The Chinese fintech has cleared one of many regulatory hurdles to enter the U.S. digital payments business after gaining a state-level operating license

Key Takeaways:

After getting U.S. federal clearance, the firm is now adding the required permits from individual states, starting with Arizona

The company's overseas revenue is rising fast, helping to offset a saturated Chinese market

Payment services provider Yeahka Ltd. (9923.HK) has taken another step on the path to becoming a global fintech platform, with its sights set firmly on the U.S. market.

The company announced last Friday it had been granted one of the many licenses it needs to handle financial transactions across the United States.

Yeahka had already gained federal clearance to operate as a financial services provider there, but it must additionally obtain separate authorization from each individual U.S. state.

That process is now underway after financial regulators in Arizona granted the Chinese firm a Money Transmitter License (MTL), adding to the federal-level Money Services Business (MSB) permit it secured last year.

The MSB process is regulated by a financial intelligence unit of the U.S. Treasury Department that works to prevent financial crimes such as money laundering. Licensed companies are authorized to handle remittances, foreign exchange transactions or cryptocurrency services.

Meanwhile, the state-by-state approval is a legal requirement for companies providing peer-to-peer payments, digital wallets or money transfers across borders or state lines.

The Shenzhen-based digital payments firm was set up in 2011, with close links in its early years to fintech services pioneer Tencent (0700.HK). Founder Liu Yingqi was a Tencent veteran who helped broker a partnership between the new company and the developers of the WeChat Pay app. As a partner firm, Yeahka was tasked with helping Tencent to integrate WeChat Pay into the sales systems of small and medium-sized merchants, to expand the network of businesses using the mobile payment channel.

From facilitator to fintech platform

Though directly operated by Tencent, WeChat Pay relied heavily on independent software vendors to embed itself in China's retail infrastructure. But after 2015, Yeahka sought to branch out from pure payments to become a hub for wide-ranging fintech services, including merchant marketing, data analysis and loan matching.

As China's mobile payment systems matured and apps such as WeChat Pay and Alipay took off, demand for Yeahka's intermediary services slowed down and started to stagnate in first-tier cities. Meanwhile, Chinese regulators beefed up industry oversight in 2018, bringing in stricter criteria for third-party payment licenses and tighter rules on financial transactions. The outlook for payment service providers was also clouded by growing concerns about data security and individual privacy, with rising cross-border compliance risks.

The company also faced fiercer competition for integration services from rivals such as Lakala Payment (300773.SZ), Yinsheng Digifavor (3773.HK), Shenzhen LeShua and Beijing Heiko Accommodation Payment.

As price wars intensified, Yeahka started to explore overseas markets from 2021 on a quest for higher margins. The expansion into cross-border payments has accelerated over the past two years, with the launch of the "YeahPay" brand targeting merchants in Southeast Asia, North America and emerging markets. The company has been licensed to operate money-related business services in Hong Kong, Singapore and now part of the United States, as a foundation for its global ambitions.

Overseas revenue growing fast

The challenging Chinese market has been a drag on earnings, as revenue fell nearly 22% to 3.09 billion yuan ($429 million) in 2024 from the previous year. But at the same time total payment volume for foreign transactions rose nearly five-fold to 1.1 billion yuan. Efforts to enlist AI to cut costs have also helped to deliver 73 million yuan in profits last year, more than six times the year-earlier total.

Investors have welcomed the expansion strategy as opening the way to bigger profits. News of the Arizona breakthrough powered a 65% rise in the stock price over three trading days, translating into a gain of nearly 24% in six months.

While Chinese digital payments operate on a high-frequency but low-cost basis, vendors in overseas markets are willing to stump up bigger sums for financial services, especially for business-to-business transactions and access to fintech tools, offering the prospect of a more sustainable revenue source.

Yeahka is trading at a price-to-earnings (P/E) ratio of around 51 times, below the 78.6 times for Lakala Payment but far higher than the 15.9 times for international giant PayPal (PYPL.US).

With the firm's move into potentially lucrative avenues such as business memberships and data analysis, its market premium has scope to rise. But investors should bear in mind that an elevated valuation is at risk of a correction if overseas earnings disappoint, or if Chinese competition ratchets up another gear.