Banking & Finance

Terminal decline

Card provider in cashback clampdown

Chinese visitors walk past a sign for China UnionPay outside a pawnshop in Macau

Playing with plastic

Gamblers caught counting cards on the blackjack tables of Las Vegas are swiftly shown the door. But casino bosses in Macau are wrestling with a different type of illicit card activity – the cash-generating variety.

The greyer areas of Macau’s economy were caught in the spotlight again last week when the South China Morning Post reported that the dominant Chinese card payment system UnionPay was making new efforts to combat money laundering and capital flight in the world’s top casino destination.

That was seen as bad news for casino stocks, which have more than doubled over the last two years but fallen by a fifth in 2014, Bloomberg comments.

The target of the crackdown are portable UnionPay terminals brought to Macau from across the border in China. Agents are taking them around the casinos and offering customers the chance to get more money on the spot. Transactions are then classed as domestic sales, unlike those at terminals properly registered in the city (Macau is classified as a special administrative region).

Police said they made six arrests in February and six more in March, collecting a haul of mobile card terminals, account books and cash. Reports in the media this week have also suggested that the casinos have been given a July 1 deadline to get rid of the illegal terminals, or face a wider crackdown.

Capital controls restrict Chinese visitors from bringing more than Rmb20,000 (about $3,200) in cash per trip to Macau, plus the withdrawal of a further Rmb10,000 a day from ATMs.

For some that’s not enough of a stake – hence why the reports caused a stir among casino stock investors, especially as the crackdown seems likely to hit the segment known as premium mass-market (Macau is trying to attract a wider crowd and reduce its dependence on high-roller gamblers). The gaming shares worst affected were Wynn Resorts (down 8.5%) and Galaxy Entertainment (down 7.6%).

But as Charlene Liu at HSBC then pointed out, the UnionPay review had been underway for a while with little sign that it was undermining revenues. Business from mass-market gaming grew by 34% in April year-on-year, for instance.

The ban on portable terminals will be hard to police, analysts believe.

But for those now unable to find one, what is the alternative if you need to up your gambling pot?

Macau is dotted with shops where Chinese visitors can use their UnionPay cards to buy watches or jewellery. The stores then helpfully offer to repurchase the items. Reuters journalists visiting one outlet in the Grand Lisboa casino in March and reported that as much as Rmb10 million of gold bullion could be bought with Chinese plastic and then sold straight back for cash (minus a fee, of course).

So why announce a crackdown on the mobile terminals now? It looks like some of the pressure is coming from those same storeowners, with local pawnbrokers complaining that rogue operators are besmirching the good name of their industry. Illicit terminals are being used “savagely”, the industry’s chamber has warned.

The floaters have been doing brisk business. One estimate from an analyst in Hong Kong last week was that illicit card swiping bought as much as $6 billion worth of mass-market chips, or about 12% of the total.

But there was a strong rebound for casino stocks the day after the sell-off. Nevertheless, in the longer term casino shares may face headwinds.

While other businesses have been hit by Xi Jinping’s campaigns against graft and extravagant spending (see WiC182 and WiC225), Macau’s casinos haven’t suffered in the same way. Yet some investors are fearful that the reprieve won’t last, making for a jittery mood in the gaming sector.

Just a few days before the UnionPay reports, state broadcaster CCTV also revealed loopholes in some of the visa arrangements for Macau. More than 2.5 million tourists arrived on transit visas last year but at least three-quarters of them never made an onward journey, it seems. Immediately there was speculation that those rules would be tightened. Casino stocks fell sharply again.


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