group to roll-out and market its EMV compliant products and services.”
Tay adds that the group is further poised to take advantage of an increase in the number of credit cards. Malaysia, he says, has a working population of between 10 million-12 million but the number of credit cards in circulation is estimated to be only at 4 million. But this is growing at a rate of approximately 20 per cent a year.
Furthermore, the number of retail merchants that accept credit card facilities totals between only 35,000 and 45,000, a number which Tay believes is far short of the total number of merchants in the country.
“I believe the number should be at least 100,000. Taiwan, which has the same population as us, has about 200,000 merchants who accept credit cards.
In Australia, the number is 400,000. So, there is huge potential. And that is before taking into consideration small towns where the cards are not been fully accepted.”
Nonetheless, Tay does admit that the culture factor may pose a barrier to credit card growth. Many still consider the use of credit cards to be somewhat taboo. The risk of credit card fraud also poses a possible dampener on growth.
However, this is something Tay expects will be overcome when debit cards gain a wider acceptance. Furthermore, the conversion to chip-based cards will mitigate fraud risks.
“Some people haven’t gotten used to credit cards,” Tay explains. “But everyone is accustomed to ATM and so debit cards can cut down the circulation of cash.”
The proposed listing of GHL Systems entails a public issue and private placement of 63 million new ordinary shares of 10 sen each at an issue price of 20 sen per ordinary share.
Currently, the issued and paid-up share capital of the company stands at RM18.7 million which is made up of more than 187 million 10 sen shares.
Upon listing, the issued and paid-up share capital of the company will be more than RM25 million comprising over 250 million ordinary shares of 10 sen each.
The listing will raise a total RM12.6 million, which is to be utilised mainly as working capital. The exercise, says Tay, is aimed at solidifying GHL Systems’ leading position as a payment services enabler.
Did you find this article insightful?