PayPal to Provide Digital Payment Services in China
04 Oct 2019
China's central bank approved PayPal's acquisition of a 70% equity interest in GoPay (Guofubao Information Technology Co. [GoPay], Ltd.), the companies announced Monday; giving PayPal a license to provide digital payment services in China.
PayPal says this makes it the first foreign firm licensed to provide digital payment services in China.
The terms of the deal, which is expected to close by the end of 2019, have not been disclosed, a PayPal spokesperson said. "We look forward to partnering with China's financial institutions and technology platforms, providing a more comprehensive set of payment solutions to businesses and consumers, both in China and globally," PayPal CEO Dan Schulman said in a statement on LinkedIn.
China's Payment Players
The digital payment market in China had only three players: Alibaba Group Holding Limited's Alipay, Tencent Holdings Limited's WeChat Pay, and GoPay.
Alibaba's AliPay and Tencent's WeChat Pay have dominated the market, in part by making it easy for merchants to use their services and accept payments from mobile phones rather than setting up the infrastructure to accept credit card payments. As of last year, more than 8 million brick-and-mortar stores in China accepted AliPay.
GoPay is a small Chinese payments provider that functions similarly to PayPal — it allows merchants to accept non-credit card payments straight from their websites for industrial products, e-commerce, cross-border trade, aviation, tourism, etc.
Entering the World's Second Largest Economy
US financial and payment platforms have been trying to venture into China for a long time. The restrictions; however, have been strong, making it costly to fullfill the licensing requirements needed to enter. China's growing middle class means an increasing number of consumers seeking the lending, credit card and money transfer services these companies have to offer.
Per a Frost & Sullivan research report, the mobile payment market is expected to grow 21.8% in 2023 compared with 2017, influenced and driven by the rise in e-commerce. The report also states that the number of active mobile payment customers will shoot up to 956 million in 2023 from 562 million in 2017.
There was excitment last year when China's central bank announced that "it would open up further to foreign payment companies." Last November, American Express became the first US card platform to provide card-clearing services in China.
In the U.S., AmEx commonly carries out transactions through its own platform; however, in China, AmEx has to make payment via the state-controlled China Union Pay to process transactions. Other players like Mastercard Incorporated and Visa Inc. are working hard to collaborate with domestic Chinese companies but have so far been unsuccessful.
One big question many foreigners operating in China may be wondering is whether this will make it easier and faster for them to move money in or out of the country. If so, this will be a huge move forward for doing business in China.
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