Don’t be bamboo-zled by payments in China

As the barriers to global business expansion gradually drop, particularly as payment technology evolves and enables more flexibility and scalability, a lot of businesses are eyeing the opportunity to expand into the huge market that is China. With some forecasts predicting that by the end of this decade the Chinese ecommerce market will have grown larger than the UK, the US, Japan, Germany, and France combined, China is front of mind.

So what does a business need to be aware of when making the move into China?

Customer Profile

Firstly, a look at the profile of a Chinese shopper.  China’s ecommerce market today consists of young, relatively affluent shoppers. When it comes to online shopping, half of all eshoppers are between the ages of 24 and 30 and based in large economic centres like Beijing and Shanghai.  This demographic is powering a massive rise in smartphone adoption – of approximately 650 million people online in China, 80% have access to the Internet through their mobile device, which is a huge proportion.  However, the online shopping demographic still represents only 25% of the total population, meaning there is plenty of growth potential.

Key payment methods

Three main players – UnionPay, Alipay, and Tenpay – together account for approximately 80% of the market and dominate the current online payments landscape. Alipay controls just under half of the online payment market, Tenpay just under 20%, and China UnionPay just under 15%.

International e-commerce businesses however, can reach the majority of Chinese customers with just two of these – Alipay and UnionPay. This is due to the following reasons:  

• Alipay is the largest single payment platform in the market, with around 48% share and a bigger slice of the fast growing mobile pie. Its dominance is due to its web properties (Taobao in particular, which is the equivalent of eBay in China).
• As the largest issuer in the world, UnionPay is unquestionably a vital part of the payments mix, and particularly important to reach shoppers who do not have an Alipay or Tenpay account. It’s worth noting that no Visa or MasterCard cards can be issued unless co-branded with UnionPay.
• Although Tenpay has 20% of the market, many Tenpay users are already Alipay users and as with Alipay, the 20% figure is warped as most transactions originate from their own webstores.

Businesses should keep an eye on developments regarding the partnership between Tencent, Baidu, and Dalian Wanda Group, as this initiative may give a boost to WeChat Payment. WeChat is a Tencent-owned mobile social network and messaging service with 438 million monthly active users (and growing), that enables brands to sell to followers with its own WeChat Payment functionality. This is the same backend payment channel/technology as Tenpay. (Note: some sources refer to this as Weixin Payment, since Weixin is WeChat’s Chinese name).

Cross-Border

China’s young, urban, upwardly mobile shoppers are driving a groundswell in cross-border e-commerce growth. In 2010, Chinese shoppers spent $1.95 billion (RMB 12 billion) on cross-border transactions. By 2013, this had mushroomed to over $11 billion (RMB 70 billion).

For international merchants eyeing the Chinese market, this is good news as it underscores the fact that significant traction can be made with a cross-border approach to the market.

Credit Cards

When it comes to credit cards, Chinese consumers traditionally have a conservative attitude to saving and prefer not to use credit if it can be avoided. However, China still counts among the world’s fastest-growing credit card markets, and MasterCard has predicted it will overtake the US as the largest market for cards by 2020 when it will have an expected 900 million cards.

Key Considerations

To summarise, for international businesses expanding into China, here are the key principles to bear in mind today:

• Offer a combination of methods – at least UnionPay and Alipay, to reach as many shoppers as possible and to optimise costs
• Without entering into a joint venture or having a local entity, you can still reach a significant percentage of online shoppers due to cross-border payment options offered by major players like UnionPay, Alipay and Tenpay
• Enable recurring transactions - recurring transactions in China are more popular than many Asian markets. Therefore, merchants that operate on a recurring payment model should partner with a payment service provider that enables recurring transactions for key payment methods
• Optimise for mobile – a significant portion of Chinese shoppers access the Internet primarily, or only, through a mobile device, so the mobile experience is hugely important.