The Green Sheet Online Edition
June 25, 2012 • Issue 12:06:02
Expanding e-commerce payments in China
Of the estimated 2 billion Internet users worldwide, almost half live in Asia. Broadband is sweeping throughout the region. And people younger than 25 years of age comprise half of those who are online gathering information, reading news, playing games, socializing, shopping and buying. Four of the top 10 Twitter countries are in Asia.
Since more and more of these consumers are eager to buy from U.S., Canadian and European e-commerce businesses, the payments community needs to address the requirements that derive from this region. There are unique challenges to extending your payment strategy into Asia. Patience, persistence and partnerships are necessary.
Asian consumers complain primarily about delivery methods, distrust of the brand and security. Merchants quickly realize they must offer the local payment methods - not just traditional credit cards - to secure any real purchasing power.
What potential does the Chinese market have for the payments industry?
China is the world's second largest economy and is expected to overtake the United States as the world's largest e-commerce market by 2015. Consulting firm Innopay's April 2012 report, Online payments 2012: Moving beyond the web, projects an estimated transaction volume valued at $314 billion USD by this date. With more Internet users than the United States, China represents a significant opportunity for e-commerce businesses and the acquirers and payment service providers that support them.
As of April 2012, the China Internet Network Information Center indicated the country's population is 1.3 billion. The official name of China's currency is the renminbi yuan. With 513 million Internet users as of April 2012 (according to Internet World Statistics), China is a strong and growing business market.
Currently, the strongest e-commerce performance is in online game playing, luxury goods, and video and music applications. For businesses leveraging sales derived from information application, the statistics are encouraging. Search engine use is up 69.4 percent, and news reading is up 78.7 percent. E-commerce transaction volume is still considered low, believed to be in part due to trust issues in online transactions. Bandwidth and access to secure payment vehicles are also obstacles for consumers.
Steadily increasing prosperity in the community means higher consumer demand, more consumption and more online purchases, which include foreign goods. Markus Rinderer, Chief Executive Officer of Pay.On said, "Like many others, Chinese consumers strongly appreciate the high quality and prestige of the frequently world-known U.S. product."
Pay.On, a Munich-based global payment processor for Merchant Service Providers, assists its clients in extending their regional and payment coverage internationally. "It is up to the payment industry to open the flood gates to millions of online purchases from China. America will profit - in the short and long term - from payment access of China to the global online economy," Rinderer added.
What payment methods matter the most?
It is essential to offer the payment types most applicable to the Chinese market. Alipay - with 500 million registered users - claims more than 50 percent of the market share, currently processing 8.5 million transactions daily. A part of Alibaba Group, Alipay is an escrow service. It retains the payment until the service or goods are delivered and then transfers funds to the merchant. Consumers use a credit card or online bank transfer to pay into the escrow service.
Tenpay holds 20 percent of the market; 99Bill Corp. and China PnR Mobile Payments Solutions Pvt. Ltd. maintain approximately 7 percent each. The remaining percentage of transactions is cash on delivery, which has long dominated the market and region.
Third-party online payment companies exercise a critical role in collecting money from buyers and delivering them to the merchant's account. Their transactions rose an astonishing 1,001 percent year over year in 2010 and exceeded 2 trillion in volume in 2011.
The challenge is that since Sept. 1, 2011, all third-party providers and nonbanks have been required to obtain a license from China's central bank, the Peoples Bank of China. This licensing can take months and require local assistance or partnership to achieve. To date, some 100 licenses have been granted, according to iResearch Consulting Group.
What are the challenges in establishing partnerships?
Alliances and partnerships are believed the necessary connections to be successful. Knowledge of the culture, language and people is crucial. American business personnel can be considered too casual for this culture. Flinging out your business cards like you would deal playing cards will not establish a strong beginning to a partnership. Neither will back-slapping, casual jokes nor coming to a meeting without a formal agenda.
Dr. Tschangiz Scheybani, Managing Director of Pay.On Asia (Hong Kong) Ltd. and Pay.On Philippines Inc. said, "The success of business depends firstly on the deep cultural understanding as well as experience with the Chinese economic system."
To meet these requirements, Pay.On opened a subsidiary in Asia in 2009. "Both China UnionPay and ChinaPay are government-related corporations," Scheybani said. "They represent, promote and regulate the interests of the Chinese banking industry with its huge number of card and account holders.
"As it is known in dealing with card companies, related interests are subjected to additional complexity which has to be appreciated. Therefore, the personal, trustful, usually long-term business contact is important for success.
"This strategic decision pays off more and more today as our clients benefit from fast response and our comprehensive business knowledge."
Do I need to be able speak Mandarin Chinese?
While English is the global business language, you will significantly set yourself apart from competitors if you can speak at least "survival" Chinese. "In 10 hours, we can help you speak about time, money, food, airport concerns, taxi and introductions," said Michael Cheng, President of Mando Mandarin School. "I realized early that Mandarin Chinese would become not merely popular but essential to American businesses."
His school employs instructors from China who instruct students in learning Mandarin via online video in real time. Cheng said, "The word 'guanxi' essentially means your personal networks of influence.
"It is crucial for any businessperson wanting support for their project. Learning the language shows a great sign of respect. ... It is very useful to start the relationship. Your prospective partners will want to use their own language. Having some language at your disposal will break the ice and be useful to start the relationship."
Payvision, a licensed Payment Institution member in the Europe, Middle East and Africa region, has long focused on the Asia-Pacific (APAC) region. Willy Kwa Kok Leng, Senior Vice President at APAC said, "Conducting business in China and throughout the region is reliant on trust and relationship. Our extended focus on this region has been established through bonds built on trust and alliance."
North American business relationships are often built while the sale and negotiation process is underway. This tends not to be the situation in China. A relationship must be established well in advance of a successful partneship and usually before a contract is completed.
"In China there is a great deal of importance placed upon getting to know someone and earning their trust before the business relationship even begins. Face-to-face meetings, sharing meals, gift giving and even following the correct protocol of where to seat people in a meeting, based on who is hosting, corporate and/or social hierarchy are critical building blocks for successful business partnerships with Chinese counterparts," said Nicole Kikoski, Senior Vice President of Business Development at Payoneer, an international payment solutions company.
Kikoski recently moved to Shanghai, so she has a great deal of personal experience. "This respect for local customs, culture and rituals translates into a strong foundation of trust and mutual understanding on which to begin a lasting partnership," she added.
The Mando Mandarin School also trains students on cultural issues. "If you are not Chinese, take the time to understand some of the verbal and nonverbal signals," Cheng said. "Study the importance of 'gifting' and what is acceptable and what is not appropriate. ... As an example, do not give the gift of time in the form of a clock or watch. Never give anything in a set of four."
Kwa Kok Leng agreed on the value of leveraging the use of Mandarin Chinese in business dealings. "Although English is widely spoken, there are still many places that use domestic language for business dealings and conversation," he said. "Certainly Mandarin Chinese is the strongest example of that. We have staff that understand both local language and cultural experiences to help our partners enter the market."
How can I connect to third-party online payment companies?
A small number of companies are working to make this connectivity possible. One such company is Pay.On. Its clients can directly process their transactions by the global routing gateway PayPipe.
"All connections - Europe, LAC and the APAC market - utilize a state-of-the-art gateway which fulfills the technical and formal requirements to provide U.S. acquiring banks and U.S. card acquiring processors a direct link to [the] all important Chinese market, " Rinderer said. This eliminates the need to wait in the integration queue for your project to launch.
"Clients can expand their market boundaries to China, the region and the world through a direct connection already integrated to hundreds of other payment market participants and over 100 international payment methods," he added.
Can any conclusions be currently made for this market?
While the region has long been dominated by cash, consumers are shifting to online payment methods of their own choosing. They are sensitive to price, often shopping at seven or more websites before purchasing. They look for guarantees and swift, well-packaged shipping offers. After-sale customer support is imperative. Savvy merchants will recognize this is an opportunity to deepen their relationships with their customers. This is true for payment providers supporting their merchants, as well.
Cultural and language differences in comparison with the western market are significant and must be accommodated. Partnerships are crucial and patience is necessary. But the rapid growth of consumer purchasing power and explosion of e-commerce in China represent tremendous opportunity for those committed to a long-term strategic vision.
Caroline Hometh is Managing Director for RocketPay LLC, a global payment advisory service to acquirers, ISOs and Internet payment service providers worldwide, specializing in establishing relationships that foster the growth of international payments. RocketPay will carefully consider your global initiatives and provide both strategic recommendations and hands-on assistance and expertise. Hometh can be reached via email at firstname.lastname@example.org; via office phone at 978-255-3109, wireless at 978-807-5047 and direct at 978-462-3459; and via the web at www.rocket-pay.com.
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