Zhou Ye from Huifu Payment: Payment innovation is a marathon



Time: July 3, 2018

Huifu added a feather into its cap when it succeeded in getting listed on the Hong Kong Stock Exchange on June 15, thus becoming the first payment service provider to be listed on the capital market through an IPO.

This was achieved even before the direct connection between third-party payment platforms and banks was cut off.

According to public data, Huifu filed the listing application with the Hong Kong Stock Exchange on March 12, cleared the hearing on Mary 17 and got listed on June 15. “Last September we decided the listing location. Then on November 24, we officially began the preparations for the listing. The entire process was smooth,” said Zhou Ye, Founder & Chairman of Huifu Payment. In an interview with Cross Finance, Ye said that the Hong Kong market was chosen mainly because it is a matured market with international investors, who are more diversified.

Zhou Ye said that now everybody knows that Huifu is the “first payment platform IPO stock.” However, it was not an easy task. While interacting with the capital market we needed to explain not only Huifu's business model but also the regulatory environment and the value logic of the payment industry structure in mainland China.

“We think the payment industry is facing value restructuring. In future, besides the two major clearing houses, the industry will be dominated by two types of payment services: those who serve the individuals and the others who serve the trading community. The two major services that of issuing bank cards and providing wallet account service are the first type of services. Huifu focuses on the latter, serving micro and small merchants and industry clients." said Zhou Ye, “There is a continued fierce competition in the payment industry. While adhering to the compliance, it has been our constant endeavor to strive hard with an aim to provide best services and innovate ourselves constantly to create a position for ourselves in the industry which are learned through the past 12 years’ development.”

Pressure of the "first payment company stock"

Although it took only half a year for the company to get listed, it took a considerable time to make the capital market understand working model of Huifu and the payment industry.

As he reviewed the process, Zhou Ye said that he was greatly impressed by two things – the widespread reach and tremendous popularity of the Chinese payment industry. “We reached to people through over 200 roadshows. The workload was much higher than expected. A number of international investors showed great interest in Chinese payment, but almost all of them only knew that very few of giants were serving the C end (consumer market). So they were generally concerned about three issues. First, what are other payment institutions in China doing? Second, in the fierce competition, how will the industry maintain profitability and growth in the market in future? And third, what is the policy trend in relevant fields in China? These issues will be slowly unfolded and answered by time."

The rate and price war caused by the fierce competition has become a double-edged sword. On the one hand, the increasingly diluted gross margin has made the fierce battle in the payment industry even worse leading to reshuffling of the industry speedily, while on the other hand, low prices have helped quickly popularize the mobile payment. Currently mobile payment has become an infrastructure project in development of the Internet.

 "During the listing, we found that institutional investors generally knew the payment industry of the US, but were not familiar with the industry logic and value of the Chinese payment industry. In fact, the income that American payment companies get from completing every transaction is four or even five times higher than that we get, and their profit margin is 20 times higher than ours. But from another perspective, the annual growth of the American payment market is 7-8%, while the size of the Chinese payment market is the largest in the world and is still growing rapidly, with an annual double-digit percentage growth. The large market size and growth rate have made up for the relatively low gross margin. Competition has also made Chinese payment companies to add value innovations and science and technology applications to their profiles. During our roadshows, foreign investors were deeply impressed by the degree of automation of full payment services. Meanwhile, the huge transaction size has brought massive data size, which has provided Chinese payment companies with data in much greater extensibility and much larger value-added service space compared with their international peers. Their risk management ability tempered in the mass market is also incomparable by their international peers. Undoubtedly, Chinese payment industry is leading the world today.”

What’s worth mentioning is that after Huifu, a tide of payment concept stocks is expected to be listed. The news about the listing of the giant Ant Financial has grabbed a lot of attention of the market. Besides, a number of small and medium payment institutions such as Baofu and Lakala are also actively preparing for IPO.

“After going through the changes in the nearly in the past two decades, the payment industry is now gearing up to tap the opportunity to connect to capital market. The payment industry and payment companies can get a fair pricing in capital market. Huifu being the first to get listed certainly increase the possibility of its participating in the integration of industries." Zhou Ye said, “The title of the 'first payment company stock' is an honor and also pressure, driving us forward. As a listed company in the Hong Kong market dominated by institutional investors, the most important way of market capitalization management is to realize performance growth. In the meantime, since we are the ‘first stock’, to some extent, we need to explain not only functioning of Huifu but also the entire payment industry to the capital market. That requires us to build a long-acting communication mechanism with the capital market."

"Best services" and "innovation"

Zhou Ye says that from its decade long experience, Huifu has now learnt that the industry is facing increasingly intensified competition, besides, the zeal for striving for best services and constant innovations are the fundamentals to establish itself in the industry.

The prospectus shows that Huifu currently offers payment and financial technology services to around 6 million small and micro merchants, over 1,500 online lending platforms and 4,000 clients in different vertical industries. In 2017, Huifu ranked 1st among third-party payment service providers that offer payment services to small and micro merchants, with a market share of 5.5%, and its industry partners include aviation, tourism, fund, logistics and cosmetic medicine among others.

“Currently there are over 87 million registered micro and small enterprises, and there are probably more than 300 million individuals and micro and small merchants with payment and collection demands. The market is still at a very early stage. Huifu currently serves 6 million merchants and there is still a lot of room for further development.”

While focusing on micro and small merchants and vertical fields, Huifu is continuously increasing its investment in technology to upgrade payment solutions and Fintech SaaS. “Taking micro and small merchants for example, besides a whole set of payment solutions that include various means of payment such as offline and online payment and mobile payment, we also provide them with the solutions of account management system or data value-added service. We provide a lending supermarket on the micro merchant platform, introduce different types of lending institutions, and take merchants to the lending institutions based on their risk preference through the analysis of the payment data of all micro and small merchants and link up the demands of the two parties. Meanwhile, to meet the cash flow management demands of micro and small merchants, we connect them to financial instruments.”

In fact, in the wallet account system which directly faces the C end, Alipay and WeChat Pay occupy an absolute dominating position, while the merchant service field focusing on the B end is the arena which has a lot of small and medium payment institutions to compete with. It’s worth noting that after the direct connection between third-party payment platforms and banks was cut off on June 30 and the compliance that small and medium-sized payment institutions transfer services to Alipay and WeChat Pay through UnionPay and NetsUnion is established, the technology and operation capabilities of payment institutions will play a more significant role in the competition at the merchant end.

In Zhou Ye's opinion, as the demands of merchants of different sizes vary greatly from industry to industry, the fine degree of services play a decisive role in the market recognition degree of service providers.

"The competition in the payment industry is like a marathon. Innovation ability has decided how far a company can go. Such innovation involves several aspects from product, risk management, operation to management style. In 2006 when Huifu began its operations, the competition in the payment industry was becoming increasingly intense. However, by exploring deep in vertical industries, Huifu first made breakthroughs in aviation, fund and online lending fields with the ‘industry solution’ mode and found its positioning. Therefore, innovation itself is the most important DNA of Huifu." Zhou Ye said, “In Huifu’s strategy, technology plays the most important role to increase efficiency, improve risk management ability, reduce service costs and build barriers. Accumulation and algorithm of data are the two bases for technological innovations. The size, quality, authenticity, continuity and online degree of data are the most important bases. Huifu has spent nearly a decade accumulating data. Even though it’s a long process, it has helped Huifu build high barriers for competition. It’s the same with algorithm. A lot of unexpected tests need to be gone through before useful algorithms are accumulated. Huifu has spared no effort to invest in technology. Seen from the entire development history of Huifu, the proportion of technology personnel has never been less than 1/3. In recent years, the R&D expenses are almost equal to profits, and our technology R&D personnel account for nearly 40% of our total number of staff."

Although the competition is fierce, Zhou Ye remains very optimistic about the future of the industry, “Even though the competition in the industry is already very intense, the payment industry has a number of great opportunities of the times lying ahead to tap and it is still a rising industry. First, service digitalization has great potential opportunity. Second, technological means are being constantly innovated. A decade ago, we couldn’t imagine real-time online risk management, but today it has become a very basic risk management means. Third, the payment industry and even the entire Fintech field are rewriting rules. Even though there are some difficulties in such revolution, it has brought a lot of market opportunities.”

Source: Cross Finance



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