I am always interested in recurring revenue business, debit/credit card transaction fee is one. Yucheng Tech (YTEC), the smaller rival of Longtop (LFT), is entering POS business this year. According to my friend Nawar Alsaadi’s analysis (quoted below):
“POS Revenue projections
The company mentioned in an investor presentation in February 2007 that the average business processed on a POS machine in China is 200,000 USD…Assuming an average transaction cost of 1.5% charged by the bank, the average revenue per machine will be $3000, and if we assume that Yucheng is awarded a 3rd of the transaction cost, this would net the company $1000 in transaction revenue per year. Thus, based on the company’s expected rate of merchant sign up, the company could generate as much as $50 million dollar in recurring transaction revenue by the end of 2009 as they sign up over 50000 merchants on their network…”
Today I read Yucheng’s news release: it says “Yucheng makes approximately RMB2 for each RMB1,000 spent at each of its POS terminals and benefits directly from the shift to credit/debit cards as the preferred form of payment.” So it’s about 0.2% instead of Nawar’s 0.5% assumption. In other words, the revenue contribution would be $20 m by the end of 2009. Not as big as $50 m, still good number for them.