China’s online payments environment has witnessed massive change in the last decade. Digital businesses such as Alibaba (Alipay) and Tencent (TenPay) are challenging more traditional financial services. The rapid rise of mobile enabled payments (wallets and NFC) are also having an impact on the physical world. China Union Pay, the largest card issuer in China has also recently developed a mobile phone app, thereby joining the meteoric rise of mobile enabled payments.
Figure 1: Payment Methods in China
Figure 2: Most popular payment methods in China; 2015 vs 2016
According to research by KPMG in 2016, credit card and Alipay remain the preferred payment types for online purchases. Whilst Alipay usage remains fairly constant, Chinese consumers expect to use credit cards less. The biggest fallers however are debit cards and cash-on-delivery (COD). The latter mechanism is falling from nearly 18% of consumers who used it in 2015 to 9.7% in 2016.
For international merchants, the rise of third party payment (non bank) platforms is particularly important. China’s third party internet payment was estimated at RMB 19.2 trillion (USD 2.4tr) in 2016, with a year-on-year growth rate of 62.2% according to iResearch. Over half of this figure does include non-retail transactions but does indicate the volumes involved in the Chinese market.
Many of the big providers are ‘fixtures’ of the main marketplaces and for many customers, they would be a prerequisite for trading with an international merchant. The sheer scale of these businesses make them an obvious choice as well. Alipay has over 400 million registered users, 100 million of whom use it every month. Alipay and others run an ‘escrow’ system, whereby payment form a customer is held from the merchant until the customer confirms successful delivery and that they are happy with the purchase. If nothing is heard from them within 14 days, Alipay will release funds to the merchant. The customer will pay in local currency (Yuan) and remit in one of 12 approved currencies to the merchant. This does remove a lot of risk for the merchant but perhaps removes some margin opportunity as well.
AliPay, Tenpay and the other main providers also now have licenses which allow them to process card payments, as well as direct bank transfers from the customer.
The main brands in the payments space are: AliPay; TenPay; BaiPay – (owned by Baidu); 99Bill; ChinaPnR
Figure 3: Market share for the major Payment Service Providers in China
When initiating a payment through one of these providers, the buyer is presented with a selection of card brands to choose from, and upon selection, will be relocated to the issuer’s webpage where they will be asked to submit an account number and password for security purposes. By combining the gateways of a number of banks, these payment platforms make it much easier for online merchants targeting Chinese consumers to integrate online payment methods onto their own websites. One of the many benefits of these third-party payment platforms is that they are typically very easy for an online retailer to apply for and download.
With Alipay, for example, all that is required is the download of relevant applications from the Alipay website, the contents of which are then installed onto the merchant’s page. Fees owed to Alipay for their service depend on the amount transacted per annum and are based on a sliding scale. The more you transact the lower Alipay’s charge.
Paypal’s usage is increasing in the Chinese online market and they launched a cooperation with Baidu in July 2017 to raise profile in the growing offline mobile payments space.
With the eruption of ecommerce and the accompanying fast-paced expansion of mobile commerce, the Chinese government and private enterprise have concentrated on developing a mobile payment industry on a par with its Western competitors.
Figure 4: mPayments market share Q4 2016 in China
Mobile enabled payments were worth USD $7.2tn in 2016. Alipay has dominated this area of the market but Tencent launching WeChat Pay has challenged this dominance. In the offline world, consumers are rapidly moving away from cash at the till and with their levels of engagement with mobile social, especially on WeChat, payments is a natural extension to the functionality for them.
China UnionPay has also recently launched a smartphone application for mobile payments and financial services which allows customers to link their phones to their bank accounts so that they can swipe their phones against point-of-sales terminals and mobile quick response (QR) code payments are growing in popularity both in-store and online.Whilst integrated mobile payments have a lot of benefit, there are still advantages to initially arranging for traditional payment methods with mobile commerce.
Cards, Paypal and Alipay continue to dominate mobile purchases of physical goods.
The Key insights for international merchants are around taking advantage of the incumbents’ localised payment offerings. Often, this will be the only choice open to the merchant if they use one of the marketplaces. If the brand is intending to go direct then a trading licence is a ‘must’ and using AliPay or Tenpay will give the customer more confidence to trade with them. Including Union Pay functionality will also allow for direct payments from the customers bank account. Finally, providing COD will give the customer a rounded mix of their favourite choices; just research fees closely.
This article provides a payments overview of the China eCommerce market – we have produced a full country guide covering in-depth information on multiple aspects of trading into this territory including logistics, payments, legal framework and marketing.
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