PayPal, the world's largest online payment service provider and a subsidiary of eBay Inc, may soon become the first foreign company to secure a payment license in China, which would help level the playing field for eBay in China's e-commerce market. But securing a license will not significantly change the status quo in China's online shopping and third-party payment landscape, which is currently dominated by domestic goliath Alibaba Group Holding Ltd.
It is not surprising that eBay is trying to dip into China's booming e-commerce market, which amassed 1.3 trillion yuan ($190 billion) in transactions in 2012, a growth of 66 percent compared to the previous year, according to a report by the China Internet Network Information Center.
Yet, eBay conducts about $6 billion of business in China, the majority of which comes from Chinese companies selling products overseas, but the country is expected to have the fastest growth in the world for the company, eBay's CEO John Donahoe recently told Reuters. It is unclear whether PayPal will form a joint venture with a Chinese company if authorities in the country approve the license.
Compared to its Chinese counterparts, the advantage of PayPal - which saw its annual revenue grow 26 percent year-on-year to reach $5.6 billion in 2012 - is that it supports payments in 25 world currencies, including the yuan. Analysts warn however, that cross-border currency settlement in China can be complicated and PayPal may need to devote a great deal of time and energy adjusting to the country's rules and regulations.
But PayPal may lose this upper hand when the State Administration of Foreign Exchange (SAFE) starts pilot testing its cross-border settlement scheme with local third-party payment companies. Under this program, online payment service providers can handle cross-border currency settlement for Chinese shoppers placing orders on overseas websites without the help of banks. The SAFE has still yet to announce though when this program will start.
Aside from cross-border settlement though, even if PayPal is just eyeing domestic online transactions, it will not be easy for PayPal to break into China - this country's $165 billion third-party payment market is already firmly within the grip of three local players, Alipay, Tenpay and ChinaPNR, each of which have their own advantages in the local market and their own histories with local customers.
Alipay, for instance, has been active in China for years and has a very thorough grasp on the mentality of Chinese consumers. Alipay releases payment to online vendors only after customers are satisfied with their purchases, which offers assurance to Chinese consumers concerned about quality.
PayPal's current application marks its latest attempt to crack the local market. PayPal first launched in China 10 years ago by investing in B2C website Eachnet but eventually withdrew from the country in 2006.
Although it is believed that PayPal could get an official green light from Chinese authorities sometime within the coming months, the company will have a rough road ahead of it in the country.
If PayPal really wants to succeed in China, it should concentrate on fulfilling the needs of Chinese enterprises by helping them explore more overseas markets.
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