GHL System Berhad Annual Report 2017

ANNUAL REPORT 2017 21 4. KNOWN RISKS (cont’d) d) Foreign currency risk – EDC terminals are purchased in USD and therefore can expose the Group to foreign currency risk as the Group’s functional currency is in Ringgit. The Group minimise exposure to foreign currency risk by purchasing USD spot at the time of recording the vendor liability. The Group does not hedge against foreign currency fluctuations in the net asset value of its overseas subsidiaries as these investments are of a long term nature. This would, however, be re-visited should a significant event occur that would cause a permanent diminution in the foreign currency denomination of its overseas subsidiaries. 5. FUTURE PROSPECTS The Group continues to focus on merchant acquisition across the three markets by offering businesses, payments options ranging from credit/debit acceptance, mobile payments as well as internet payments. In May 2017, Malaysia commence payment acceptance of a China based e-wallet with the Philippines following closely in early 2018. The emergence QR based e-wallets have spurned growth of domestic e-wallet players in all three markets and 2018 will see the launch of several local players in this space. This bodes well for GHL, as it increases our competitive edge in offering our merchants an integrated omni-channel payment solution. The group remains optimistic of further developing TPA as a key growth engine for the group given the changes in the payment landscape as e-payments gain further traction as driven by not only regulatory directives, growing market acceptance, but also positive changes in consumer preferences towards e-payments. GHL Group expects 2018 prospects to be positive given our strong network and partnership with the banking sector as well as our extensive merchant network of 170,000 acceptance points (as at end 2017). In the fast evolving market place, the group is expected to increase its investments to further strengthen our market positioning as e-payments gain more prominence. In the Philippines, the Group only commenced its TPA business in the middle of 2016 with an established local Bank. The TPA business model is consistent with that implemented in Malaysia and will enable the Philippines to target a much wider and larger segment within the marketplace. Merchants have started being acquired under this business model and it is likely that the business will be able to scale up in 2017 once initial teething issues are resolved. The Group expects that this will lead to higher growth rates in the TPA business in the years ahead. The changes in the way the debit transactions are switched previously under Banknet has now opened up opportunities for GHL in the Philippines as we have tied up with three (3) banks to acquire merchants directly for debit card transactions. In Thailand, we have successfully implemented loyalty card and network device solutions that have reduced our dependency on TPA and Shared Services revenue streams. Other than scheme cards (e.g. VISA and MasterCard) that are heavily contested and thinly priced, we have differentiated ourselves by starting to acquire merchants to accept China based e-wallet payments which is not commonly offered by other merchant acquirers. This has helped us improve our profitability and enabled us to weather the storm of an intensely price competitive environment for merchant acquisition. As the Thai banks continue to support their regulator’s initiatives to support the card payment system for the underprivileged and other e-payment options, we see the EDC growth opportunities to remain robust in the current year. GHL Group is on track in terms of achieving its objective of becoming the largest merchant acquirer in ASEAN. MANAGEMENT DISCUSSION AND ANALYSIS CONT’D