UnionPay enacts new reporting policies
The Chinese government has promised greater scrutiny of China UnionPay Co. and AliPay card transactions in hopes of ferreting out illegal activity that may be related to gaming.
According to Bloomberg News, UnionPay announced it would require all debit-card transactions to be monitored at the point of service, and all POS systems to be registered and audited. The policy is further proof “of continued Chinese government enforcement against illegal activity related to UnionPay card use,” said Sanford Bernstein analysts led by Vitaly Umansky. “There is risk that greater scrutiny may be cast upon the unique Macau pawnshop business model in which cash transactions are recorded as goods purchases.”
Secretary for Economy and Finance Lionel Leong has promised that regulators will also keep an eye on transactions made through UnionPay rival Alipay, reported the Macau Daily Times. And the Monetary Authority of Macau says it will install a real-time monitoring system for mainland bank cards meant to verify the identities of cardholders.
Word of the beefed-up oversight caused Macau casino stocks to fall in Hong Kong trading. On December 10, after the report appeared in the South China Morning Post, SJM Holdings dropped 2.8 percent; Sands China fell 1.7 percent; and three other concessionaires—Wynn Macau, Galaxy Entertainment Group and MGM China Holdings ended at least 0.2 percent lower on the same day.
In August, Macau police arrested 17 people at five pawnshops thought to be using UnionPay point-of-sale terminals to illegally funnel funds out of China, Bloomberg reported.
According to GGRAsia, Deutsche Bank AG analyst Karen Tang said the “long-held common practice” of gamblers using pawnshops to “disguise cash withdrawals” may be coming to an end.
“Near term,” Tang wrote, the shops “prefer to stay cautious and plan to reduce the number of large amount transactions to avoid getting the attention from the banks.” Deutsche Bank estimated that these bankcard transactions may comprise 30 percent of premium mass play and 10 percent of VIP play.
Daiwa Securities Group analysts led by Jamie Soo said they think stricter enforcement of the policy will “further dampen the possibility of seeing growth in mass GGR next year.”
“In our view, this new development warrants a more cautious view on the sector in 2016. We believe there is now an even higher risk of downward consensus GGR/earnings revisions in the near future,” said the analysts.
Analysts seem to agree the move will exert unwelcome pressure on the premium mass market, the Asia Gaming Brief reports.
Meanwhile, though the Chinese government has ordered Macau to develop more non-gaming attractions, revenues from those amenities are “simply not large enough” to compensate for the decline in gaming, says a report from Union Gaming Research LLC. GGR for November fell 32.3 percent on a year-on-year basis, the 18th straight month of decline. Total spend exclusive of gaming by visitors in the third quarter fell 19.5 percent year-on-year according to government statistics.
“While the non-gaming segment is growing as a percentage of overall revenues, the mix-shift is being fostered by a reduction in gaming win rather than a more significant acceleration in non-gaming revenue,” wrote Union Gaming analysts Christopher Jones and John DeCree.
The emphasis on non-gaming attractions may be most evident in Macau’s newest casino resort, Melco Crown’s $3.2 billion Studio City, which opened in October—notably, without a single VIP gaming room. That emphasis will matter—eventually, wrote the Union Gaming analysts.
“In five to 10 years, non-gaming might be the primary driver of EBITDA. However, it is unlikely that non-gaming will significantly drive Macau earnings in the next 24 to 36 months.”
