A couple of recent news items regarding ecommerce payment systems got me thinking about the current state of electronic and ‘cashless’ payment options and methods in China. It’s a market that has changed dramatically over the last decade and transformed Chinese society.
It’s also highly relevant to US retailers and wholesalers who are currently sourcing their products from China, and also to those who are planning to do it in the future, because as the Chinese ecommerce market gets more sophisticated, secure and multi-faceted, the ease of doing business with Chinese suppliers becomes less of a headache, particularly for small to medium businesses and new players.
The first item was that MasterCard was entering the booming online marketplace by launching its own web shopping mall called’ MasterCard Market Place’. Clearly the move is an attempt by the company to boost its revenue in the face of cutthroat competition from its rivals like Visa and American Express and also form alternative, cheaper and newer (and hence more attractive in many ways) ecommerce payment systems like PayPal. I think this is the first time a giant global credit card company like Visa or American Express has entered this market in a substantial way. Whether consumers will flock to a shopping site run by a payment systems company rather than a retailer or a B2B intermediary site like my own company, www.dhgate.com, remains to be seen.
The second item was a recent report that for the first time in living memory US consumer credit debt fell for the 13th month in a row. Clearly as a result of the recession and faltering labor market, Americans are curtailing their addiction to credit card and other consumer debt…for the moment. Maybe the days of credit-fuelled spending in the US are over. We will see.
‘Plastic money’ was invented in the US and its rise together with the benefits to the US economy, most notably for the banks, finance houses and retailers, and the resulting personal debt mountain and heartache for consumers has been well-documented. From a Chinese point of view, though, the situation could not be more different.
Credit cards and other forms of consumer credit are a relatively new concept in China. China is still a cash society. It is not unusual to see an ATM (also a new relatively new concept) user withdrawing thousands of RMB at increments of 2000rmb ($285) per transaction to pay their monthly rent. The highest denomination is a lowly 100rmb, about $14. Consumers will often make major purchases like cars, high-end electronic goods and even apartments with suitcases and bags of cash, literally.
The Chinese are generally fiscally very conservative. They are the greatest savers in the world. Although estimates are difficult, it is thought that the Chinese save between 30-50% of their disposable whereas the US rate is close to 0%. Also Chinese are much less leveraged than their counterparts in emerging and developed countries. Total consumer debt as a percentage of disposable income is estimated to be about 30% compared with 94% in the US.
The situation is, however, changing dramatically. As the Chinese economy booms and the level of disposable income of its people has increased, the rise in popularity of credit cards, online ecommerce payment systems and other forms of personal consumer credit has exponentially increased. I’ve talked in previous columns about the extraordinary rise in online shopping. This is largely been brought about by the rise of the credit card and other ecommerce payment options.
China is encouraging non-cash payment options, and the banks are aggressively marketing these avenues to boost revenue. Although the area is still relatively small, (for example, only 5% of Chinese have a credit card compared to 60% in the US), the industry is expected to boom in the future. According to a recent report by McKinsey & Co, China has issued only about 50 million credit cards. By 2013, it is estimated that the figure will surpass 300 million. The increasing comfort and ease in using non-cash payment options means that there will be increasing innovation and sophistication, particularly for online buying and selling and the B2B market.
My own company, www.dhgate.com, has been at the forefront in the B2B field through our innovative partnership with one of the leaders in the online payments market, PayPal which has give our overseas clients and Chinese suppliers a safe, reliable and fast payment system.
Which leads me to my third item of interest: PayPal have recently announced a partnership with China UnionPay, the national bankcard association of China which has to date issued over 2 billion ATM, debit and credit cards. The partnership means that China UnionPay card holders can use PayPal to shop online domestically and internationally. I believe it has the potential to position PayPal and its Chinese partners like my company as the number one online payment option in the future.
In my next post I will talk more about how US small to medium online retailers and wholesalers can now take advantage of the using innovative, safe and reliable B2B online payment systems.
