In contemporary life, more business and personal transactions take place over the internet than ever before. Large corporations and small businesses rely on electronic payments, or electronic payments, to receive funds from clients and customers to pay employees and contractors for their services. Countries with large economies have been quick to adopt e-commerce payment systems as a fast, efficient, and secure means of transferring funds between parties.
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China, of course, is no exception to this phenomenon. While the country may have gotten off to a late start in adopting digital payment methods compared to other advanced countries, it is quickly catching up. This blog provides an overview of the history and current trends of digital payments in China.
Reading: Can you use paypal in china
Electronic payments have been around since the 1990s, when Stanford Credit Union was established as the first financial institution to offer online banking. Later, in 1994, Pizza Hut began accepting orders where the entire transaction was done online. Soon after, Paypal came along, founded in 1999, as the first company to operate exclusively as an online e-commerce platform. this quickly became a popular alternative to traditional paper methods and card payments such as credit or debit.
Having established a strong foundation in the market as the first organization to offer a complete electronic payment method, PayPal quickly rose to international business status, becoming one of the world’s largest platforms for online payments today.
is paypal available in china?
yes, in january 2021 paypal finalized the acquisition of a chinese licensed payment company called gopay. PayPal is the first foreign payment company with a national payment license and 100% ownership of China’s payment platform.
paypal stands at the top of the e-commerce industry, as the leading digital payment platform on the planet. With more than 100 currencies represented in the company’s index, there are more than 285 million payment accounts on PayPal’s servers in more than 200 countries around the world.
while many corporations around the world quickly adopted the convenience and streamlined process of paypal, along with similar e-commerce payment services, china waited a comparatively long time to begin implementing digital payment methods for domestic commerce throughout the country.
In 2019, PayPal made its first official appearance in China when it acquired 70% of GoPay, a rudimentary Chinese platform designed to facilitate third-party payments within the country. The People’s Bank of China, a state-owned company, affirmed PayPal’s offer soon after, provided that its Chinese subsidiary, Meiyinbao Information Technology, directly controlled these shares.
There is some speculation as to why it took so long for paypal to integrate in china. The answer may lie in China’s complex financial regulations and unique approach to online platforms. Regardless, PayPal and other electronic payment methods have seen rapid growth in China’s booming economy and continue to diversify by the day.
digital payment methods in china
Today, China has emerged as a global wireless payment trend leader, with a mobile payment volume of $12.77 trillion. In 2015 alone, “a sum of more than 1.4 trillion dollars was transferred electronically in China. (Dennis Ng, Evolution of Digital Payments: Early Learnings from the Singapore Cashless Payment Campaign. 2018). In addition to PayPal, many other platforms have emerged as popular alternatives within the East Asian nation, including Alipay from the world famous Alibaba group. , or Wechat Pay, a popular Chinese social network subsidiary of WeChat that is owned by the multinational conglomerate Tencent. Tencent also has a different e-commerce platform known as TenPay. However, this service shares many of its users with WeChat Pay, so the two are often grouped together in terms of the number of users and the total volume of cash flow through their servers. In fact, with their growing popularity, Alipay and Wechat Pay have overtaken the user volume of PayPal’s presence in the Chinese market. These two giants account for more than 90% of daily e-commerce payments in China.
alibaba group launched alipay to the chinese public in 2004 as an easier way to make payments on its platforms, such as aliexpress. However, the emergence of platforms like PayPal in China opened up Alipay’s opportunities for e-commerce outside its internal networks. Alipay can now be used to conveniently make various digital payments to different businesses in China, from technology to groceries to entertainment, without having to use cash or checks.
With the approval of tencent, wechat launched wechat pay in 2013 to provide its users with a simplified means of paying for a wide range of goods and services through the online platform. Such a change gave WeChat a benefit, as it gave the company invaluable insight into consumer behavior and the buying patterns of its users. Due to the huge popularity of WeChat throughout China, at its initial launch, WeChat Pay met with tremendous success. it absorbed a significant part of the e-commerce market almost immediately.
the cultural importance of online payment methods in china
With e-commerce payment systems becoming more popular throughout China, the use of modern technology to make payments has seen steady and rapid growth as the primary means of consumer and corporate transactions. As a result, traditional transaction methods, such as cash or check payments, have suffered a subsequent decline. Many smaller businesses, such as wet market stalls, privately owned supermarkets and retailers, fast food restaurants, and independently operated taxis, still rely on cash payments to use their services.
Despite this, trends show that even these businesses are inching toward adopting digital payments to simplify their consumer experience. These factors indicate that Chinese business culture has a strong preference for e-commerce payment systems as a more convenient and simpler alternative to traditional methods.
Now that wechat and alipay have successfully grown to the point of market dominance within Chinese borders, they are now looking for opportunities to grow outside of China. these platforms have recently expanded to western markets to accommodate the high volume of Chinese tourism in this region. Instead of creating a completely new application to be operated within different countries like the United States of America, Canada or the United Kingdom, WeChat and Alipay have turned their attention to hiring third-party merchants who can operate their platforms for them abroad. accept payments for your services, and make quick and easy currency exchanges for the good of your customers. Because of this, many providers in North America and Western Europe have started accepting Alipay and WeChat Pay from Chinese tourists. however, the effects of these trends have yet to be seen.
Another reason why wechat and alipay have tried to establish a presence in other countries is that it will offer a more streamlined system for Chinese citizens living abroad. They allow Chinese emigrants to send and receive money from their friends and relatives living in China. Electronic payment methods offer a much easier means of transferring money than sending payments through the international mail. traditional payment channels, like sending paper money, can take weeks (if not months) and can be risky. For example, bank-sponsored wire transfers can take days to appear in the intended recipient’s account. In addition, the use of these platforms eliminates the need for the user to seek a third party to process these transactions.
dcep: the growth of digital currency in china
The success of numerous digital currencies, or cryptocurrencies, around the world has also reached China. As an incredibly developed market, the Chinese government is always looking for new ways to expand and diversify its economy. Noting the early successes of digital currencies like bitcoin and ethereum, Chinese officials have looked for opportunities to introduce a similar system across China’s multiple trading systems, leading to the creation of the China Digital Currency Research Institute in 2014. the result has been the digital currency of china electronic payment, better known as dcep.
The program began with humble beginnings in April 2014, with a contained rise in the Chinese economy. Initially, DCEP was only available in four Chinese cities: Shenzhen, Suzhou, Chengdu, and Xiong’an, the latter being a recent conception by Chinese President Xi Jinping as the nation’s first “smart” city.
dcep functions as a form of the digital yuan (rmb), the national currency of china. it observes a one-to-one relationship with the rmb, so unlike cryptocurrencies, there is no speculation about its true value. The People’s Bank of China maintains full control of DCEP and is in charge of managing it to smaller, localized banks throughout the country. This digital currency aims to maximize the circulation of the rmb with the expectation that it will optimize the availability and use of the currency in other countries around the world.
Furthermore, the creation of DCEP contributed to facilitating the globalization of the RMB and gaining greater control over the existing international payment system at the time. The People’s Bank of China speculates that if DCEP works successfully, it may one day become popular enough to be used as a universal currency, much like the US dollar (USD) is used today.
dcep is the only legally recognized form of digital currency in china. services like bitcoin are not allowed for legal monetary transactions in the country. Many believe this is a regulatory tactic used to increase DCEP’s popularity within the country. Regardless, this initiative has been successful as the exclusive form of digital currency in China.
dcep has played an important role in reshaping financial operations in china. Part of the digital currency’s inception was that it could act as a substitute and eventual replacement for China’s money supply, likely mitigating the cost of Chinese money transfers and economic stress. In addition, DCEP is projected to lower the high cost of printing, holding, and recycling paper money and coins in China.
many believe that dcep will de-risk e-commerce in that illegal financing, money laundering and counterfeiting will be much more difficult with a tightly regulated digital currency.
Such regulations are widely available because Chinese financial institutions will have the ability to oversee digital currency transactions to a greater capacity. It is speculated that this is the reason why the Chinese government waited so long to contract external electronic payment platforms such as PayPal. they wanted to make sure they had a system in place to reduce illegal monetary practices.
dcep supply and distribution will be based on a two-tier system:
The first deals with transactions between the people’s bank of china and financial institutions, such as banks and non-financial institutions (tencent and alibaba, to name a few). At this first level, the People’s Bank of China would issue DCEP units to these intermediaries.
The second level deals with the intermediaries mentioned above and also with their clients. At this level, customers, who are retail market participants and individual vendors, would send and receive dceps in addition to traditional paper money so that the entire process could be operated digitally.
Chinese engineers have already completed the back-end infrastructure for the dcep network. this includes processes such as testing and debugging the software in which the digital currency exists. In addition, the parameters, such as regulations, restrictions and purposes of DCEP, have been established by Chinese regulatory bodies.
A wide variety of companies and industries have already announced their willingness to accept and participate in the dcep market. these include businesses such as restaurants, post offices, supermarkets, and hotels. Specific companies that have signed up for the DCEP test include McDonald’s, Starbucks, and other international corporations with a strong history of engaging with the Chinese government.
while china may have been slow to participate in e-commerce payment systems compared to other advanced national economies, it is clear that its participation in these platforms, albeit late, has been marked by success remarkable. PayPal in China and the emergence of these services in the Chinese market has provided a simple and effective way for Chinese consumers to pay for a wide variety of goods and services. More than ever before, electronic payments are a popular and convenient means of transacting in the Chinese market. While certain digital payment methods are still being closely watched for their long-term viability, it appears that China’s digital payment methods are here to stay.