PayPal is the first-ever foreign company to acquire a domestic payment license in China. How its journey will fare with the Chinese population and administration is still up in the air. PayPal is planning for success in this vast market.
The markets of China and the United States are very different, and it will be fascinating to see how PayPal adjusts its business model to the Chinese market. Will it perform as brilliantly as it did in the States and worldwide? What can it expect? Will it be smooth sailing? What kind of challenges will they run into that need to be overcome? These are just some of the economic and cultural factors worked on by this payment titan.
The U.S. confirmed the talks of PayPal entering China the day The People’s Bank of China approved PayPal’s acquisition of an equity stake in GoPay. This made PayPal the first-ever foreign company to own a domestic payment license in China. With the current tensions and trade disputes between the U.S. and China, it still is to be determined if the Chinese will respond positively to PayPal.
With the stark contrast in how markets in the U.S. and China work, many experts have presented their opinions on the challenges that PayPal might face in the new setup.
Crucial, make or break, challenges ahead for PayPal
China considers its payment sector to be very sensitive. The regulators have always felt the need to protect it from foreign competition. Moreover, the two local players Alipay and WeChat Pay, have dominated China’s digital payment market over the past decade. Now it is up to PayPal as to how they manage competition and not clash with the already established giants.
Finding a niche
PayPal has been a global leader in cross-border transactions. However, the Ant Group now plans to acquire a British-based cross-border payment service, WorldFirst. Ant Group’s bid to expand its global presence would allow Alipay to provide cross-border payment facility to its users. PayPal will have to develop a niche for itself that sets them apart and does not cause friction.
Credit card penetration in China is low
The most frequently used modes of payment in China are cash and checks. As a country, China is slowly progressing towards being a cashless economy. The reach and penetration of digital payment are pretty low as compared to many other countries. The modes of digital payment have yet to see an uplift in the number of users. PayPal would face difficulties in such a case, as it is an online payment portal.
Slow growth and low-profit margin
Compared to many other sectors, the digital payment sector has seen a relatively low growth rate. Moreover, the most prominent players in the market, Alipay and WeChat Pay, even after having the backing of robust, well-established systems like Alibaba and WeChat, have not been able to see any dramatic growth.
This is the case even with the financial and technical support as well as customers provided by Alibaba and WeChat. With low coverage, the profit rate remains low as well. The companies in their run to provide a better experience for their customers have to bear enormous costs for this, reflecting in low profits.
Advanced payment tools
China has a reputation for coming up with new and innovative alternatives to different systems and setups. The latest advancement making headlines in news circles is the introduction of facial recognition in payment authentications. Apart from that, the reward systems that the competitors offer to customers is also a matter of grave concern. PayPal will have to establish itself as a better, faster, and safer option.
Need for small users
The signing up process, documentation, and the functioning of digital payments can be overwhelming for some. As a result, not many people, including retailers and businesses, use or offer digital payment options. To gain customers, PayPal must look to gain customers in small companies. They must understand the needs and requirements of this sector; they must capitalize and make the most out of their acquisition of GoPay. This sector can make or break the game for PayPal.
However, we must not forget that PayPal has become the first-ever foreign company to own a domestic payment license in China, which in itself is a remarkable achievement and has opened the floodgates for different opportunities for PayPal.
Thus, we can say that PayPal will be very determined and go all out to make this move to China a huge success. They know that they face big competition and big challenges. However, PayPal knows a thing or two about big business and they are not afraid of the challenges. With the changing times, everything is possible.