Actis enters Indian payments market

Emerging markets firm Actis will invest $40 million for a “significant minority stake” in Indian ATM outsourcing and payments company AGS Transact Technologies, the private equity firm said in a statement.

Actis is the second large private equity firm tapping in to the company. In June 2011, TPG’s growth capital arm invested $43 million, reportedly in exchange for a 20 percent stake. 

The company had been on Actis’ radar for a number of years, Mark Richards, a partner at Actis, told Private Equity International. “We have had a close relationship with the company and were waiting for them to grow into the scale investment that we want to do,” he said, adding that the minimum investment for Actis was usually around $50 million.  

AGS Transact Technologies manages a network of 10,000 ATM machines across India; Actis plans to double that in the next three to five years. “India is predominantly a cash society. The vast majority of transactions are still cash transactions conducted over the counter of a bank or in the streets. Neither the ATM market nor the point of sale market [payments by credit/debit cards] is well-developed there – so there’s a huge gap,” Richards said.

In the US, the ratio of ATMs to the population was 1 machine for every 700 people compared to the 1 machine for every 15,000 in India, according to Actis’s statement, which noted the number of ATMs in India was expected to increase from just under 100,000 to at least 200,000 by 2017.

Actis is familiar with the payments processing sector; its Emerging Market Payments Holdings company operates in 40 out of 54 African countries. Richards sees similarities between the two markets. “Africa and India are the two last frontiers of the payments world. They are the last places with a cash-dominated society and the common theme is that this is going to change very rapidly over the next few years.”

Although he admits it would be a huge cultural change for India, Richards was confident the Indian population would embrace e-payments. “There’s a big following wind behind this. For banks it reduces the channel and distribution costs. It’s also good news for the government because it’s formalising the payments system which allows for audit trails to be created.

“The Indian government decided to issue a whole series of big ATM outsourcing contracts. At the same the big four private sector banks had permitted to partner with specialist groups. That’s what’s really prompted us to invest right now and we are very confident that the take-off of e-payments is growing and going to accelerate in India.”

Actis declined to disclose which of its funds made the investment. Its $2.5 billion Actis Emerging Markets III was launched in 2007 and is still investing capital. Since 2011, Actis has also been in the market with Actis Global IV, which has a target of $3.5 billion, according to research from PEI’s data division.