6 China fintech moves with global implications

ByDaniel Wolfe, Kate Fitzgerald, David Heun, John Adams

April 7, 2017 11:16 AM

As more of China's citizens engage in travel and commerce across the nation's borders, more companies want to help them pay and collect money. Many of China's dominant payment brands are extending their reach globally, but U.S. and European companies are also focused on this audience.

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As more of China's citizens engage in travel and commerce across the nation's borders, more companies want to help them pay and collect money. Many of China's dominant payment brands are extending their reach globally, but U.S. and European companies are also focused on this audience.

A shop worker places a sign for 'MoneyGram' outside his store on Moore Street in Dublin, Ireland, on Sunday, Nov. 21, 2010. Ireland sought international aid, becoming the second euro country to need a rescue as the cost of saving its banks threatened a rerun of the Greek debt crisis that destabilized the currency. Photographer: Paul Thomas/Bloomberg

Paul Thomas/Bloomberg

MoneyGram's suitors

China's Ant Financial, the Alibaba affiliate responsible for AliPay, has reached a deal to buy Dallas-based MoneyGram, but such a bold move hasn't gone unchallenged.

Kansas-based Euronet is offering to pay $15.20 for each MoneyGram common share and preferred stock and assume about $940 million of MoneyGram’s outstanding debt, topping Ant Financial’s offer of $13.25 per share by about 15%.

And while Ant is reportedly considering a higher offer, U.S. lawmakers have thrown up a roadblock by requesting an investigation of the Ant-MoneyGram deal.

Employees work at their desks at the One97 Communications Ltd. headquarters in Noida, Uttar Pradesh, India, on Thursday, May 14, 2015. One97, which operates PayTM, think they have an edge as the country is now in the midst of a smartphone boom, and younger Indians are shunning branches and turning to apps for their banking needs, mirroring global trends. Photographer: Kuni Takahashi/Bloomberg

Kuni Takahashi/Bloomberg

Ant's other ambitions

MoneyGram isn't the only foreign company on Ant's radar. Earlier this year, the Alibaba affiliate bought stakes in two digital payment firms: South Korea’s Kakao Pay and the Philippines’ Mynt.

These moves may have been a result of Ant's decision to raise just shy of $3 billion by issuing debt to fund its acquisition activity.

Alibaba also raised its stake in India's Paytm last month, spearheading a $200 million funding round. Alibaba and Ant already had a significant investment behind Paytm, having spent more than a billion dollars to acquire a 40% stake in the Indian firm.

Tencent Holdings Ltd.'s WeChat application is displayed on an Apple Inc. iPhone in this arranged photograph in Tokyo, Japan, on Friday, Dec. 28, 2012. Tencent, founded in Shenzhen in 1998 with an instant-messaging service called QQ, started its QQ Game Portal in 2003. For the past decade, online games such as "Dungeon & Fighter" and "Cross Fire" propelled Tencent's growth and contributed 56 percent of revenue in 2011. Now, casual gaming on smartphones and tablets is eating into the growth of gaming on PCs. Photographer: Tomohiro Ohsumi/Bloomberg

Tomohiro Ohsumi/Bloomberg

Tencent in Europe

An estimated 300 million consumers in China have Tencent's WeChat Pay app loaded on their phones, and many of them travel to the U.K. and other parts of Europe.

Tencent is working with London-based Tramonex and Hong Kong-based payment gateway partner Valoot Technologies to extend its reach to Europe.

"We were in a situation not that many months ago that we knew this was huge, but didn't know how to approach it," said Ovidiu Olea, founder and CEO of Valoot.

The partnership creates a scenario in which WeChat operates like a card scheme, Tramonex becomes the acquirer and Valoot provides the payment gateway and handles marketing of the new service.

"A lot of this will be driven by WeChat operator Tencent Holdings in China, as every decision has to be run by them as they get their brand out to other parts of the world," Olea said.

A pedestrian walks past a bank ATM machine with an UnionPay sticker in Shanghai, China on Sunday, 18 March 2007.

QILAI SHEN/QILAI SHEN

Travel opportunity

The growing number of Chinese consumers traveling to the U.S. and other countries is becoming a two-for-one opportunity for payment companies. The market's gigantic and growing — and it has a lot of trouble executing transactions.

For many Chinese travelers today, "transactions redirect to a hosted payment system that's in China," said Paul Levine, a senior vice president at Planet Payment. "That comes with a lot of issues."

Removing friction from the payment transaction trail for Chinese travelers, particularly for card not present transactions, has almost become a category in and of itself. Planet Payment, for example, has entered a collaboration with UnionPay International and United Airlines to handle reservations and other ticketing purchases either online or through call centers.

The integration allows travelers to use UnionPay to book directly with United, avoiding the workaround to execute cross-border payments between China and the U.S. That helps reduce transaction abandonment by improving the user experience, Levine said.

The tail fins of Air China Ltd. aircraft are seen at Beijing Capital International Airport in Beijing, China, on Tuesday, March 15, 2016. China's big three carriers are scheduled to report full-year results on March 30. Photographer: Qilai Shen/Bloomberg

Qilai Shen/Bloomberg

Up in the Air

Ingenico ePayments, the online and mobile commerce division of France's Ingenico, signed an agreement in March with Air China to accept Discover Card payments in North America, a key market for the Beijing-based airline, with plans to expand to other regions later this year.

The agreement gives Air China, the flag-carrier airline for the People’s Republic of China, the capability to accept all Discover Global Network cards, including Diners Club, and those of Discover’s network alliance partners BC Global Card, RuPay and Elo, Ingenico said.

The deal builds on a previous agreement Air China had with Discover to accept its Diners Club brand in Japan. Air China now plans to expand acceptance of Discover and Diners Club cards in additional countries this year, according to the press release.

Computer graphic illustration about internet shopping in virtual world.

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Selling into China

There's been a lot of funding flowing into technology that targets the spending of Chinese travelers as they visit other countries. But this narrow use case isn't the only opportunity for investment and innovation.

CLSA Capital Partners has made an investment in Azoya, a Shenzhen, China-based e-commerce companies that manages payments and other functions on behalf of foreign retailers wishing to sell into China.

There is a clear opportunity, if not a necessity, for merchants to sell inside China. It's a huge market that consistently sets e-commerce records and an appetite for mobile technology.

"The Chinese payments market has been rather closed for many years and has been notoriously difficult to enter for Western companies," said Zil Bareisis, a senior analyst at Celent. "While it's opened up a bit in recent years, it remains a complex market with dominant local players and its own set of regulations, so local partnerships can be crucial to success."

Azoya attempts to circumvent that by being the merchant of record for local transactions, then relying on its existing relationships with UnionPay and Alipay to smooth issues such as compliance and the original merchant's need for a relationship with a Chinese card issuer, UnionPay or Alipay.