OnCard makes the dragon pay

As payments and card technology take-up expands along with China’s economy, OnCard International’s Peter Abotomey’s view is decidedly blue-sky. By JAMES THOMSON

By James Thomson

As payments and card technology take-up expands along with China’s economy, OnCard International’s Peter Abotomey’s view is decidedly blue-sky.

Peter Abotomey, the chairman of OnCard International, likes to joke that he had black hair before he joined the company back in August 2002.

Since then, Abotomey has put the company into voluntary administration, brought it out again, established a booming Chinese prepaid cards business, and attracted billionaire investors Peter Scanlon, Richard Pratt, James Packer and Rupert Murdoch.

But talking to Abotomey, it’s clear he has relished the challenge of turning OnCard around. Now he is intent on expanding the company’s fast-growing Chinese operations.

OnCard describes itself as a provider of loyalty, payment and reward solutions. Essentially its products are dining, reward, loyalty and prepaid cards purchased by companies and consumers. It has operations in Australia, New Zealand, Singapore, Malaysia, Taiwan and Hong Kong and China.

In the last 12 months, the number of cards OnCard has on issue has ballooned from eight million to 17 million. About 15 million of these cards have been sold in China under OnCard’s SmartPass prepaid card system.

Under Chinese law, companies can pay workers 14% of total payroll in the form of tax-free gifts. In the past, these gifts were mainly in the form of luncheon vouchers, but now companies in 32 Chinese cities have the option of giving workers a SmartPass that can be redeemed at 7000 merchants. “We’ve electrified the luncheon voucher,” Abotomey says.

OnCard has three revenue streams from the SmartPass. First, it takes a transaction fee from the 7000 merchants that accept the card. Second, it invests the money put on each card – about $100 million – and earns a return. Last, it can cash in any money that is left on expired cards (unless the company that has given cards to its workers asks for the expired money back – OnCard will usually give it to them to preserve the relationship).

The explosive growth of the Chinese operations helped OnCard produce a maiden profit of $1.4 million in 2006-07, up 230% on the previous year, with revenue climbing 190% to $6.7 million. Abotomey would not comment on the results for 2007-08 ahead of their release in late August.

He says the company has no debt, has $12 million cash in the bank, and is well placed to chase further opportunities in China. “This business is driven as fast as I can drive it.”

Turnaround

OnCard’s turnaround has been impressive. Abotomey joined the company (then known as DCS Technologies) in August 2002 and almost immediately put the company into voluntary administration, fearing it was close to trading insolvent. “The company was not managed as well as it might have been,” he says, adding that one particularly disgruntled “lunatic” staff member made life difficult for the new management team.

Over the next nine months, he worked to pay off debts, change the management and stop the company burning cash – all the while trying to ensure that shareholders did not lose their entitlements, as often happens going into administration. “We may not have actually needed to go into administration, but at least having gone through it we washed the company clean,” Abotomey says.

He says the path in and out of voluntary administration has taught him a number of valuable lessons about what makes a successful small company. He has tried to build OnCard’s strategy around three main planks – focus on core operations; ensure debt levels are low; and whatever you do, always ensure that you have adequate cash. “Companies that leave themselves short of cash and either heading for disaster or will always be operating under a siege mentality.”

When the company emerged from administration in late 2003, Abotomey began focusing operations on the booming Asian region, where he had worked as a general manager at ANZ. In late 2004, it formed a joint venture with Shanghai Smart Service and started the SmartPass business. In March 2005, the Peter Scanlon-backed FCPA China Investments took a large slice of the business and provided the capital for the acquisition of a Hong Kong payments business at the end of 205.

DCS changed its name to OnCard International in December 2006. In the last 12 months the company’s stock has fallen from 25c to 14c, although Abotomey says he and his high-profiled group of investors are not worried. “I always say that anyone who invests in our company needs to have a five to 10 year view.”

Doing business in China

OnCard’s story also contains some great lessons for entrepreneurs looking to do business in China. Because its SmartPass product needs to get a separate license for every city, one of OnCard’s biggest challenges is dealing with the large and slow-moving Chinese bureaucracies. “Things always take a bit longer than you think,” admits Abotomey.

Patience and persistence are key. “If you loser your temper in an Asian society then they’ll think you are a whacker. You wait and you push and you cajole until you get your own way.”

Getting business done at what Abotomey calls “Western standards” can also be something of a challenge, and OnCard needs to be careful to act ethically at all times. His basic rule is that any offers of hospitality made or received by OnCard officials must be able to be consumed in one sitting – a bottle of wine is OK as a gift, but a case of wine is too much.

Despite some economists predicting a slowdown in the Chinese economy in the coming years, Abotomey is bullish. “We are certainly not seeing a slowdown.” He also believes huge Chinese Government spending in infrastructure currently underway will underpin decades of growth for the country.

The company’s immediate focus in China is the development of its joint venture with CHIBO, a subsidiary of the Chinese central bank. The joint venture will develop payment, switching and processing systems for China’s immature but rapidly developing banking sector, such as telephone, mobile and internet baking and cheque services. OnCard is likely to have to spend around $10 million to capitalise the venture.

He also excited about the opportunities to grow revenues from SmartPass by increasing sales in current markets and expanding into other areas, such as Beijing, where the company is still trying to get a license. “I think we’ve just scratched the surface with SmartPass.”

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