Yeahka Limited (OTCPK:YHEKF) Q4 2021 Earnings Conference Call March 31, 2022 8:00 AM ET
Company Participants
Ben Zhao – General Manager, Corporate Development and Capital Markets
Luke Liu – Founder, Chairman and Chief Executive Officer
John Yao – Chief Financial Officer
Derek Lai – Director, Finance
Conference Call Participants
Thomas Chong – Jefferies
Leon Qi – Daiwa
Vicky Wei – Citigroup
Operator
Ladies and gentlemen, thank you for joining the call today. Welcome to Yeahka Limited 2021 Annual Results Announcement Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Please be advised that today’s conference is being recorded.
I will now pass a call to Mr. Ben Zhao, General Manager of Corporate Development and Capital Markets for the company. Thank you. Ben, please go ahead.
Ben Zhao
Hello, everyone. Welcome to Yeahka’s 2021 annual results conference call. Before we start, we would like to remind you that this presentation includes forward-looking statements that involve risks and uncertainties. Information or general market conditions come from a variety of sources outside of Yeahka.
Now, let me introduce our management team on today’s call. First, Luke Liu, our Founder, Chairman and Chief Executive Officer will kick off with an overview of our business. I will then go through our business review. John Yao, Chief Financial Officer will conclude with a financial review before we open up the floor for questions. Derek Lai, our Director of Finance will translate for John.
I will now turn the call over to Luke.
Luke Liu
Thank you, Ben. Good evening and good morning, everyone. Facing the backdrop of an evolving external situation, we continue to demonstrate our ability to lead and innovate as China’s leading payment-based technology company. Our target is to build an independent and scalable commercial digitalized ecosystem, where we can seamlessly connect merchants and consumers through our one-stop payment service and offer merchant solutions to help merchants better manage and drive business growth. For consumers, we launched in-store e-commerce services. We are bringing consumers with local experience of great value providing them with a more enjoyable lifestyle.
In 2021, we continue to focus on identifying merchants and consumers’ needs and delivering various solutions. As a result, the enhancement that to our ecosystem this year is among one of the most significant pieces of value-add made to our marketplace offering in over 10 years. My team and I will share further details with you on some of the exciting progress and achievements we have made in 2021 on this call.
2021 is a special year for us. As China’s economy gradually recovered from the pandemic, we saw a change in consumption behavior, which drove the rapid adoption of digital transformation. This transformation creates large growth opportunities for us, allowing us to discover new ways to add value for our merchants and consumers’ ecosystem to the full lifecycle of our product metrics and to better reflect our strategic direction and how management evaluated the business. We have positioned our reported business segments to one, one-stop payment services, two, merchant solutions and three, in-store e-commerce services.
Now, let me share some of the major achievements in 2021. In 2021, our revenue increased 33.4% year-on-year to RMB3.06 billion and adjusted net profit increased 20.6% year-on-year to RMB434.8 million. Payment service is the foundation of our ecosystem. It serves as an important traffic gateway for our merchant solutions and in-store e-commerce business given our effective marketing and channel strategies. We haven’t seen our GPV, the number of active merchants and consumers are reaching record high. As of December 31, 2021, GPV reached RMB2.12 trillion, up 45.5% year-on-year. The number of actual payment service purchase reached RMB7.3 million, up 32.5% year-on-year. The number of consumers connected to our merchants was also up 46.5% and reached a total about RMB945 million, reflecting both breadth and depth of the population that we covered this small and medium-sized merchants in everyone’s daily life.
Our massive and loyal merchant base underpins the extensive source of customers for our merchant solutions. We have seen a rising trend for small and medium merchants to use digital service during the pandemic, which is reflected in our active number of merchant solutions customers, increasing 53.3% year-on-year to 1.38 million. The merchant solutions digital modules are fully integrated with our payments platform and offers seamless user experience to our merchants. And as a result, our merchants have been adding more and more digital modules due to their increasing and evolving operational needs. The intuitive user experience allows them to use our merchant solutions with a little guidance further decreasing our marginal customer acquisition costs, increasing adoption and retention rate and driving our merchant solutions business.
To further expand our ecosystem and enhance the connection between merchants and consumers, we launched our two-sided marketplace, our in-store e-commerce services in 2021. The marketplace offers consumers one-stop block local lifestyle services of great value. By branding the brick-and-mortar world of local e-commerce on to the internet, where it can be discovered, explored and transacted upon which serve as the connection between local merchants and customers ultimately helping to build vibrant neighborhoods in the process. This is groundbreaking development for us and the results have been remarkable. By year end, our in-store e-commerce has served about 5.2 million paying consumers generated RMB397 million GMV and recorded RMB148.2 million in revenue.
Just to give you a sense of scale. According to iResearch, the local lifestyle service market in China is expected to reach RMB35 trillion in 2025, never reaching our existing resources and capabilities within our massive commercial digitalized ecosystem, which includes our merchants and consumer pace. Our payments sales agents, our content creation and the new media know-hows will create synergies for all participants of our ecosystem. Empower in private domain is a circulation and ultimately delivering value for everyone involved.
We believe we have what it takes to capitalize on this immense opportunity and it delivered rapid and differentiated growth at a controllable cost in the segment. This is why we are also providing GMV guidance in the range of RMB2.8 billion to RMB3.5 billion for 2022. The in-store e-commerce initiative has further enhanced our commercial digitalized ecosystem and we see this new offering has our entry point into the consumer ecosystem. It will expand the boundary of our business offering and lay the foundation for the diversified consumer services we are planning in the near future.
In 2021, we made HKD470 million purchase of shares under the ICO scheme, accounting for 3.9% of the total shares outstanding. The Board has also approved an additional $50 million share purchase scheme on March 31, 2022 to further increase the shareholder value and motivate and attract talents, reflecting our confidence in the company’s fundamentals and growth potential. We have laid a solid foundation to build upon in 2022. We will continue to deliver stable revenue growth, invest in R&D, optimize our ecosystem and have generated diversified revenue streams and sustainable returns. As our ecosystem continued to evolve, we will also explore growth opportunities overseas to bring our product and services to the global user base. And we are struck to generate more social value in various business we do for the greater community, elaborate our business for merchants and better life for consumers.
And with that, I will turn it over to Ben to give you a detailed business review. Thank you.
Ben Zhao
Thank you, Luke. Good evening and good morning. Thanks to our clear strategy, resilient business model and outstanding execution capabilities. We have once again achieved remarkable results in 2021. I will now provide more color on the development of our three business lines. First, I will walk you through our one-stop payment services, which is the foundation of our commercial digitalized ecosystem and our traffic gateway.
In 2021, China’s economy gradually recovered. Our payment business performed strongly, thanks to our continued channel network diversification and merchant base expansion. Meanwhile, we continue to optimize our payment technology platforms and integrate with our merchant solutions for better one-stop merchant experiences. Increased R&D investments in our cloud payment platform that offers API to our partners and refine our operation management for greater efficiency.
In 2021, our total GPV was up 45.5%, while GPV of ad-based payment services increased 59% year-on-year, driven by our effective market and channel strategies. Also, we have enhanced our industry leadership position in integrated QR code payments since IPO and our improved pricing and bargaining power allowed us to improve the fee rates and control commissions in the later part of the year. We expect this favorable trend to continue in 2022. Not surprisingly, we have also succeeded in reaching more merchants and consumers. As Luke mentioned, the number of active payment service merchants and consumers both reached historical highs of about 7.3 million and 945 million respectively in 2021.
Revenue from payment services increased by 24% year-on-year to RMB2.2 billion. According to analysis, we ranked first in China’s non-bank independent integrated QR code payments service market. According to iResearch, the size of the third-party mobile payment market in China will reach RMB456 trillion by 2025, implying a CAGR of 12.9% from 2020 to 2025, showing great growth potential for our one-stop payment services. To capture this market opportunity, our channel network now covers 30 provinces and 324 cities in China, with nearly 15,000 independent sales agents and partners. In addition, we have developed our proprietary cloud payment platform with an open API and have partnered with over 2,000 partners, including SaaS ISV, fourth-party payment and financial institutions from industries such as food and beverage, retail, parking, bike sharing, internet cafes, etcetera to seamlessly acquire and utilize our payment technology.
We have also partnered with 95 banks to provide joint merchant services. With the bank systems’ nationwide network and massive merchant resources, we co-developed merchant payment service systems and jointly provided bank card acquiring services with the banks to help merchants activate their bank accounts, establish merchant channels while providing them with the merchant solutions. The development of DC/EP will further facilitate cooperation between commercial banks and third-party payment institutions. We proactively participate in the planning and design of DC/EP technology standards and have developed our capabilities accordingly. During the year, we jointly promoted the implementation of DC/EP in Shenzhen, Beijing and Shanghai with leading commercial banks, which will help us develop a more diversified merchant base and support implementation of DC/EP for commercial banks through our comprehensive penetration of offline merchant scenarios.
Now, let’s move on to the merchant solutions. With over 10 years of experience in the payment industry, we have accumulated a massive and loyal merchant base, which has become a broad customer source for our merchant solutions. We have developed over 100 proprietary function modules and 15 ecosystem partner function modules, including scan to order, cashier management, invoicing management, just to name a few, which are readily accessible from our payment mini programs, app and hardware terminals. Our enterprise standard digital merchant solutions is purposely built for satisfying the distinct demands of operating a store, giving us competitive advantages in a highly fragmented market. The intuitive user experience allows small and medium-sized merchants to use our merchant solutions with little guidance further reducing our marginal customer acquisition costs and increasing merchant adoption and retention rates.
The key to successful merchant solution business lies with our pursuit for technology innovation and speedy product launches and upgrades. Our product specialists and customer successful team has strong relationship with the merchants and their unique local market insights developed through our payment services allows us to dive deep into our merchant base and devise customized solutions for different kinds of merchants. As an example, our integrated food technology services, was launched very quickly in response to the pandemic. It intelligently matches delivery sources of different takeaway platforms for merchants, allowing even the small and medium merchants to operate in an omni-channel capacity and reduce operating losses. Besides digital SaaS modules, it is also very important for small and medium-sized merchants to acquire and engage customers in more efficient manners. We have developed precision marketing modules from a broad base of traffic source through our data management platform, advertisement upside on transaction completion pages, while our DMP generates multi-dimensional tax based on consumption habits and behavioral scenarios.
The platform also allows us to build predictive models to automatically recommend merchant brand names and performance-based advertisements by using real-time bidding algorithms that optimize performances while elevating our profitability. Complementary to our precision marketing modules is our strong content creation capabilities. We create high-quality contents such as graphics and text, creative design and short videos for merchants, and integrate these content feeds into leading partnering traffic platforms such as WeChat, [indiscernible] Kuaishou to help drive traffic from these online mainstream media. This solution is closely integrated with our in-store e-commerce offerings as we try to stimulate the consumers purchasing desire with these eye catching contents. We have shot and produced nearly 50,000 short videos in 2021. Such value-added services are charged on top of basic, our basic merchant subscription fee and average short video production cost for a single merchant is anywhere between RMB500 to RMB2,000.
We also partnered with licensed financial institutions to provide a cash advance program called Yeahka Capital for qualified merchants, helping eligible merchants acquire credit facilities of as high as RMB300,000. With the help of our big data analysis and risk assessment capability, our merchants operating conditions, the M1 plus delinquency rate by linkage in 2021 remained below 3.29%, reflecting our strong risk management capabilities. At the same time, we launched a number of targeted insurance products to merchants insured on ‘21 including a car security insurance, employers’ liability insurance, COVID-19 insurance, etcetera.
The revenue from our merchant solution business grew 38.5% year-on-year to RMB642.2 million and the number of active merchant solution customers increased by 53% to 1.39 million in 2021. We are at the stage of improving payment merchant conversion with attractive pricing entry points to further nurture our merchant solution user habits. We are also offering tier-based pricing for our merchant solution packages to cater for our merchant growth stages ranging from hundreds to thousands. We believe this tiered pricing structure enables us to retain merchants as they grow will be an important factor for our success in serving the SMB markets.
Now, let’s move on to our in-store e-commerce business. In fulfilling our mission to build a commercial digitalized ecosystem, we officially launched this two-sided marketplace which aims to enhance the connection between merchants and consumers. Our goal is to become the destination where consumers discover interesting, exclusive local experiences while businesses thrive. As Luke has already mentioned, iResearch predicts that the local lifestyle service market in China will become a RMB35 trillion market by 2025. This implies a CAGR of 12.6% from 2020 to ‘25 and the online penetration rate will be 30% in 2021. All of these data are showing great potential.
We began this business with the idea to build upon our existing resources and capabilities to capitalize on fast growing market opportunities. For consumers, we will provide them with amazing selection of local lifestyle experiences at great value. For our merchants, we empower them with deep understanding of local market trends and customer behavior and help them reach hundreds of millions of consumers in China and beyond. With our more than 10 years of experience in working with local commerce, we have accumulated a base of about 7.3 million active loyal merchants, ranging from restaurants, retail outlets, tourist destinations, hotels and many other local hotspots. These merchants can readily upgrade their merchant solution package as an e-commerce module, allowing them to design and less attractive, exclusive, and most importantly, price competitive experience packages on our platform.
On the consumer end, as of the end of 2021, we have reached about 945 million consumers through our payment services in the offline consumption scenarios. Through effective consumer engagement, this existing base of traffic has significantly lowered customer acquisition costs for our platform and merchants. Particularly our flagship [indiscernible] app is used by our users to discover, explore and purchase a wide range of local experience packages at attractive prices and to access member exclusive features and benefits. Compared to the mainstream local lifestyle platform, we took a rather differentiated approach to succeed. For one, our best value for the money approach. We don’t do standardized promotions such as 10% or 20% of coupons. Our customized best-in-value experience packages are usually 30% to 50% cheaper than those on the peers’ platform internally we are quite a super product. Our over 2,000 in-market product specialists have extensive knowledge of local consumer preferences and the competitive landscape and they work alongside each merchant to understand their cost profile, ultimately come up with the sales package that are highly appealing to the local community.
Two, our focus traffic approach. We have various selected number of SKUs in the region at a given time. We don’t want to be a platform that are more like a tool where all merchants are listed and rated, we try to showcase the most appealing ones based on the package they offer. We will also display the most relevant content to our members based on their 2 to 3 kilometers of location and their viewing habits or consumption habits. This ensures our selected merchants can enjoy the maximum traffic exposure.
Three, customer acquisitions through existing members private domain traffic generation. As our platform continuously add diverse, novel and value for money local lifestyle packages and through operating strategies such as group purchase and reward points. Members will proactively recommend more consumers such as their family, friends and neighbors to register as our users. Some become influential key opinion leaders within their social networks affecting the consumption choices of their social circles. As of the end of last year, we have actually accumulated more than 3 million of the registered community leaders or KOLs who are highly social and are interested in sharing their local lifestyle experiences and promoting our products. They are rewarded with cash incentives for each purchase referral which further motivates them to promote our merchant offerings via their social networks.
And four, premium content, these promotional graphics and short videos can proactively generate interest and recommend these exciting experiences to consumers through various online media such as Douyin and Kuaishou. Leveraging our existing capabilities in our precision marketing business, we provide the opportunity for even our smallest merchants to take advantage of these services, which were previously only available to large advertisers and this helps these small merchants to better represent and market their brands and experience packages. Our members or KOLs can also utilize these promotional materials in the form of pamphlets or posters, share a short video of themselves with it visiting a store or host a live streaming session on various social platforms and this helps to visualize aid the shopping experience on our platform and enable viral dissemination of product information in a large scale at low costs.
And five, different revenue model, instead of based advertising charge, we charge for based on the performances, our sales from these merchant packages on our platform in order to achieve the best aligned interest with the merchants. Our platform take rate is usually 20% to 30% and our merchant can still be profitable for the sale. Coupled with our existing traditional ecosystem and our precision marketing capabilities, it is not surprising we are ramping up quickly. Since our official launch in the second half of last year, our in-store e-commerce service covered nearly 300 cities, the GMV number of paying customers and SKUs were RMB398 million, RMB5.2 million and RMB159,000 respectively. For merchanting a lot of cities, we have become a go-to destination if they want to get back on their feet after the COVID. For example, we design a super product for a well-known restaurant brand in Shenzhen and achieved renminbi of nearly RMB600,000 in the first week of launching and equivalent of 60% of the restaurant’s monthly revenue before using our services, significantly boosting that particular merchant’s monthly revenue.
We have high growth aspirations for this business and are expected to generate a GMV of between RMB2.8 billion and RMB3.5 billion in 2022. This new business is a perfect example of our highly scalable commercial digitalized ecosystem expanding into consumer services. Going forward, we will continue to provide the best value lifestyle services for consumers and empower merchants with an easily accessible platform to reach their targeted consumers. We plan to keep delivering exponential growth in this business by continuing to invest in product supply, channel expansion and operating efficiency.
Lastly, to show our commitment to good ESG practices, we have formed a dedicated board level ESG committee, which looks serves as the Chairman to review key trends in ESG as well as related risks and opportunities, also coordinate and allocate resources for all of our ESG efforts to further strengthen our ESG governance.
And with that, I will now pass the floor over to John, our CFO. Our Director of Finance Derek will provide a translation.
John Yao
[Foreign Language]
Derek Lai
Thank you, Ben. Following Luke and Ben’s representation, I would like to reemphasize that our current portfolio of one-stop payment services, merchant solution and in-store e-commerce services are the driving force behind our strong financial results, which enabled us to continue developing a scalable and sustainable commercial digital life ecosystem. Now, let me briefly go through the highlights of our financial results for this year.
John Yao
[Foreign Language]
Derek Lai
Our overall results improved in comparison with 2020. Total revenue reached $3,058 million, representing a year-over-year increase of 33.4%. Adjusted net profit reached RMB434 million, representing a year-on-year increase of 20.6%. Our diluted earnings per share was RMB0.97 as compared with RMB0.87 in 2020.
John Yao
[Foreign Language]
Derek Lai
The increase in revenue was mainly attributable to the resilient recovery of our one-stop payment service from the impact of the damage as well as the rapid growth in all three lines of business.
John Yao
[Foreign Language]
Derek Lai
Gross profit was RMB840 million representing a year-on-year increase of 9.5%. Within this, gross profit of merchant solution contribution increased from 35% in 2020 to 46% in 2021.
John Yao
[Foreign Language]
Derek Lai
The overall fee rate was adjusted to 10.7 bps for the full year of 2021 from 12.5 bps in 2020 and 10.5 bps in the first half of 2021. Within this traditional payment fee rate was 8.3 bps, while ad-based payment fee rate was 12.2 bps. This is in line with a relatively stable rate expectation.
John Yao
[Foreign Language]
Derek Lai
We continue to increase our investment in R&D. R&D expenses were RMB240 million in 2021, representing a year-on-year increase of 88%, predominantly driven by an increase in a number of R&D personnel and increased investment in systems, big data and product development. We believe that the continuous upgrading of our technological platform will consistently yield the best merchant solution, which helps merchants with a digital operation while supporting our long-term sustainable development.
Ben Zhao
Thank you everyone. That’s it for our prepared remarks. We will now open the floor to questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from the line of Thomas Chong from Jefferies. Please ask your question.
Thomas Chong
Hi, good evening management. Thanks for taking my question. I have a question regarding the in-store e-commerce business, but given that our guidance is very strong guidance 2.8 billion to 3.5 billion. I just want to get some kind of about the assumptions that reform this guidance and also the amount of investment that we are going to make in the in-store e-commerce for this year? And my second question is regarding the outbreak of the pandemic can management comment about how it affects our business in the first half and the full year? What should we expect in 2022 given the outbreak? [Foreign Language]
Luke Liu
Hi, Thomas. Great to hear from you and great two questions. Let me address them on the first one. So, on the guidance, we have guided 2.8 billion to 3.5 billion and the assumption behind it is really how fast we are growing every month. So, looking at the current growth trajectory on a monthly basis, we are really growing by double-digit growth on a percentage perspective for the first quarter. So I think overall, achieving this guidance should be very achievable. And in terms of investments on to this business, so we try to balance out the – how much is spent on this new business and how fast it can turn profitable. As a consumer oriented business in the beginning, we will need to invest in R&D and invest in sales and marketing. But over time, as we ramp up our businesses in 300 and more cities, gradually we will become a profitable business. So overall, this year, I think the cost should be very controllable. And our second point on operate on the pandemic, so we do see some turbulences that are coming from the pandemic in the first quarter as what we are seeing happening in Shanghai and in Shenzhen earlier and in Northeast regions in China. So, I think overall, it’s controllable because we are operating in more than 30 provinces and we have that scale. So, we do think the pandemic impact should be temporary. So overall, I still think for this year, we have previously provided guidance last year in October basically saying as a leader in this industry on the QR code, we are now having the pricing power and bargaining power in order to gradually raise the periods and gradually decrease the revenue sharing percentages to the distribution partners. And we still expect this trend to remain the same in 2022 and we do expect to see the number of merchant growth and also that GPV to remain at a healthy growth trajectory for the year despite of the COVID.
Operator
Thank you. Our next question comes from the line of Leon Qi from Daiwa. Please ask your question.
Leon Qi
Hi, thanks management for taking my questions. This is Leon Qi from Daiwa. I have two questions today. First one is on our in-store e-commerce business. Appreciate management has given a very aggressive target. I just want to explore the take rate a bit. Will take rate be under any pressure when your GMV is growing exponentially according to your guidance? Are we facing any particular competitions in this area, which will potentially pose some downside pressure on our take rates? So, just want to understand the take rate on our in-store business? The second question is on the digital currency, we have noticed that you already talked about your involvement in DC/EP. If management could elaborate a little bit further on how we monetize these opportunities and appreciate if management could share with us on the revenue contribution of DC/EP business to us last year or give any potential additional color on how you are going to monetize it in terms of revenue going forward? Thank you very much. [Foreign Language]
Luke Liu
Thanks for the question. So, for the first one on in-store e-commerce, yes, so scale is ramping up very rapidly. And as you can see, our take rate for 2021 is 37%. And this is the result of we just started this business in the second half of last year. And I do think as our business scale increases in order to have more merchants to come aboard and to enjoy a more focused traffic that can be brought into their stores and to get more premium packages for the consumers to enjoy a better, localized experiences, we do think that GMV take rate will gradually come down a little bit, but we don’t expect a deep job on the GMV take rates. We expect it to still be somewhere between 25%ish that direction in 2022 and as a stable rate. So, that will be to your first question. And on the second question on regarding DC/EP and potential monetization, I think we still think and the industry I think the consensus is DC/EP is still in a rather early stage. And the main reason is – so obviously we participated in pilot programs, cooperating with different commercial banks and helping them to get the merchants within our ecosystem to accept DC/EP payments. So, that has already been completed, but the technical standards and as well as the exact business model has actually not been finalized by the regulators or by any industry players. So, we think this DC/EP trajectory, it won’t be materialized until about 2 to 3 years up from now.
Leon Qi
Sure. Thank you very much for sharing the color.
Operator
Thank you. Our next question comes from Vicky Wei from Citigroup. Please ask your question.
Vicky Wei
Good evening, management. Thanks for taking my questions. So, my first question is, we see that the company fee rate increased in the second half of 2021 as compared to the first half. But meanwhile, we see the other payment companies are lowering transaction fees for SMEs following regulatory guidance. Will management provide some color about the latest trends and then how we imply for our merchant acquisition? And then my second question is about our business expansion into other countries to see for further growth. Will management provide some color about the overseas market strategy and the investment related to it? Thank you.
Ben Zhao
Thanks so much. And let me address the first question and then Luke will address the second. So, on the fee rate question I think overall, the industry standard QR code fee rate is about 38 basis points. And obviously, if you look at our fee rates today and in fact, our peers as a industry wise, I think the third-party merchant service providers, the QR code fee rates is rather low compared to the standardized rates. And the industry or the regulatory guidance on lowering fee rates are more applied to these directly connected merchants with WeChat Pay or Alipay and they are being guided to lower the fee rates from the standard 38 basis points to a lower basis. And we have already done that. In fact, if you look at our 2021 numbers, our fee rate for the FA payment is about 12 basis points and adding the 20 basis point of the cost and that’s 32 basis points as a total. So, it’s still much lower than the standardized rates and much lower than the direct – the e-wallet players. So, we do think there are more to gradually increase the fee rates, because we are now the number one, the number one company in terms of the number of transactions on the QR code payments. We have more than 45 million of the daily number of transactions per day and that gives us the pricing power and bargaining power to – as mentioned to gradually increase the fee rates in 2022. So, that that answers the first question.
Luke Liu
Okay. So, in terms of the overseas plan, currently, we go to Singapore firstly. We apply the payment license in Singapore and then receive – I mean, the initial feedback and the business we do is little bit similar with what we are doing in China, but – due to acquiring business in Singapore offline and try to have the offline merchants to collect money and do the settlement firstly, which in this area we are very familiar and have expanded. So, this is the first step and we are also thinking about other business, which is provided the payment function to cross-border e-commerce in China, which means we will help the Chinese merchants to do the overseas business to receive foreign currency and exchange to RMB and to do the settlement. This is our current plan and then we hope we can expand this area to other country or other areas. Thank you.
Operator
Thank you. Our next question comes from [indiscernible] from China Renaissance. Please go ahead.
Unidentified Analyst
My first question is about in-store e-commerce course margin, since we calculated the gross margin for the second half and there was a little bit drop compared to the first half. So given our guidance of GMV 2.5 billion to – RMB 2.8 billion to RMB3.5 billion will that be any impact to the gross margin in 2022? The second question is about the gross payment volume although since the COVID cases resurgence in China, especially in the Tier 1 cities considering that into our factor, our guidance for the gross payment volume in 2022? The third question is about the integrated food delivery service. Since you talk about this new initiative in your annual report, can you talk about what the business model looks like and what the value you would like to bring to merchants? And also any initial feedback from the merchants during the trial run stage and when do you expect to launch? Thank you.
Ben Zhao
Thanks for the questions, Cindy. So, for the first question, on the gross margin for the in-store e-commerce business, so in 2021, we have seen that 35% of the gross margins and essentially we are paying to, for example, the KOLs when they are sharing or promoting the packages through their private traffic domain. So as a result, we need to have revenue share a portion of that to them. And in fact, as we can see here, we do expect the gross margin to remain stable in this year and also the years forward. And on the second question on the COVID, I think for the – in terms of the payment GPV, I think we mentioned the projection for GPV or the merchant growth should still be at a faster than the industry average growth, because we are having a much broader merchant base, which now has a network effect. And more importantly, our diverse channel network enables us to have a wide diversity of the nationwide exposure when we are acquiring merchants. So even if there is one or two studies that are undergoing COVID restrictions, we can still enjoy pretty good growth from other cities. So, that’s why even at this time, we are still pretty confident to see faster than the industry average growth on the GPV as well as the merchant growth.
And on the third question, very keen observation on the integrated delivery services that we have innovated. So, it was launched in response to the pandemic obviously and we are – what we are trying to do is very similar to integrated payment services, but the difference is the payment – the integrated payment services were connecting WeChat and Alipay, but the integrated delivery services were connecting a wide range of the delivery takeaway platforms for merchants that even these small merchants, they have requirements for omni-channel services, particularly in COVID. So, we offered these new SaaS digital modules to them and they can – we will match based on the availability in the specific region and based on the pricing for different takeaway platforms. And we will match the best available solutions or the platforms for the merchants allowing them to have cost effective delivery solutions. And this is obviously is still in the very, very early stage. And we are monitoring the developments and we should get more clear descriptions or guidance as to the market as the scale increases a bit, but we do think it offers very complimentary offerings to the merchants and which also enriches our product metrics.
Unidentified Analyst
Okay, thanks. Very clear. Thank you.
Ben Zhao
Thank you.
Operator
Thank you. Our last question comes from [indiscernible] from CLSA. Please ask your question.
Unidentified Analyst
Thank you. Hi, management. I have two questions. The first one is the profit margins payment. We understand last year we saw some fierce competition, which is reflected next year on a gross margin. So, just wondering if situation is getting better this year? Second question, just want to expand a little bit on our discussion on in-store e-commerce business. So, it’s great to see the potential of this business. But again, it’s very likely that the large internet companies, Meituan, [indiscernible] and even Alipay, which offer value coupons, will come into the place and compete with us. So, just wonder how this management look at the competition landscape? And a related one is for this business, so how can we make sure that a merchant can keep coming back to our platform, because if they offer some very heavy discounted products maybe that’s just one-off, especially consider they are just – they are SMEs so they have limited budget. So, do we really track this metric to see if these merchants keep coming back or we are more focused on volume to get a lot of as many merchants as possible? [Foreign Language]
Ben Zhao
Thank you, Ethan. I will take the first question and Luke will take the second. So, on the profit margin for the payments, yes, indeed, so last year, we lowered the fee rates and they also increased the revenue sharing percentages to the ISOs as because we value the importance of growing the merchant base, because it’s also the traffic following saw e-commerce business. And this year, I think in the fee rates, as mentioned, is expected to gradually increase as we gained the pricing power and the revenue sharing percentages will as a result decrease because of that, because as we can imagine these ISOs we want to make sure they earn a stable income, right. So if the fee rate increases, we don’t have to revenue share as much of the percentages as before. So, it sort of works the opposite way. So last year with the opposite, the fee rate was down and then the revenue sharing percentages, was up to make sure the ISOs they are earning the same revenues. So, that’s for the first question. So, we do think the margins will improve this year.
Unidentified Analyst
Okay.
Luke Liu
So, I think the two very important thing about which were – two points, which are very important for the in-store e-commerce business, one is in the supply side, now, we have our business already covered more than 300 cities in China and we have a lot of colleagues work day in day and partner with restaurants or small hotels or some other stores to design the package, design the perfect selection for the consumers. So, that – I think that is a strong advantage of us. We have the big sales force on the ground and this is not – I mean for the internet platform company, expect to make time. They do not have the ability to do the same work in the short time. This is the – I think the point one in supply side. And the second thing is the traffic side, now we utilize the private domain traffic to promote our products. It means we cannot rely on some I mean public traffic if you are a promoter for that and you want to promote our package, you can just paste a picture which describe our package or news in your friends circle or you can push a short video in Douyin and you can also recommend the product to your friends by mouth. So, I think, we – currently we can use the private traffic better than other competitors. This is the other advantage. And if you see the need and see the potential market in this area, the local lifestyle is very popular and only [indiscernible] Meituan are doing very well. So, I still think that they have huge space to develop and we will be – I think we will be one of them to do good.
Unidentified Analyst
Sure. Okay, thank you Luke. Thank you, Ben.
Ben Zhao
Thank you.
Operator
Great, thank you. We have reached the end of the question-and-answer session. I’ll now turn the call back to Mr. Ben Zhao for closing remarks.
Ben Zhao
Thank you once again for joining us today. If you have further questions, please feel free to contact Yeahka’s Investor Relations department through the contact information on our website. Thanks very much.
Operator
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.
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