AmEx (AXP) Gets Regulatory Approval For Business In China
Zacks Investment Research | Nov 11, 2018 08:43PM ET
American Express Company (NYSE:AXP) has received a preparatory approval for a clearing and settlement license in mainland China from the People’s Bank of China (PBOC), responsible for carrying out monetary policy and the regulation of financial institutions in the country.
This approval opens a way for the company to build a network business for processing domestic, RMB transactions through its joint venture in mainland China.
In order to carry out business in the dragon land, American Express has formed a joint venture with LianLian that is named as Express (Hangzhou) Technology Services Company (Express Company). Via this setup, the company will build a network that will enable charges on its branded cards to be cleared and settled domestically.
The receipt of this approval is very positive for American Express, as the company will now be able to gain access to the $27-trillion payments market in China. According to the central bank of China, the nation’s payment firms processed 169 trillion yuan ($27 trillion) of transactions in 2017, reflecting a nine-fold surge from 2013.
Until the recent past, foreign companies were restricted in the Chinese payments markets. Earlier this year, the Chinese government announced its plans to permit foreign companies in the payments markets.
However, foreign payments companies that are willing to do business in China were mandated to keep data locally, set up local units and establish payment infrastructure.
Nonetheless, competition in the Chinese payments market should be intense, as more than 260 firms have received payment licensesThis should increase competitiveness between companies, which, via innovative products and services, will try to grab market share.
One of the Hong Kong-based economists at ING Groep (AS:INGA) NV, however, said that though it’s difficult for foreign companies (such as American Express) to gain a pie of the local Chinese payments market, yet they stand a chance to compete in the cross-border payment market.
The company’s entry into China will lead to an increase in revenues from its cross-border transactions, thus aiding top-line growth.
In a year’s time, the stock has gained 15.3% against its industry ’s decline of 13%.
Zacks Rank and Other Key Picks
American Express currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks from the same space include Euronet Worldwide, Inc. (NASDAQ:EEFT) , On Deck Capital, Inc. (NYSE:ONDK) and Synchrony Financial (NYSE:SYF) . While both Euronet and On Deck sport a Zacks Rank #1 (Strong Buy), Synchrony Financial carries the same rank as American Express.
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Both On Deck Capital and Synchrony Financial surpassed estimates in each of the four trailing quarters, with average positive surprise of 109.5% and 12.3%, respectively.
Euronet, on the other hand, beat estimates in two of the trailing four quarters, with average positive surprise of 0.94%.
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