Discover: China’s Commerce Catalyst

CEO, Market Platform Dynamics
2:52 PM EDT December 10th, 2012

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December 12, 2012

One small step for Discover — one giant leap for emerging payments.

Discover, China Union Pay and CardinalCommerce have joined forces to enable Union Pay cardholders to shop anywhere online in the U.S. Today, UnionPay cardholders can use UnionPay’s online payment brand, UPOP, for online purchases in China and Hong Kong. Now, thanks to the Discover/CardinalCommerce combo, these consumers can go crazy at participating Discover merchant web sites in the U.S. soon too.

It is a pretty interesting announcement on several levels.

First, it further cements Discover’s place in the commerce ecosystem as a bona fide commerce catalyst. It was a pretty gusty decision to drive innovation for itself and the entire ecosystem by leveraging (and monetizing) its network assets to other payment platforms and schemes so that they can more efficiently bring commerce to their stakeholders. The most recent evidence of this strategy was its PayPal announcement back in August. The Union Pay relationship is further proof that it intends to keep this innovation train moving at bullet train speed to enable the kind of new opportunities and, yes, even disruption that keeps payments and commerce really interesting — and on an international scale.

Acceptance enablement will be available through the Cardinal Commerce, Centinel® Universal Merchant Platform. Any Discover merchant already using Centinel, almost like magic, gets acceptance by simply placing the Union Pay payment button on their checkout page. No additional integration or connectivity is required, and no changes are necessary to existing settlement and reporting from Discover. These merchants have to do absolutely nothing at all – it is reported to be as easy as one, two, three … turnkey!

Second, this arrangement unleashes online commerce to a set of consumers who love to shop – online. It has taken a while for the Chinese to get used to buying online; this is a culture of consumers who not that long ago were more likely to browse online, go to a physical store to see and touch the merchandise, and then pay in cash at the store. What a difference a digital world makes.

It is reported that Union Pay has issued 3.2 billion cards – which is a huge number considering that there are only 1.3 billion or so people in China (and one would have to surmise that many of these are debit cards). But let’s just say that this opens up a big new potential pool of online buyers to U.S. merchants no matter how you slice the pie. Estimates of the number of online shoppers on the mainland of China this year (2012) vary from 192 million to 220 million (but what’s a few million between friends…). That’s compared to about 170 million in the U.S. And that’s just the tip of the commerce iceberg.

Chinese consumers rate themselves as highly proficient ecommerce buyers – even higher than the U.S. and U.K. users rate themselves. And the number of online purchases per month — well, it leaves even me in the dust. According to a recent PwC survey, the average online buyer in China buys on line 8.4 times a month, compared to 5.2 in the U.S. (4.3 in the U.K., 2.9 in Germany, 2.6 in the Netherlands and France). If you believe that number, PwC estimates that Chinese consumers account for more than 1.63 billion (that is billion with a B!) online transactions each month. That’s more than double that in the US (747 million online transactions a month). And, little known fact: Chinese are the largest group of international students in the U.S. with an increase of over 20 percent in 2011.

So, third, this announcement truly makes commerce global for U.S. merchants who, in these uncertain economic times, are looking for all sorts of angles to diversify their sales opportunities. These Chinese consumers are consuming, and just in time, too. The Wall Street Journal reported just yesterday that the American consumer is pulling back, and the European consumer is, well, pretty strapped, as well. Especially now, if I were a merchant, I’d be plenty psyched at the prospect of having these motivated, interested and experienced consumers, in every sense of the word, lining up at my virtual doorstep.

And, if I am a Discover shareholder, I’d be plenty excited too.

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