As U.S. payment companies pursue regulatory approvals to process payments in China, it's worth noting that everything in China is on a different scale.
With more than 1.3 billion people, it’s the most populous country on earth, with 50 million more people than India. The migration from rural to urban areas and the growth of the middle class is significant. Demand for consumer goods is high. And digitalization is happening at lightspeed.
It’s not news that China represents a huge opportunity for e-commerce merchants who want to expand into new markets. But collecting payments in the region is incredibly complex, and often this forms a barrier for doing business across borders.
China is home to 1.3 billion people, 738 million of whom are online. More than half the population owns a smartphone, and 56% of e-commerce sales are completed on a mobile device. By comparison, the U.S. conducts about 35% of its e-commerce via mobile.
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Key drivers of e/m-commerce in China are the wildly popular lifestyle super-apps. They may have started as a mobile messaging app (WeChat) or an e-commerce website (Alibaba), but WeChat and Alibaba’s linked Alipay are now the default ways to chat, shop, pay, order a taxi, date and game. Anyone looking to book flights or hotels online, shop for the best deals, organize their finances or even book a doctor’s appointment turns to one of these platforms.
WeChat and Alipay have 1.1 billion and 785 million monthly active users, respectively. And those figures will probably be even higher by the time you read this. These unbelievable numbers of users create network effects that drive commerce in China. So, those wishing to target Chinese consumers are advised to investigate selling on their online marketplaces (such as Alibaba, Taobao, Tmall), create WeChat Stores and — at the bare minimum — accept China’s preferred payment methods.
Payment habits are country-specific. They have developed over time and are formed by various cultural, political, economic and technological factors. E-commerce retailers shouldn’t look to reinvent customers or their payment preferences. Or seek to "drag and drop" what works in your home market to China.
The three Great Sage Kings, Emperors Yao, Shun, and Yu, were widely regarded as the great rulers of Classic China. Fast-forward about 4,400 years, and the great three kings of Chinese local payment methods are Alipay, WeChat Pay and UnionPay, which is the world’s largest card scheme, even bigger than Visa.
From department stores to small street food vendors, almost everyone in China accepts WeChat Pay and Alipay. These local payment methods can be used to pay in-app, in person or from person to person. When it comes to plastic cards, bank customers are typically issued a UnionPay card by default. It’s so popular that UnionPay accounts for 97% of Chinese card payments online.
Businesses who only accept international card brands — maybe because this is how their existing customers typically pay — are effectively shutting themselves off to the overwhelming majority of Chinese shoppers.
It seems counterintuitive: The more global your e-commerce strategy, the more local your payment strategy needs to be. The right payments infrastructure is essential to driving customer-centric “shop for one” commerce. However, local payment customization on the front end creates complexity on the back end. The need for local payment expertise and a centralized payments hub has never been greater.
