PayPal, UnionPay Deal Expands Chinese Cross Border Commerce

UnionPay Deal eCommerce

This week, global luxury brands have seen their stock prices take a sharp hit as reports emerge that a coronavirus with origins in China’s Wuhan region is spreading rapidly and has made its first appearance on U.S. shores. Burberry, LVMH, Richemont and Gucci owner Kering had all seen their shares fall by between 1.9 percent and 3 percent and collectively the luxury sector has lost about $15 billion in value since Monday, all on health concerns emanating from China on the eve of the nation’s biggest holiday and largest commercial event, Lunar New Year.

It is a timely illustration of how massive a force the Chinese consumer has become in the global marketplace — particularly in luxury goods. As of early 2020, Chinese shoppers account for 35 percent of global luxury goods sales and 90 percent of last year’s growth in the market, according to data from Bain & Co. And luxury itself is but a microcosm of the global eCommerce market — a space where Chinese consumers are becoming an increasingly large and formidable presence. Chinese consumers spend over $100 billion annually on cross-border eCommerce purchases, according to data from Frost and Sullivan. That $100 billion is itself but a small portion of China’s total cross-border transaction volume, which as of 2016, stood at $6.7 trillion.

Chinese eCommerce has long been viewed as an area where there remains much room for growth. It is that large and growing opportunity that PayPal announced Wednesday (Jan. 22) it would tap by creating a more deeply interconnected global partnership with China UnionPay (CUP) subsidiary  UnionPay International (UPI). This partnership will accelerate the adoption of digital payments — especially in cross-border commerce for Chinese consumers who want to shop outside of China as well as non-Chinese consumers who wish to transact with merchants inside its borders.

The move, PayPal Senior Vice President of Global Payments Jim Magats told Karen Webster shortly after the news went public, represents an evolution of PayPal’s China strategy following its late December 2019 acquisition of a 70 percent stake in GoPay. That acquisition made PayPal the first foreign online-only payments processor to operate in China.

The UnionPay partnership, Magats told Webster, makes it possible for China UnionPay’s 7 billion or so cards to be used outside of China and anyplace in the PayPal eCommerce ecosystem where PayPal is accepted. That in and of itself, he said, is a big deal since PayPal merchants have an easier way to accommodate the payments preferences of Chinese consumers with those cards, tapping into a stream of purely incremental sales from consumers with whom they were otherwise unable to do business. PayPal currently has more than 23 million merchants on its platform.

More than bringing Chinese consumers to the rest of the world, Magats said the new partnership also brings the rest of the world to Chinese merchants — by making customers from anywhere able to use their PayPal mobile wallets anyplace where the CUP QR code is accepted.

Creating New Cross Border eCommerce Opportunities 

This bi-directional, cross-border eCommerce use case, Magats noted, is the essence of the PayPal UnionPay International partnership.

Chinese consumers don’t lack for interest in shopping globally, but do often lack a payment method that finds universal acceptance outside of China. The popular payments methods such as Alipay and WeChat Pay have spotty acceptance outside of China, and since the “Big Four” of the card world — Visa, Mastercard, American Express and Discover — can’t operate there, the cards that are universally accepted aren’t in the Chinese consumer’s wallets. The new partnership will also make it easier for the 120 million Chinese consumers that have the UnionPay app to quickly link their CUP cards to their PayPal accounts and start shopping within the PayPal merchant ecosystem.

“With UnionPay, we can make this not only possible for the customer in China [who] wants to shop cross-border, but also to provision their cards easily and quickly,” Magats said.

But more than giving Chinese consumers a more friction-free shopping experience, Magats said, PayPal is building a better payment experience within China for non-Chinese visitors who enter the country without domestic Chinese payments credentials.

Opening China For Global Payments

Magats used his own recent experiences in China to illustrate the importance of that use case. Upon landing at the Shanghai airport, Magats told Webster, his first stop was at an ATM to withdraw cash since his network-branded cards didn’t work at any of the merchants — and he had no other way to pay. The UnionPay partnership will make it possible for PayPal account holders to generate a UnionPay QR code, which the vast majority of Chinese merchants accept when they present their PayPal wallets at the point of sale. PayPal, in essence, becomes an issuer of CUP cards, and when a PayPal credential is presented, a virtual CUP credential is issued, which in turn produces the QR code to complete the transaction.

On the front end, the user merely scans, pays and leaves — the way they would with any QR-based payment. It’s a standard that, Magats said, he envisions taking on a more prominent role, globally, as a way to pay at the physical point of sale.

Magats made it clear that through this partnership, PayPal’s goal isn’t to compete with the domestic payments giants inside of China, but to build a two-sided network within it that solves for the bi-directional cross-border use cases that have kept commerce in check for Chinese merchants and consumers.

As for what’s next, Magats noted, there are many ways to grow and leverage the two-sided network that this partnership will enable. For now, he said, there is a lot to be gained for consumers and merchants — in China and everywhere else worldwide — to connect more easily, more seamlessly and perhaps most importantly, more often than they ever have before to engage in commerce.

A famous Chinese proverb says that a journey of a thousand miles begins with one step. For PayPal and the Chinese cross-border use cases, Wednesday’s announcement is the start of that first step, which will be taken alongside 120 million UnionPay customers who want to participate in the global economy and the 23 million PayPal merchants who are waiting for them.