New UnionPay restrictions raise concern in Macau

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The removal of UnionPay point-of-sale machines in pawnshops and jewellery shops based inside and close-by Macau casino premises could signal a change in government policy, with analysts discussing the potential effects on the premium mass segment.

Lack of clarity behind an apparent crackdown on use of UnionPay point-of-sale (POS) machines in pawnshops and jewellery shops in Macau has caused concern amongst industry stakeholders.

At the beginning of June, Macau casino operators’ stock prices dipped following the news that Chinese government officials had removed UnionPay terminals from businesses located in integrated resorts on the Cotai strip.

On 6 June, the Monetary Authority of Macao moved to assuage concerns, the stating that it does not bar the city’s banks from installing UnionPay terminals in any “particular industries”.

The financial regulator emphasised that “banks are obliged to perform adequate due diligence on, and ongoing monitoring of, the merchants in order to prevent the abuse of POS [point of sale] machines [for] illegal activities.”

Ben Lee, managing partner at gaming consultancy iGamiX, explained that by mid-June it is still “unclear at if the Macau authorities were responsible for the decision to remove the Macau UnionPay terminals or if the mainland authorities did”.

“The movement was lead by two of China’s largest banks in Macau, and by day five, the Macau Monetary Authority still had not issued any meaningful statements,” he continued.

Media reports suggest that two banks – the Industrial and Commercial Bank of China (Macau) and Bank of China Macau Branch – were behind the decision which has seen all UnionPay counters and shops inside or nearby casino exits have their terminals withdrawn.

The scale of the new restrictions also appears to be greater that initially reported. “We have also been advised that several external pawnshops which operate outside casino properties have also had their terminals withdrawn, even on the peninsula,” Lee clarified.

In a note on 11 June, Morgan Stanley analysts Praveen Choudhary and Jeremy An downplayed concerns over the impact of the changes.

“[The] Union Pay concern is overblown in our view,” the analysts stated. “Historical efforts by central banks and monetary authorities (such as reducing the daily and annual ATM withdrawal limit, connecting ATM cards to IDs and implementation of facial recognition) have had minimal impact on GGR, while making the industry structure much more robust and sustainable in the long term. We expect this to be similar.”

Despite this, JP Morgan analysts DS Kim and Sean Zhuang suggested that the extent of the crackdown is not yet apparent, and highlighted that premium mass was most vulnerable to the changes, given that an estimated 25 percent of the segment utilise UnionPay.

“It’s still unclear whether banks will return POS machines to those affected, or whether the clampdown will actually escalate further (such as into pawnshops and jewellery shops outside casinos and/or illegal foreign exchange providers),” the Kim and Zhuang stated in a note.

“Even if those shops get POS machines back, we think their ‘rules of engagement’ would have to change – probably not as openly as before when it comes to UnionPay cash-back services,” they added.

Japanese brokerage Nomura proposed that the decision to remove the POS machines could signal a governmental policy change regarding greater control of mass-market gambling.

“There is disagreement among the operators on the government’s real intent, but it is clear that Macau is becoming more aggressive on a segment (mass) that could represent an estimated 10 percent to 20 percent of its liquidity,” wrote analysts Harry Curtis, Daniel Adam and Brian Dobson in a note on 6 June.

“We believe that Beijing has sent a message to the Macau government that it needs to beef up/enforce money transfer regulations.”

In the short-term, Lee highlighted that vendors have moved to adjust to the changes, thus-far minimalising the effect on the premium mass segment.

“So far the impact has been negligible as the void was quickly filled by the ever present touts with the illegal mobile POS devices,” he explained.

“We also believe that some of those on-property counters and shops as well as external pawnshops have also resumed UnionPay service with the same mobile devices.”


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