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By the Book: Paying for Time

Third-party payment providers were expecting big things from China’s e-commerce sector in 2011 – until regulators squeezed them out.



Over the course of the last decade, e-commerce has evolved from a niche addition to regular consumer habits – trailing through a mall, pacing down a high street – to a viable substitute that is actually challenging traditional retail models. Although in the US, the world leader in consumer spending, e-commerce accounted for less than 5 per cent of total sales, there is still some way to go before it becomes the norm not the exception.

Many industry insiders, therefore, are looking to the likes of China to help accelerate the growth of traffic. By 2011, it is predicted it’s e-commerce market will grow to $168.7 billion, eclipsing both South Korea and Japan, the current titans of Asian online retail. But it’s still hovering around the 2 per cent of total sales mark, and in a vast agrarian country, policies are being put in place to strengthen the sector – and boost returns for local providers.

For those seeking to capitalise on this market, new regulations now in place have unfortunately made it much harder – unless you’re reading this in Beijing. The People’s Bank of China has now issued regulations saying non-bank companies – including huge e-commerce operators such as Alibaba, the world’s largest – can now supply third-party online payment services. Such third-party vendors are subject to a license, though, and for now no company with foreign capital will be considered – meaning Alibaba will have to restructure its shareholdings as Yahoo is a principal investor.

This is causing particular issues for the likes of Pay-Pal, who are now blocked from offering payment services to what is set to be the biggest e-commerce market within the next decade. Others affected include joint China and US-backed 99Bill, a payment provider whose involvement in Chinese gaming companies meant they were well-positioned to enter the market. The direct beneficiary of the move is ChinaPay, a payment provider owned, possibly not coincidentally, by the country’s banking giants.

It’s not the end of the story, though. The Economist’s Intelligence Unit reported that a new, separate framework will be created for foreign-owned payment providers, while most experts agree that regulation is long overdue to keep pace with the rapid expansion of the sector. Only last year, online stories were required to submit their details to State Administration for Industry and Commerce in an attempt to root out unscrupulous businesses.

Moreover, if the Chinese wish to expand e-commerce to above the 5 per cent of total sales, it is widely believed foreign input will be required. China already has the largest online population in the world, but with limited credit-card penetration and concerns over the security and privacy of local payment gateways, the opportunities will emerge sooner rather than later.


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