Wednesday, 22 September 2021

MC Payment’s Koh: “Payment consolidation is inevitable and companies must scale up or become irrelevant”

Interviewed By Neeti Aggarwal

Anthony Koh, group CEO and co-founder of MC Payment, one of the first few digital payments companies to be listed on Singapore Exchange (SGX) Catalist, shared his business strategy, how they compete in a crowded market, plans for cross-border payments and challenges it faced in the process of listing.

Singapore-based merchants’ payments company MC Payment provides integrated offline and online payments and operates across Singapore, Malaysia, Thailand, and Indonesia. In an increasingly crowded merchant payment space with competitors like 2C2P, Omise, Red Dot Pay, LiquidPay, the company positions itself as a business solution provider with integrated payments and digital enabling services for verticals such as retail, food and beverage (F&B) and transport.

As margins in payments get squeezed and payment revenue and profit dynamics change, Koh pointed that his strategy has been “to enable the value-added digital services to businesses, use recurring software as a service (SaaS) model, stickiness of digital marketing, and enable cross-border payments to improve profitability”. He plans to provide cross-border payments by offering travellers their local payment method in other countries where they are a regulated entity.

Koh explained that the company decided to list on SGX to drive the needed scale to compete. It opted for a reverse takeover of Artvision Technologies, a challenging process that took almost three years due to various regulatory and compliance issues. “Going forward, we intend to grow organically and deepen our solution across the region. Secondly, we are looking at inorganic growth by buying companies or merging with them, to scale up in Asia such as Philippines, Vietnam and even Korea,” commented Koh.

The following is the edited transcript of the interview:

 

Neeti Aggarwal (NA): I have with me Anthony Koh, the CEO and co-founder of MC Payment, a fintech company that provides merchant payments services, and digital commerce-enabling solution. It operates in Singapore, Malaysia, Thailand and Indonesia. It is the first digital payments services company to be listed on SGX’s Catalist early this year.

The financial services industry has witnessed an accelerated adoption of contactless and digital payments last year while e-commerce has boomed. During the pandemic, several national payment initiatives have emerged. Payments have become increasingly instant, embedded and invisible. This is a constantly evolving space and your company offers various solutions to cater to a range of payment methods for merchants. What changes do you expect in the third-party payment processing during post-pandemic? Where is this industry headed to and what are the key innovations in payment technology that will have a significant bearing on the future of payments?

Anthony Koh (AK): Payment has come a long way. If we look forward from the cash to electronic payment that started with the company like Visa, the traditional credit cards payments some 70 years ago, third-party payment is moving toward first-party payment or second-party payment. You look at the regional countries, they started to regulate payment companies. In the past, we were not regulated. Central bank begins to regulate payment companies and the fintech provider. Fintech means financial and technology fusion, together as one. We see that payments were becoming more fragmented across the countries. Over the years, payments have not simplified. In fact, it's getting more complex and more payment methods occur. Visa and Mastercard emerged 50 to 70 years back with the goal to turn into cashless. Many years later, cash is still there. But we have many wallet services and local payment methods that evolve. You can see that each country has its own payment methods. We will see to it that we play a new role in this new era. That's why we emerged as the fintech and central bank sees the importance of regulating this ‘newborn baby’ (startup) in this digital era. Our role is to simplify technology and payments together for the next phase of the digital transformation of businesses. Payment is called a third party in the past, and we depend on the bank as a first party. Being regulated, our position moves up to become an acquirer. Being an acquirer, as a fintech regulated company, we will become the first provider that connects directly to various payment methods, such as Visa, Mastercard or even the local wallet payment or transfer methods. The role of fintech, being a regulated entity is to provide businesses with the aggregated payment methods to be relevant in this era.

NA: What are the key innovations that are happening in the industry which have a significant bearing on the future of payments and how are you integrating those technologies in MC Payment? Are you integrating technologies like artificial intelligence (AI) and blockchain in your payment processes?

AK: Right, looking at the current landscape. In the past, there is a clear distinction between online and offline. You talk about those running the e-commerce model and the online has evolved to do end-to-end solution. Shopify provides end-to-end hosted online platform for a merchant to sell even to external drop shipping. Offline, very traditionally in Asia. We saw that was just only a point of sale (POS), putting on the shopfront, either retail or food and beverage (F&B). But with the pandemic, this landscape is going to change because of social distancing, shops had to be closed. The businesses have to go on and be relevant. Orders have to be done remotely - ordering, purchases and deliveries. F&B, retail or one on the stores have to evolve into a new business solution or have the system to collect money, or payments from their customers. Payment providers need end-to-end solutions to this and specific industries such as these were able to function even in this pandemic situation.

At MC Payment, we have various solutions. For example, we have end-to-end F&B solution that caters to run online or offline. Our central platform allows them to create menus and generate a QR for the table or they can use a QR for remote ordering and also quick checkout with the payments. At the same time, they are able to do deliveries or self-collect. That kind of flexibility needs to be there and they are able to change the menu. With the central database, they know what product is selling through data analytics, etc. A solution like that is helpful for businesses to stay relevant in this pandemic. At the same time, payments should not be their headache. Today, what payment do I have? What we do is unify all payment methods into the same platform so that businesses no longer have a headache of reconciliation. Which product by which payment methods? We just add on new payment methods for them simultaneously or enhance when it is ready so that allows them to accept any payment method from your client. It is part of innovation that we're pushing forward. We did that for the retail and the other vertical industries. We do end-to-end, holistic as a business solution. Other than that, we also did that for the transport and charity solutions for them to provide a mode for collection donations, and a payment of school fees. Certain tokenisation and Visa storing of credit card credential allow the recurring payments securely. These are features that we built to help vertical businesses to cope with this current situation. We also recently launched a Facebook selling for the Facebook sellers. Facebook selling is a new form of selling for many of the new businesses because of the pandemic. What they do is live selling. They sell it at home to their followers, but they have a problem of collecting money from them or do the order taking and collect. This is the type of innovation and solution that we developed for this new era.

NA: Are you also integrating some of the emerging technologies like AI and blockchain in your current processes? If yes, how?

AK: Yes, it is in our pipeline because with the ordering data, it makes sense for us to build the AI and to do predictive analytics. Payment data is not enough. You need the end-to-end consumer purchase order data, which means the consumer behaviour data to make sense of the data analytics. On blockchain, we are capable and right now we have that in our pipeline. We have not rolled it out yet as a payment method. We tried two years ago, during one of the last events for the millennials to use it and it was successful. That was piloted two years ago. We see that there are emerging trends. Definitely blockchain and AI will be the emerging trend together with payments as a holistic solution for businesses.

NA: There are other companies that operate in O2O and digital payment space, for example, Red Dot payment, 2C2P, Omise, LiquidPay etc. In the acquiring business, you compete with banks as well. What are some of the unique features that you bring to the market versus your competitors and how do you differentiate your services in the market?

AK: Those names are my peers when we started. They remain either purely on the online space or providing the terminal space. We differentiate ourselves first by being a regional player with multiple licensed or regulated across the country. We aggregate all payment methods into a single platform. Building front-end vertical software solutions for the industries and front-end software for the businesses is one of the main differentiators. We are different from the other players by providing end-to-end holistic solutions. We are positioning ourselves as a business solution player with integrated payments rather than payment players. We add on our platform value-added services to increase our competitiveness and increase our margin. Right from the start, we bring our business into two parts. One part is the merchant payment services which are all transactional-related. The other part is the digital commerce enabling services which is software-driven by vertical industry. Businesses need an end-to-end solution. There is no difference with a payment. Payment is given already in the solution. Business is looking for someone that can solve its problem because its central business is not about payments. Their business is about driving sales in food and beverage or transport, education. They do not want to have a headache with payment methods which is so fragmented. What they need is, “can you help me drive more revenue? Give me more solution for my customer to use. Can you help me lower my costs that is more relevant to businesses of today”?

How do we achieve that? We built a lightweight, end-to-end solution for them. “Look, you come to us, and your headache is gone. You want a platform, have a solution that can help you manage your point of sales, payments and value-added services such as digital marketing.” We help them draw customers to consume in the store, to sell their products, and to do coupon redemption. If they want loyalty to keep the customer together on the platform, so they can consume and have returning customers to transact. Or they need recurring transactions done securely. We can help them do that.

We recently added the buy now, pay later (BNPL) feature so they can have more businesses by helping the consumer pay by instalments. All these are not payment core pay method central, but more value-added services.

By providing a more holistic solution, focusing on solving merchant problems is one of the differentiators in the country. Another differentiator is we will have cross-border payment methods to other countries and do the permutation. PayNow is a local Singapore payment method. If we can enable PayNow in Thailand, Malaysia, and Indonesia, allowing Singaporeans traveling to Malaysia, Thailand, and Indonesia to pay by the local payment methods, while MC Payment can handle the merchant settling in their local currency by accepting PayNow. That will be a scenario we are looking in the future and vice versa. Thai QR payment method will be accepted in Singapore, Malaysia or Indonesia, and MC Payment being a regional player can handle this cross-border processing and currencies. This will be the new trend emerging for travellers, when you open up pay by local payment methods.

How does this differentiate and why is this trend growing? It is because by providing a local payment method in another country, it lowers the cost of transaction for the businesses as compared to traditional Visa or Mastercard. It is welcomed by the local merchants because the rate is lower and is welcomed by a provider like us because it increases our revenue. We can participate in the foreign exchange (FX) which in the past we can’t and that is provided by the traditional Visa, Mastercard or the American Express pay methods. It gives us more margin to give a more holistic and higher gross profit margin play in this region. We are given the assumption that MC Payment needs to be regulated and it already obtained the licence regionally to do cross-border payments. This is one of the differentiators and barriers for other payment companies coming on board to compete with us.

NA: Are you working with a BNPL provider for the service and what's the mechanics here?

AK: Yes, we treat them as a payment method just like Visa and Mastercard or GrabPay. We work with BNPL to be integrated into our platform and each BNPL has its own consumer base. By enabling this BNPL in our platform to help the businesses, we can enable the various BNPL options in the merchant platform. Large retailers in Singapore can just turn on the BNPL options easily through our platform providers.

We do not take the credit risk. We are not the actual provider. We are the enabler. Businesses do not need to integrate with anyone. They can just turn on BNPL

NA: When do you expect to start this cross-border payments service and which countries and corridors were you looking at to provide cross-border payment services?

AK: Right now, we can only provide across the country where we have a payment licence. We can do local acquiring and cross-border payments. Our technology solutions are ready and are clearing some of the regulations in the exchange and the seamless payments. We build a cash treasury that can handle the foreign exchange and settlement in volumes and this is the part that we are enhancing and testing before we roll out. Right now, it’s pandemic so we want to see how the situation goes before we roll out the services.

NA: You work across multiple industries – retail, F&B and transport. How many customers do you have? What is the payment volume growth and customer growth in the last 12 months?

MC Payment has over 2,000 clients across key industries

AK: We have about 2,000 clients excluding those in Indonesia. In the region, we have a large retail chain, Zara Group and Watson. These are retail chains and also aggregators with the large group that we are coming in. We are focusing on enabling more payment methods and value-added services on the same platform. That is what we continue enhancing. During the pandemic, we had slowed down the acquisition. We are only enhancing more on the current merchant base with more payment methods and value-added services.

NA: How big is your market share in Singapore?

AK: Compared to Visa and Mastercard, I don't think we are big enough. Compared to alternative payment methods, we are sizeable in the alternative payment method. In the vertical and emerging payment methods, we are taking some traction and being a new player in the industry compared to the incumbent banks. We are not competing so much with them in the traditional payment methods. We are competing more with alternatives, aggregated with value-added services. That's why most of our merchants are tier one merchants and we now are looking to work with the shopping malls to provide the end-to-end solution.

NA: When you say sizable market share, would you have some numbers to share?

AK: I don’t have the actual number because we don't have a study on the data itself. It's not fair for me to mention it right now.

NA: Margins in payment transactions have been declining. This is pushing companies towards alternate models, embedded financing. How would you improve the revenue profitability in this increasingly crowded space? What is needed to build a more sustainable and profitable payment franchise in this scenario?

AK: Many payment providers are thinking about that. The strategy is value-added services and aggregated payment methods. Traditional payment methods like credit cards are squeezed to have a lower margin, but you are able to go to the local payment methods. The rates could be lower and the margin could be higher in transactions. When there is a payment behaviour shift, if the majority of transactions are coming from credit cards, we could have a higher top line because the rates are higher but the margin could be lower. When the payments shift to local payment methods, the revenue could drop because of the lower discount rate from 3% to 1.5%. You need double volume to keep the sum total. The revenue could drop but the payment margin gross profit (GP) could increase. It could increase because local payment methods give a lower cost and a higher GP. So, we experienced that.

If we provide value-added services, the digital commerce-enabling services will help us balance the recurring SaaS model and revenue in GP. For that, we were still able to maintain in the past was 36% to 42% GP, but with the payment method, it increases to 50% GP. GP could have increased because it could be a shift in the payment methods as well. These are complex. Also, the payment method depending on the payment provider was driving the volume, because they give a lot of incentive to the consumers. The payment methods are competing against each other. For us, we are agnostic. We aggregate all of them. Sometimes we see the shift in payment methods, but from a merchant, depending on which one is pushing that better. But that is not within our control. What we are in control of is that we hope to provide a holistic, aggregated, unified end-to-end solution that is not payment dependent and more consumer transaction dependent. We want to build stickiness and solutions for the businesses.

NA: Within your business model, what percentage of your revenue is coming from merchant payments services, and digital enabling solutions or business to business (B2B), as well as the value-added solutions you're providing?

80% of revenue come from merchant payment services

AK: For last year, we had about 80% of merchant payment services from transactions, about 20% digital commerce-enabling services. This year, we have about 70% to 30%. Our digital enabling services are growing. In the long run, we can see that they will balance off because we see that the digital enabling services as end-to-end will play a more significant role, more relevant role in this whole ecosystem.

NA: Are the profit margins different between merchant payments and digital enabling solutions? How do profit margins vary?

AK: For the merchant payment services, the GP also differs. It varies from country to country and payment methods. For emerging countries, the margin is a bit more competitive in local payment methods. It's very squeezed. Even the local to local sometimes we can't even make money in that sense but we need to make money from the value-added services such as SaaS model, and recurring stickiness of digital marketing that will balance off. There are cross-border payments for us to do, supplier payments and by the subscription, FX and things like that. We will get back the margins. This is complex, but on the whole, we maintain about 40% to 50% GP for merchant payment services. About 50% to 60% for the digital enabling services as a whole. So, aggregator is similar, it depends.

NA: You operate across four countries and in Singapore. You are also holding the major payment licence. How do regulations differ across these countries in payments? Does it pose a challenge to providing services across different countries?

AK: All central banks behave the same and they will regulate the players. We need to do our reporting, fund control. They need to ensure that the funds are safe. We need to be audited, get our system secured and being regulated we are ‘under the eyeball’ of (monitored by) the regulators. It is also good for the industry. It gives confidence to the merchants that these new players are regulated. All central banks will keep the number limited because they also do not want to have too many players in the local markets. We see limited numbers of players in the market for the whole country. Just like banks, they cannot be too many in the country.

The regulators are looking at the anti-money laundering regulations, the counter-terrorist procedures and, where the company is. They need to assess if your infrastructure is secure, your uptime is there, then you are able to provide the availability to the merchant when doing transactions. We need to be of the same standard that banks provide all the time - being secured, available all the time 99.9% and providing disaster recovery. That means if there's a failure or failover, are we able to fail over and continue to provide the same solutions? Are we able to pay the merchant promptly? All these are the factors that central regulators take serious concern. From that perspective, all central banks behave the same. That's why we take an average of about two years to get onboard to be regulated, to prove to them that we have the capability in procedures, operating technology and resources to keep up to the standard and the regulation.

NA: In Southeast Asia, we're now seeing bilateral arrangements for cross-border payment between countries such as PayNow in Singapore and Promptpay in Thailand. Now given the problems of different regulatory requirements, interoperability issues, what are your views on the possibility of an integrated Association of Southeast Asian Nations (ASEAN) payments? What are the key challenges in this whole process?

AK: ASEAN is trying to build a central network that is connected for ASEAN payment to use, but it is still in the initial stage. One of the main challenges in many countries was different payment systems. For it to progress, it may take some time. That's one of the main challenges. Even if in time to come, they are able to successfully form the ASEAN network and seamless payment, there is only one payment method that we can add. Many other emerging payment methods are run by wallet services. It doesn't help the businesses at this point in time. By the time it's ready, we can always add on the payment method. The merchant needs to go on. We need a solution to help them cope with the current situation, and to aggregate as much. It doesn’t have to be a dominant player that is providing everyone trying to come forward. We are one of the early movers. We see that the industry is still able to accept, accommodate a few players. It's big enough to have multiple players providing to the whole ASEAN market.

NA: You mentioned that you're looking to implement cross-border payment services in the near future.What type of payment features are you looking to implement? What shape is it likely to take?

AK: We already have an aggregated end-to-end platform in the country for the various vertical solutions. We just enable in the same platform the local payment method. In the past, the Chinese used to pay by Alipay, WeChat pay. They don't have credit cards payment. When the Chinese travel across the Southeast Asian market, they only have this option available for payment methods. It drives the regional market to accept Alipay, WeChat pay in the retail store. We will see that this trend will cascade down to other countries such as India. India is in a pandemic situation. India, Indonesia and large countries where there are local payment wallets, the incumbent payment methods are in there. We could see GCash in the Philippines populated across other countries so that people from the Philippines can pay by the local payment methods in their wallets. Indonesia with OVO, GCash, Dana, can enable in other countries in there. It will happen in time to come. In fact, some of the providers like Alipay are connecting all this aggregation into a single network, challenging the incumbent players like Visa and Mastercard to be the alternative channel aggregator. It is one of the directions we see will happen. It's just a matter of time that this will provide seamless transactions for travellers across these countries.

NA: MC Payment was among the first initial companies to be listed on SGX Catalist. It took you almost three years for the entire process to be completed from start to end. What were the challenges in the process? Why did it take so long? What is the main reason for listing?

AK: I started the company about 15 years ago. At that point, they do not have fintech. We started slightly way earlier than the new fintech companies onboard. That is one of the differences that we have. At the time we were exploring various solutions such as listing and trade sales. The listing option came into play. The main driving force is for MC Payment to scale up, and tap on the capital market to grow. The reason we see is that there could be or will be payment consolidation or congestion in the market. Either we grow bigger or become irrelevant in the market. The driving force behind the growth is to become a leading player in the region. We were offered this reverse takeover (RTO) opportunity, and the shareholder voted for it. We embarked on the journey. That was one of the driving forces.

MC Payment listed on SGX Catalist

Why it took two to three years? In 2017, we signed the intent. In 2018, we signed the sale and purchase contract. It takes some time to get the legal contract in place to kick off, then when we click in 2018. We do because we are across the countries. We need to get a lot of compliance and legal due diligence (DD), licensing, across the process for the professionals to fit the SGX regulations requirements. In countries like Indonesia and Thailand, the structures are a little bit more complex. It took us some time. Before that, we have more countries which we think are not viable. We take some time to clean up the countries, to focus on a few countries. It is neater for us to move forward to comply with the SGX rules. These are the reasons why it took some time.  By the time we are almost complete, the timing is an issue. For audit compliance, we want to complete the three years growth trend. That's where we push a little bit to let the audit complete. In 2020, we completed the last one. It seems like it's a long-haul process, but because we are multiple regional countries, that takes us some time for the various jurisdiction to clear and it all depends on different phases. That was the time when there are many dependencies. We have done the sale-purchase agreement in 2018. We also did the exercise of acquiring a fashion group at that time. We didn't complete the transaction that took us a year. It was also part of the delay. It took more time and we decided to drop off because it's delaying the process. It has some impact on the timeline because that acquisition becomes more complex. The timeline for the completion will be extended if we continue the acquisition. There's a reason why we decided to drop off. These are the two main factors that cause the RTO time to become slightly more, to fall within the timeframe.

NA: The fact that you got a payment licence in Singapore end of last year, did it impact your timeline?

AK: Yes, definitely. By the time we are about to complete, Singapore implemented the Payment Services Act. To be the first digital payment player to be listed, being a licensed provider becomes a key. By this point, we were not given the licence yet. Technically, the exchange will not want to list a company without a licence. By the time we have to wait, we have to wait till the Monetary Authority of Singapore (MAS) awarded us a licence. We were only awarded in December 2020. It was the main key, by the time we are ready, but because the Payment Service Act came into force. That became a critical factor for us to decide to be listed or not. We are the second company to be awarded in regional payment services.

NA: How much did you raise before listing and who were the major investors?

AK: We had 10 million shares at 40 cents apiece placement, and raised about $4 million. In fact, we needed to raise the amount for the RTO expenses and pay off one of the convertible debts. We have not raised any for working capital. We depend on our own cash flow or profits to generate it because we are cash flow positive. We are looking for the next raise at a time when it’s needed. We did a minimum raise at that point.

NA: You were profitable in the first half of 2020. We don't have the financials for the second half of 2020. How did it go? Before that, you had net loss. How were you funding the operations, if you had not raised from an external investor?

AK: Prior to 2017, we pivoted which means we had turned into purely digital, building infrastructure and getting ready. Also at the same time, we were applying for the licence in our region. We burn money for two years. We needed to get licences in Thailand and Indonesia. Those are investments that contributed to the loss. When we put RTO, we funded it using our own cash flow and leaving some to be raised, and to be paid off.

NA: You had not raised any series A or B prior to that?

AK: We did. That was prior to the RTO and that was quite a number of years ago. All in all, for 15 years, we had raised about $20 million, very little to achieve this portion. Going forward, we should look at the bigger raise.

We hope to scale up and the main focus after our listing is focused on the reach, the depth and the scale. It should be the next step and not so much at being a fintech company. As long as we have enough cash flow operation, it should not be our concern. We are still very confident we are first movers. We can scale up multiple times. Compared to other global payment players, we are still a small ‘baby’ (startup), but we will grow.

NA: What are your future plans, roadmap for expansion in the region or vertical expansion? How will you scale up your services?

AK: Two-pronged - one is to deepen our solution across the region which is part of the plan organically. The other part is inorganic by buying companies or merging or scaling up into other geographies like the Philippines or Vietnam, or in Korea. We can scale up to be regional before we turn into a global company. There's a reason why we still can grow multiple times. Being listed gives us the advantage to scale up in that manner.

NA: Thank you so much, Anthony.


Keywords: Blockchain, AI
Institutions: MC Payment, SGX, Artvision Technologies
Guest: Anthony Koh, Neeti Aggarwal
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