With entry into China market, Paypal expands global ambitions

PayPal

This week, PayPal expanded the scope of its global ambitions through a 70% equity stake in Chinese payments company Guofubao Information Technology, which is known as GoPay. Through it, PayPal acquired a license to operate in China and access to millions more customers.

The digital payments giant intends to partner 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, according to a statement from CEO Dan Schulman.

The Chinese market traditionally has has been difficult for foreign financial companies to access, and the PayPal acquisition offers opportunities to challenge local payment incumbents. Despite the potential for  growth through PayPal’s entry and its potential to grow relationships with global retailers that operate in China, local incumbents are likely to be difficult to challenge, noted Meng Liu, a Beijing-based payments analyst for Forrester Research.

See also: With Wirecard, UnionPay takes aim at Visa, Mastercard

“Even though PayPal received a domestic payment license, it is extremely hard to compete with local players like Alipay, WeChat Pay and China UnionPay’s subsidiaries,” Liu said. “There are more than 200 payment providers who own payment licenses but, in terms of mobile retail payments, Alipay and WeChat Pay have already owned more than 90% of the market share for the last three years.”

In addition to PayPal’s uphill battle, transaction fees also could present hurdles since Chinese payment companies typically charge less than PayPal in commission fees.  “Mobile payment services are never cash cows for Chinese payment giants,” said Liu. “The goal of mobile payment is always building ecosystems, monetizing data insights and acquiring customers at low costs for a more profitable lending business.”

According to recent research, China’s digital payment transactions were valued at $1.3 bil­lion in 2018. PayPal’s entry into China comes as global financial services make moves to access the Chinese market, including Visa and Mastercard, according to Xiaomeng Lu, China practice lead at public policy consultancy Access Partnership. Meanwhile, American Express acquired a preliminary license to operate in China in November 2018.

Suman Bhattacharyya contributed to this report.

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