PayPal Teams With China UnionPay

EBay Inc.’s PayPal service, which allows a customer to link there bank card for easier purchasing, has announced that it will merge with leading Chinese electronic-payment company called UnionPay. UnionPay has 2.1 billion cardholders in 90 different countries worldwide. This merger will allow for overseas shopping and seller for Chinese customers. The Chinese will now be able to purchase from over eight million online merchants worldwide.

PayPal merging with UnionPay will now allow for the elimination of foreign exchange regulations that are costly. The merger takes away much of the tension of across-borders trade and it also takes away the effects of payment barriers that will increase trade between China and the rest of the world. There is an estimated 300 million people that will be added to PayPal’s customer list because of this merge, which would greatly increase the services revenue. The largest competition for merchants using PayPal in the Chinese market will come from Taobao.com, which holds 87% of China’s e-commerce. It is estimated that PayPal will not be a main competitor for Taobao because of the nature of the Chinese market. Taobao’s services are free compared to PayPal’s, which often contain a service charge. This is a big draw to many of the Chinese to switching their loyalty to Taobao for there online commerce needs. The Chinese are still a very domestic product-oriented nation and do not appear to be looking for other alternatives anytime soon.

This is a great step forward for PayPal who already has a very large market share of the e-commerce Market. Increasing their customer base will allow them to expand. The fact that China’s consumer market is usually based on domestic products will hurt PayPal and aid Taobao, which has a large majority of its service in domestic products. Due to the inexpensive labor and abundant raw materials, the Chinese could not purchase foreign products when they have a cheap alternative. The main benefit that will come from the merger of PayPal and UnionPay will be the decrease in costs of foreign exchange products. Now that PayPal is on Chinese soil they will be able to reap the benefit of their largest Asian market of $3.1 billion last year. PayPal will now be able to take a larger portion of their revenue as profit because in the decrease in costs. Eventually the Chinese market might switch to a more foreign goods market, but in the mean time there is not much profit for foreign products. Overall, I think that PayPal is making big steps and is moving in the right direction with the merger with UnionPay. They will gain a larger percentage of customers as well as cut unnecessary costs out. It will be interesting to see what the future market will be like for e-commerce in China.

Loretta Chao. (2010, March 17). PayPal Teams With China UnionPay. Wall Street Journal (Online). Retrieved March 17, 2010, from Wall Street Journal.