China’s third party payments providers are increasingly focusing upon micro-retailers and cross-border transactions as key growth areas.
China is currently host to over 6 million micro-retailers, around 70% of whom are situated in the country’s third to fifth-tier urban centres according to a report from the Financial News.
The digitised management needs of micro-venders have seen ongoing gains over the past several years, with especially strong growth demand in areas such as mobile payments and finance.
As a consequence China has seen the rapid emergence of a slew of payments companies that focus upon catering to B2B demand, such as Huifu (汇付天下), Yee Pay (易宝支付), Lakala, (拉卡拉), Lianlian Pay (连连支付) and Heli Pay (合利宝).
Huifu Pay currently provides its mobile payments solutions to around 7.4 million Chinese micro-vendors, while data from Heli Pay indicates that 235 million micro-vendor transactions were processed via smart retail solutions during the period from January to July 2018, with an average single transaction sum of 56 yuan.
Another key focal area for China’s payments sector is cross-border transactions, particularly given the flourishing growth of e-commerce and the need to convert foreign currency payments made by offshore consumers into renminbi for domestic vendors.
A total of 30 payments organisations have obtained licenses for cross-border e-commerce payments since the launch of trials in 2013, while data from the Payment & Clearing Association of China (中国支付清算协会) indicates that Chinese payments organisations processed a total of 1.256 billion cross-border online payments transitions in 2017 worth more than 300 billion yuan.
Huifu says its cross-border transaction volume has surged to 6.7 billion yuan since the start of the year, for a YoY rise of 1000%, as the payments company engages in greater cooperation with e-commerce export companies.
Lianlian Pay says that cross-border e-commerce payments have become one of its core strategic focal areas, with the company providing its services to over 300,000 Chinese vendors.
“In the past when it came to cross-border e-commerce platforms it was very difficult for Chinese vendors to receive cross-border payments,” said Lianlian Pay CEO Pan Guodong (潘国栋).
“They needed entities and bank accounts overseas, as well as logistics documents, orders and customs forms to handle settlement with banks, requiring long periods of time and high costs.
“Now, however, vendors do not need overseas accounts, yet can rapidly receive renminbi funds and make withdrawals.”
Leading members of China’s third party payments sector are confident that they can replace banks in key areas due to their increased flexibility and greater conversance with technological trends.
“Third party payments are to a significant extent gradually replacing certain payments and settlement functions of traditional banks, as well as further raising the efficiency of payments and settlement via IT methods,” said Zhu Yinjia (诸寅嘉), CEO of Ping An’s Yiqian Bao (平安壹钱包).
“Technology upgrades for payments companies arrive at a rate measured in weeks, yet traditional financial institutions find it very difficult to engage in such rapid responses” said Pan Guodong (潘国栋).
“Payments companies are closer to customers and have a better understanding of customers – this is another reason for the rapid growth of the payments sectors.”
Zhu Yinjia expects China’s settlement organisations, payment companies and banks to maintain a leading position internationally, as the new IT systems sweep the globe and bring both immense opportunities and challenges.
“Under the leadership of the party China’s payments sector must become more open, with the gradual establishment of benchmarks for sector openness as result of prioritisation by emulators, a push from industry and market development.”
Zhou Ye (周晔), CEO of Huifu, outlines three roughly decade-long stages in the evolution of China’s payments sector since he first joined the industry in the 1990’s.
Starting in 1993 China’ payments sector sought to imitate the success of Visa and Mastercard in the United States, with the establishment of China UnionPay.
Following the spread of the internet near the turn of the century China began to explore online payments, culminating in the establishment of a complete accounts systems by domestic payments companies in 2004.
According to Zhou China’s payments sector subsequently embarked upon its own unique path of development, evolving a variety of distinct business models.
2014 marks the start of the third stage with explosive growth in mobile payments driven by China’s tech giants, and an ongoing push for payments innovations.
Data from the Chinese central bank indicates that third party payments companies saw the value of transactions processed rise by over 15-fold during the period from 2013 to 2017, with an increase from 9 trillion yuan to 143 trillion yuan.