China, boasted over $811.96 billion in e-commerce sales in 2016, 122 million outbound travellers, and a record number of students studying abroad. This has created a booming opportunity for global marketplaces, marketplace sellers, e-commerce retailers and online travel agencies.
China is now consistently considered a top geographical priority for global payment growth strategy. However, for all those flocking to reap the benefits of China’s massive digital commerce opportunities, there is still enormous uncertainty and confusion surrounding China’s constantly changing payment and regulatory landscape.
Things do not work the same way in China that they do in the rest of the world. In fact, very few in the payments world can claim true expertise in the China payments market.
Those who do lay claim on the China payments landscape, will be familiar with the following requisites. You need to employ a razor sharp, multi-faceted global Compliance Department, as well as Information Security and IT teams that are light years above the rest. The encryption and transmission protocols need to be airtight.
In addition, you need to build world-class, highly secure data centres, global redundancy and have regulatory experts on the ground. Your sales teams should have an appetite for highly complex RFP’s – which can drag on for years. Lastly, you need to expect and welcome full transparency in everything you do; be prepared for painfully uncomfortable, peel-back-the-onion scrutiny. While the opportunity in China is enormous, so can be the risks.
China Payments – Beginners guide
Although wire transfer payments have been a ‘payment staple’ for decades, wires no longer adequately serve the highly digitised online era we live in. As digital commerce soars globally, more and more companies have a new payment need that can accommodate “mass pay-outs” (i.e. low value, high volume payments).
The competitive landscape for mass pay-outs in China is fierce. There is a huge demand on banks, and financial service providers to implement a non-wire payment solution designed for low-value payments to keep up with the global demand of a changing payment ecosystem.
Traditional, high-value wire payments are still a needed payment method by corporates and others to pay suppliers, vendors, manufacturers, service providers, employees etc. However, given the volume and revenue potential of mega e-commerce clients more and more banks want to play in this space and are building an offering to address this market demand.
Dealing with regulators
China does not have the Western standard, Automated Clearing Houses (ACH) for direct deposit payments. The comparable system in China is called China National Advanced Payment System (CNAPS).
Payments made to Chinese bank accounts on the CNAPS rails must be made via one of the few licensed PSP’s (Payment Service Provider) in China. This leaves companies with two options: Option one is to search for, and integrate with one of these Chinese payment companies and spend time to regularly monitor their activity and security (for regulatory and operational infractions).
Alternatively, choose to work with a global partner that has a direct connection with multiple China PSP’s, who will handle the vetting and ongoing regulatory and operational oversight. The latter provides multiple redundancy points to manage any regulatory issues or infractions that may arise with the China PSP.
Additionally, some China PSP’s are not able to handle massive volumes. Some are better and faster in large urban areas but less effective in rural areas. All of these points require a deep local understanding of the risks and benefits of each player in the China market.
Language can also be a huge barrier to entry in China. Providing simplified Chinese on the payment instruction file is a key roadblock for many global companies and a requirement of most China PSP’s. Many legacy systems cannot support Chinese characters. The best way to address this would be to engage a partner which can assist with the translation to Simplified Chinese, to save time and IT resources.
Mobile and more
For payments out of China, a unique attribute of the China market is that consumers rarely use, or even hold a Visa or MasterCard as their payment method. Instead, they rely on local payment channels.
For example, Union Pay is the card scheme in the wallet of virtually every Chinese citizen. Although an increasing number of international websites are incorporating Union Pay as a payment option, there are still many global websites which do not recognise it. This leaves Chinese consumers at a disadvantage when they need to make purchases from off-shore companies and websites. To top it off, prepaid cards of any kind, are illegal in China.
Alternative payments like Alipay, Tenpay and Wechat are also very common and popular online, and in some cases offline.
Most payment processors offer the main payment types for China. However, there has been more interest recently, especially in education, tuition and travel, in bank transfer payments. According to recent data, bank transfer payments account for more than 60% ‘share of wallet’, making it a must-have addition to checkout pages in China.
Once again, this system doesn’t come without restrictions, and is not always an available option for all verticals. There can be issues encountered with inventory for physical goods, returns, or the documentation required by regulators etc.
From a more holistic view, P2P (Person to Person payments) from global locations to recipients in China seems to be one of the most under-served and highly sought-after payment sectors in China currently. However, there are several new solutions in the works designed to bridge this gap, which can be expected in the market by early 2018.
Expect a continued, head-turning pace of changes and advancements in the payment landscape in China in years to come. Although China proves to be one of the most complex systems in the payments industry, the market continues to offer unrivalled opportunities.