In recent developments, a noteworthy shift has taken place within the joint venture credit card clearing institution, Liantong (Hangzhou) Technology Service Co., Ltd., marking a significant evolution in its operational structureThe firm has experienced multiple key changes, including alterations in registered capital, investor profiles, executive appointments, and its type as a market entity.

According to the National Enterprise Credit Information Disclosure System, Liantong's registered capital has surged from 5.76 billion yuan to approximately 8.1 billion yuan, reflecting an increase of more than 2.3 billion yuanA remarkable aspect of this recent capital injection is that, post-increase, the proportion of shares held by American Express now exceeds 82%, resulting in a transformation of Liantong from a "Sino-foreign joint venture" to an "investment from foreign entities and not wholly owned" status.

Responding to inquiries from reporters, American Express reaffirmed its long-term confidence in the Chinese market, elaborating that obtaining approval for this capital increase would be instrumental in fostering the sustained growth of Liantong's operations.

Established in 2020, Liantong commenced its operation as a licensed entity following its inception from a partnership between American Express and Lianlian Digital, where both parties initially held 50% stakesIts launch represented a breakthrough in the landscape of domestic card-clearing services, disturbing a historically monopolized market.

With the latest increase in capital, changes in shareholding proportions were evident, as Lianlian Digital's stake has further declined from 45.22% to 17.63%. Meanwhile, two American Express entities, Amex TRS and AEMD, increased their stakes to 80.72% and 1.65%, respectively, culminating in a combined stake of 82.37%. Furthermore, the seat held by Lianlian’s subsidiary executive, Sun Dali, on Liantong's board has been relinquished.

According to statements from Lianlian Digital, this equity reallocation is rooted in strategic developmental considerations

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Following the accomplishment of its initial growth milestones, which included securing necessary licenses and establishing a solid operational framework, Liantong has illustrated successful outcomes stemming from financial liberalizationThe company has garnered recognition from regulatory bodies in both nations and is now positioned to enter a new phase of scalable growth while maintaining a cooperative relationship with American Express.

Prior to the latest capital increase that pushed the registered capital to 5.76 billion yuan, Liantong had undergone three rounds of capitalization since its establishmentThe initial capital was set at 1 billion yuan, undergoing increment phases in January 2021, November 2022, and December 2023, where the registered capital scaled up from 1 billion to 3.7 billion, then to 5.06 billion, and finally 5.76 billion yuan.

At the time of reaching 5.76 billion yuan in capital, Lianlian Digital’s stake was downsized from 50% to 45.22%, while the aggregate stake of American Express’ entities stood at 54.78%.

Liantong has witnessed a leadership transition since it began operations, with Zhu Yaming taking over as CEO from Liu Weide in July 2023. During a mid-2024 interview, Zhu outlined the company's strategy in light of the competitive market environment, emphasizing high-end services, cross-border capabilities, and acquiring merchants as focal pointsCollaborations with over 20 banks have led to the launch of more than 160 American Express RMB credit and debit card offerings, as well as partnerships with upwards of 30 financial institutions and digital payment platforms, significantly expanding their merchant acquisition footprint.

On the financial performance front, discussions on achieving the profitability threshold remain ongoingIn December of the previous year, Lianlian Digital announced the sale of equity stakes that reflected a calculated strategic moveThe disclosure detailed that Amex TRS had invested approximately 1.569 billion yuan to acquire 14.27% of Liantong’s equity, and AEMD purchased 0.29% for 32.03 million yuan, collectively summing to 1.601 billion yuan

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Evaluations at that time placed Liantong’s valuation at 7.5 billion yuan, with a target period extending to August 2024.

Lianlian Digital asserted to reporters that this stock adjustment aims to optimize resource allocation, thus providing abundant financial support for the main business's development and offering a better pathway for strategic execution.

The mid-2024 financial report from Lianlian Digital noted a loss of 202 million yuan attributed to its stake in Liantong, a positive shift from a larger loss of 336 million yuan in 2023—signifying an exit from its most financially detrimental phase.

During the earlier interview, Zhu likened the role of clearing institutions in the payments sector to that of highways in transport, asserting that the substantial upfront investments linked to clearing network infrastructure can be tremendousLiantong remains in a phase primarily characterized by investments in building and maintaining clearing systems, developing partner ecosystems, and managing operational practicesThe mutual shareholders of Liantong maintain a strong belief in the Chinese market, demonstrating a commitment to its long-term prospects.

Market commentators view the transition of domestic licensed card-clearing entities from “joint ventures” to “foreign investments” as indicative of the ongoing liberalization trajectory of China's clearing market.

In November 2023, another milestone was reached as China welcomed its second joint venture credit card clearing institution, the UnionPay International Technology (Beijing) Co., Ltd., with MasterCard and UnionPay holding respective stakes of 51% and 49%.

In a mid-2024 interview, UnionPay International’s chairman, Ling Hai, articulated that creating any market ecosystem requires a phase of explorationAchieving a stable and sustainable growth trajectory cannot solely hinge on competitive pricing; ultimately, it must bring tangible value to consumers and the market.

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