Thriving Chinese e-commerce market

According to a new report, China is one of the largest and most mature e-commerce markets in the world, increasing at a CAGR of 56.99% over the last four years, from $68.7 billion (CNY465.1 billion) in 2010 to $417.3 billion (CNY2.6 trillion) in 2014.

Factors, such as the rapid adoption of smartphones, growing internet penetration as well

China launches cross-border interbank payment system

as availability of secure online payment mechanisms and a growing preference for online shopping – especially among the rural population– contributed to this growth.

The report predicts that e-commerce in China will continue to grow; however, a new law introduced by the government will likely cause difficulties for private third-party agents in penetrating the market.

The ‘Method of Network Payment Service Management for Third-Party Payment Agents’, proposed in August 2015, is set to restrict consumers’ daily and annual spending on online purchases through private third-party payment agents such as Alipay and Tenpay. However, it will not be applicable to the government-owned China UnionPay (CUP). The implementation of this law will aim to protect consumer interest and privacy, clampdown on counterfeit products and poor customer service offered by online private third-party payment agents.

Under the draft law, the transaction amount made through third-party payment agents will be determined on the level of security measures incorporated within the online platform. Furthermore, all private third-party payment agents will be forbidden from offering financial services such as deposits, loans, financing or currency exchange services to consumers.

“If implemented, the new legislation is anticipated to wipe out smaller private third-party agents, due to the increased operational costs of implementing multiple security measures,” comments Kartik Challa, Analyst at Timetric.

New law to intensify competition between local and foreign companies

In China, CUP is the sole scheme provider of payment cards. According to central bank regulations, all banks and card issuers operating in the country are required to route their Yuan-based transactions through CUP’s electronic payment network.

However, following a complaint filed by the US against China via the WTO with regards to discriminating against foreign companies in 2012, the WTO directed the Chinese government to open up its payment cards market to foreign operators. Consequently in October 2014, the Chinese government announced its decision to allow foreign companies to set up their own payment card clearing businesses, effective from June 1, 2015.

“This move by the Chinese government is anticipated to intensify competition in the Chinese payment cards market, and end CUP dominance as the country’s only authorised card clearing organization. However, Visa and MasterCard have a long way to go before they can make a dent in CUP’s market share, as they need to build up infrastructure from scratch,” concludes Challa.

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