China's travelers are a big opportunity with a lot of payment friction

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 just 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.

"In addition to the rerouting, there are also browser issues with the Chinese internet firewall, so there's an abandonment problem," Levine said. "By the time the consumer selects a flight, chooses a seat and tries to make a payment—but fails because their browser crashes—it's a frustration for the user."

Through an existing integration with UnionPay, Planet Payment offers merchants access to UnionPay's SMS-based authentication and online processing systems. Cardholders enter details into the payment page with a PIN to authorize the cross-currency transaction. The Chinese consumer pays in Chinese renminbi, while the merchant receives U.S. dollars.

The United partnership is starting with UnionPay credit cards, and debit cards will be added at a later date. Planet Payment hopes that by luring travelers to online payments without a redirect for both credit and debit cards, it can attract U.S. merchants and Chinese consumers to broader shopping scenarios that don't involve travel.

"We want to enable more e-commerce transactions from merchants outside of China to consumers that are inside the mainland," Levine said.

Planet Payment is working with UnionPay on further enhancements that will allow it to reach a broader base of retailers and consumers, Levine added.

"The travel vertical is the early test bed for digital," said Andy Schmidt, an executive advisor at CEB, adding resolving deployment issues for travel payments can help expand to other categories later. "You have meals and booking and hotels. Once you are ready to launch outside of the airport, it's easier."

As part of this strategy, Planet Payment has launched a marketing campaign to draw attention to updated UnionPay security protocols that are designed to make it easier to debit cards for cross-border card not present payments, which can serve both travelers and consumers inside China. Since most of UnionPay's cardholders are debit users, it's vital to open that side of the market, Levine said.

"If you are only accepting credit cards, you are basically giving up on those other 5 billion debit cards that are in UnionPay's network," Levine said.

Other companies are also pursuing the Chinese travel market, with an eye on broader shopping. UnionPay has launched a card for tourists traveling to Europe and recently launched in Canada.

Alipay, the digital payment system operated by the Alibaba affiliate Ant Financial, has partnerships with First Data and Verifone to enable payments in Western markets and has focused on U.S. airports as a gateway to increase Chinese consumer spending in the U.S.

Beyond Ant's pending acquisition of MoneyGram announced this year and a collaboration between UnionPay and FIS to offer gift cards to U.S. travelers in China, most of the moves have focused on serving Chinese consumers in the North American, European and Asian markets.

Given the 120 million people who traveled outside of China in 2015 spent more than $200 billion, the market is huge, even without the expansion to broader payment types beyond airlines, airports and hotels.

"The Chinese market is vitally important," Schmidt said. "It has the biggest population on the planet and they are making more electronic payments. It's a rising power and it's important for merchants to help them make payments as easily and as quickly as possible to reduce transaction friction or the foreign exchange."