As Online Shopping Grows, Electronic Payment Stocks Soar

[Asia Economy Reporter Eunmo Koo] With the increase in online consumption due to the impact of the novel coronavirus infection (COVID-19), interest in electronic payment companies is also rising.

According to the Korea Exchange on the 6th, NHN Korea Cyber Payment closed at 34,450 KRW on the 3rd, up 6.16% (2,000 KRW) from the previous trading day. During the session, it even rose to 39,400 KRW, setting a new 52-week high. On the same day, KG Inicis also rose 3.06%, closing at 20,200 KRW. Both stocks began a sharp rebound after the domestic stock market hit its low on the 19th of last month, rising 50.1% and 49.6%, respectively, until the previous trading day. This is a significantly higher increase compared to the KOSPI (18.4%) and KOSDAQ index (33.8%) during the same period.

Recently, as consumers and companies focus on online environments due to the impact of COVID-19, interest and growth expectations for the electronic payment market are also increasing. The aftermath of COVID-19 has led to increased online consumption of daily necessities, food service, and content, expanding payment demand for PG companies. Jin-gu Kim, a researcher at KTB Investment & Securities, forecasted, "As non-face-to-face demand increases and smart consumption patterns form, the sales of payment-related companies will also increase in the mid to long term."

Payment Gateway (PG) is a service that acts as an intermediary for transactions with financial institutions on the internet. PG companies provide various small payment services such as credit card, account transfer, and mobile payments on behalf of merchants. Most merchants participating in the online market do not have high credit, making it difficult to individually contract with multiple card companies, so they contract with PG companies that have integrated electronic payment infrastructure. PG companies provide services such as card approval information brokerage and fraud detection services between shopping malls and Value Added Network (VAN) providers, earning fees through these services.

Not only stock prices but also earnings forecasts are positive. According to financial information provider FnGuide, NHN Korea Cyber Payment's operating profit for the first quarter of this year is estimated at 7.4 billion KRW, a 39.2% increase compared to the same period last year, and sales are expected to grow 19.8% to 129.6 billion KRW. During the same period, KG Inicis is also expected to record an operating profit of 22.9 billion KRW, up 9.1%, and sales of 239.4 billion KRW, up 4.9%.

Even after the end of COVID-19, as an environment where both consumers and companies inevitably focus on online channels is being established, interest in electronic payment companies is expected to continue. The domestic same-day delivery market size, which was around 10 billion KRW in 2015, increased to around 400 billion KRW in 2018. Joo-won Ahn, a researcher at Hana Financial Investment, explained, "Fast delivery, which was mainly focused on fresh food, is now applied to clothing, cosmetics, electronics, etc., and as delivery conditions improve, the attractiveness of online consumption activities is increasing."

From a corporate perspective, regulations focused on offline distribution channels are acting as a factor that fosters the online ecosystem. Researcher Ahn said, "The current Distribution Industry Development Act applies to large-scale stores operated by large corporations, imposing regulations such as operating hours and mandatory holidays," adding, "As a result, companies' presence in the offline distribution market is gradually shrinking, and to survive, they have no choice but to expand their online business further."