PayPal plans to enter China, India online payment markets

PayPal is expected to face tough competition in China's online payment market, according to analysts

EBay subsidiary PayPal plans to enter China and India's online payment markets, marking a major push by the U.S. company in the region.

The company's services are already used by merchants in the two countries to facilitate cross-border payments overseas. But now PayPal wants to make its online payment services available for domestic use as well.

"We are currently applying for a domestic payment license in China and are intending to do the same in India in the future," said PayPal spokesman Dickson Seow on Monday. The company does not know when it will receive the licenses, he added.

Of the two countries, China represents the bigger online market. The country has 193 million e-commerce users, according to the China Internet Network Information Center.

In China, PayPal will potentially face off against AliPay, a payments company under local e-commerce giant Alibaba Group. Alibaba and eBay's local joint venture already compete in the country's consumer-to-consumer e-commerce space which Alibaba dominates.

Alipay currently has the largest share of China's online third-party payment market, at 46.9 percent, according to Beijing-based research firm Analysys International. It defines the third-party payment market as consisting of non-banking commercial organizations. Total transaction volume for the country's third-party payment market reached 738.6 billion yuan (US$117 billion) at the end of the fourth quarter.

"If PayPal focuses on entering China's Internet online payment market, the competition will be fierce," said Zhang Meng, an analyst with Analysys. "The domestic companies have already established themselves."

But the company could also face difficulties in acquiring a license from local authorities to offer its payment services. Alibaba, which has Yahoo and Japan's Softbank as stake holders, was forced to spin off Alipay into a separate company because the Chinese government requires all online payment services from nonfinancial institutions to be Chinese owned.

"That's potentially a much greater obstacle," said Mark Natkin, managing director for Beijing-based Marbridge Consulting. EBay has however been successful in other foreign markets and its PayPal company has an established network to allow users to make international transactions, Natkin added.

"They have done very well outside of China. But whether they will have any more luck with this approach is difficult to say," he said, noting the intense competition in China.

In India, there were about 17 million Internet users who bought products online last year, according to Juxt New Age Marketing Research. But the country's e-commerce market is expected to grow. In 2010, the share of total retail carried out online in India was only 0.9 percent, but is projected to reach 4.5 percent by 2016, according to The Boston Consulting Group.

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Michael Kan

IDG News Service

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