The Chinese market presents a formidable, but also somewhat irresistible challenge to any payments and commerce player standing on the outside looking in. Formidable because from both a regulatory and consumer interest point of view, there isn’t a surplus of easy inroads into the market.
And while the networks have pushed forward using tools like joint ventures, they also face the not inconsiderable problem of recruiting interest in a market where consumers aren’t really looking for new payment options.
“What we see in the consumer payment space inside China is that WeChat Pay and Alipay are dominating and we don’t see that changing anytime soon,” PingPong Financial U.S. Managing Director Karen Li noted in a conversation with Karen Webster and PingPong Financial Chief Business Officer Ning Wang.
But as difficult a competitive space as China can be for payments players — and as powerful as some of the entrenched FinTech players are, both Li and Wang noted — firms can’t just throw up their hands and quit the field. While not every firm needs to have a China strategy, any firm that is serious about playing on the global payments and commerce stage probably does, given the scale and scope of opportunities the Chinese market presents.
Moreover, Li noted, the Chinese market, as one that has managed to leapfrog from being nearly entirely cash-based to entirely mobile based in less than a generation, contains an invaluable set of lessons for global players, particularly those looking at working in high potential emerging markets. China, both executives noted, is a world leader when it comes to innovation in financial services delivered by mobile technology — as well as it is a market that is picking up speed at an exponential rate.
The key to being part of that innovative stream, from PingPong’s perspective, is building an effective China strategy that revolves around seeing places where the opportunities are (and aren’t), and pursuing those opportunities with the right, trust-building approach.
“When it comes, everyone needs to think it through,” Wang said. “Coming at this with an idea from the olden days that they can move fast and break things especially doesn’t apply in China.”
In talking about a “China strategy,” Li and Wang said, it is important to first realize that in a market with over a billion consumers, the undertaking is going to be, by nature, a pretty big one that is going to need to be broken down into what specific opportunity set is being pursued. China is increasingly a trade nation — with games, apps, production, manufacturing, eCommerce and services — and pursuing innovations in those arenas within China requires a strategic and nuanced approach
But, Wang noted, in terms of digital payments in China in general, there are some overview points about the marketplace and the consumers in it that are important no matter which type of transactional or commerce relationship one is talking about.
The foundation of digital payment success in China is notably very different from the card networks that dominate in the West, he said. They evolved out of a social media platform (Tencent’s WeChat) and eCommerce platforms (Alibaba). They also were enabled by QR codes that were extremely easy for merchants and service providers of all kinds to implement, and they continued evolving their service profiles past simple consumer payments.
If one looks at the number of services that are baked into the Alipay or WeChat Pay app and then compare that to the 15 to 30 different apps a U.S. user would have to download and stitch together to get a similar sort of experience, the differences in what Chinese consumers are used to as a baseline Fintech service level becomes pretty apparent, Wang said. Chinese consumers are tech-savvy, highly demanding, willing to try new things and equally willing to drop them like hot rocks and forget them if they don’t come up to snuff.
“If the product and service do not gain momentum, it is rare to get a second chance,” Wang said. “If you look at what merchants and consumers want, it is something more holistic.”
Moreover, Li noted, the B2C market is likely not the right engagement point in China — because the reality is Chinese consumers don’t have a compelling reason to switch to new services, given the extraordinary advance state of the B2C market in China. But, they noted, the B2B market in China is still in its embryonic phase — and primed for innovation from a variety of sources.
“I think we can look at the massive growth in the eCommerce sector that China has experienced over the last five to 10 years, or the fact that even with a trade war in the backdrop, China is still the top sourcing and manufacturing destination on Earth. I think there will be another battlefield forming for the B2B market and that payment firms and FinTech firms will have to be there.”
The shape of that B2B innovation is notably still emerging, but China’s rapid evolution into a nearly cashless society in less than 20 years likely offers some important guideposts along that path, particularly when it comes to payments. B2B, according to Wang, will follow a similar path that has already been seen with B2C: Providers that offer more than just payment options and instead wrap a series of solutions tailored toward their users’ pain points across a variety of areas, will be the ones that capture growth.
Attempting the Path In The Right Way
Where there is a lot of opportunity, and especially when so much of that opportunity is rapidly evolving in the face of radical improvements to information technology worldwide, there is a tendency to want to run as fast as the market. But, Wang noted, if one looks at global regulatory trends, the reality is that when it comes to compliance, regulators are looking for precision above all and are remarkably impatient with the “move fast and break things” attitude associated with some technologists.
It is why, Li and Wang said, for PingPong everything first goes back to regulatory compliance and making it easy to stay in the right lane concerning regulatory frameworks in China and beyond. It’s why PingPong, while operating in China, keeps a dual language AML/KYC database to connect to live data streams for screening and updates; maintains an automated transaction monitoring system; and, to back up all of that technological support, has about 200 workers on the ground for onsite monitoring and inspections.
First, compliance centric is the only way to thrive in China, they noted, but even more importantly, there must be a level of trust to hold transactional marketplaces together — and strong compliance is central to that trust. For both sellers and buyers, that is the only way that comfortable transactions can happen, even as the commerce ecosystem for consumers and businesses continue to evolve.
Which it almost certainly will — both in China and across the globe. The evidence of that, Wang noted, is all around them. Advances in technology are cutting out middlemen worldwide and making it easier than ever for buyers and sellers to directly connect. That challenge, and the one PingPong is committed to helping companies to meet, is building out from that transactional relationship and scale it out into a legally compliant, fully branded experience with repeat appeal for both sides of the transaction.
“What we have experienced is that if you can use technology properly and in a compliant way, the ability to scale very quickly is there. We’ve seen this in the consumer-facing space, and we think we can help bring it into the B2B space.”