This article first appeared in The Edge Malaysia Weekly, on December 14 - 20, 2015.

MERCHANTRADE Asia Sdn Bhd, the country’s first and largest non-bank remittance service provider, is considering a listing next year as part of its next phase of growth that will include an expansion into Asia-Pacific.

“We’re seriously considering a listing. We will finalise [a decision] very soon … we need to get a consensus [vote] from the shareholders,” founder and managing director Ramasamy K Veeran tells The Edge in an interview.

Apart from Ramasamy, who is the single largest shareholder with a stake of about 29%, the company is backed by big-name shareholders Celcom Axiata Bhd (20%) and Japan’s Sumitomo Corp (16%).

An upward trend in outbound remittance flows since 2011, driven by foreign workers and expatriates sending money back to their home countries, is expected to continue over the next few years, pushing Merchantrade to grow faster.

It currently provides remittance and money changing services. But it recently obtained conditional approval from Bank Negara Malaysia to enter the wholesale currency business. It hopes to get started on that this month.

“With that, we’ll be able to import and export foreign currencies, which we can then supply to our money changers and the industry network. In Malaysia, at the moment, there are only five operators of that business, so we will be number six. We’re almost ready … we’re just waiting for the actual permission from the central bank. Maybe by mid-December, we can start operating,” says Ramasamy.

Upon the commencement of the wholesale currency business, Merchantrade would be involved in all aspects of the money services business (MSB).

Even though non-bank remittance players were already allowed to operate from 2007, Malaysia’s MSB industry only came to the fore after the Money Services Business Act 2011 was introduced.

Enforced in December that year, it provided for the licensing, regulation and supervision of the money changing, remittance and wholesale currency business under a single Act.

Those businesses are described as MSB in the new landscape.

Ramasamy points out that the introduction of the Act is a key reason the MSB industry’s growth became more prominent. Prior to that, many foreign workers went to illegal operators that operated from grocery stores, for example, to get their money transfers done.

Foreign workers tend to shun banks because of their high rates and the fact that banks do not offer the convenience of being open seven days a week.

“It was only after the Act came into being that we were able to aggressively ‘attack’ the ‘informal’ market. With the Act, even those with licence had to become more professional. And the other good thing was, licensed players were allowed more branches … so we had more reach [to foreign workers], even in rural areas. I think the outbound remittance flows will continue to grow as players like us widen our reach,” says Ramasamy.

Today, Merchantrade has 69 of its own branches and 280 agent locations, making it the largest player by the number of locations. “We are allowed to appoint money changers to act as our agents to do remittance, and the number is growing, so that will mean more reach and more [remittance] flows.”

Most of the outbound remittance it handles is to Indonesia and Bangladesh. Customers choose Merchantrade over banks because of the better rates and speed of transfer the company offers, he says.

Last year, it handled RM3.2 billion of outbound remittance, a 39% increase over 2013. This year, Ramasamy expects the amount to grow 41% to RM4.5 billion. Its customers are mainly foreign workers, expatriates and students.

Malaysia — like Singapore, Australia and South Korea — is primarily an outbound remittance country given its large migrant population.

As an industry, MSB’s contribution to Malaysia’s outbound remittance grew 24.1% to RM17.5 billion in 2014, and Ramasamy expects it to increase 42.9% to RM25 billion this year. “I think for the next two to three years, the upward trend will continue,” he says.

For Merchantrade, the growth will also come as it starts to focus on small businesses — in addition to individuals — as remittance customers and taps the digital space. It launched its e-remit portal, for example, a few years ago, which is becoming popular with expatriates as it enables convenient online money transfers. This will be available as a smartphone app from next month.

The company is currently the biggest digital player in the MSB space. “Digital is still a growth story for us. It’s like a land grab, you know … everybody wants to go into the digital space. Whoever has the bigger liquidity, brand, credibility and capability is going to grab that market,” he remarks.

Ramasamy says the weaker ringgit has led to an interesting trend. “We noticed, in the last six to seven months, because the ringgit has depreciated, foreign workers are also holding back money because the currency in their country of

origin is strengthening. For example, Bangladeshis, a year ago, if they get RM1,200, they would transfer RM1,000 and keep RM200. Nowadays, they send only RM800, maybe because they’re holding back to see if they can get a better exchange rate the following month.”

‘Not for takeover’

Competition is heating up in the MSB space as foreign players and even telecommunications companies, attracted by the growth potential in Malaysia and the industry’s clear guidelines and structures, sniff out acquisition targets here.

Already, there has been a few significant mergers and acquisitions in the industry, which, Ramasamy says, will likely continue in the next few years. Even small local players are merging among themselves to become bigger.

The emergence of foreign players such as Ria Money Transfer — a subsidiary of Nasdaq-listed Euronet Worldwide Inc — is keeping Merchantrade on its toes and is one of the reasons the company is keen to raise funds via a listing and expand. Ria, the world’s third largest money transfer company, acquired IME (M) Sdn Bhd — Merchantrade’s closest competitor — earlier in June.

Last month, it was reported that DiGi.Com Bhd’s Norwegian controlling shareholder, Telenor Group, agreed to buy Prabhu Money Transfer Sdn Bhd — a licensed MSB player — for an undisclosed sum, subject to Bank Negara’s approval.

“When the global players are coming into the market, you need to raise the bar and you need to get well-capitalised and everything. So, we need to look at the direction we’re going. That’s one of the reasons we’re thinking of listing,” Ramasamy says, adding that a listing will also help raise the group’s profile and credibility among foreign partners.

Malaysia needs strong, domestic MSB players, he says. And for that reason, the company isn’t keen on being acquired by any foreign player.

“We have had a lot of good offers on the table, mostly from foreigners. Many private equity companies globally have approached us. We’re open to acquisitions, but this company is not for takeover,” he insists.

Ramasamy is scouting for acquisitions in Asia-Pacific so that Merchantrade can gain a foothold outside Malaysia. The focus is on countries where there are high concentrations of foreign workers and hence, strong outbound remittance flows. “We are negotiating in a few neighbouring countries. In 2016, we are definitely conducting some acquisitions in Asia-Pacific.”

Apart from MSB, Merchantrade continues to operate a mobile virtual network — it was the country’s first mobile virtual network operator (MVNO) back in 2007, in partnership with Celcom. But it’s a highly competitive business that is putting a dampener on the group’s overall earnings.

While Merchantrade derives the bulk of its revenue from the MVNO business, it is the remittance business that is the biggest contributor to its profit. It made a net profit of RM37.61 million last year on revenue of RM588.76 million, growing from RM26.1 million and RM438.15 million respectively in the previous year.

“Maybe this year, profit may be a bit down because mobile is down as all other operators are selling below cost. When MVNO drops, there’ll be a drop in our overall performance. But overall, the company will still be profitable,” he says.

The company has a staff strength of about 700.

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