March 19, 2010, 12:00 AM

PayPal forges an alliance with China’s largest payment card network

Hundreds of millions of Chinese consumers will be able to buy goods online from foreign merchants and pay through PayPal as a result of the agreement with China UnionPay.

PayPal has struck a deal with China’s largest domestic payment card network, China UnionPay, that will enable hundreds of millions of Chinese consumers to buy goods online from foreign merchants. PayPal also says it will double its Asia-Pacific workforce to 2,000 by year’s end.

Chinese consumers hold 2.1 billion UnionPay cards, most of which are debit cards, according to PayPal and figures from the state-backed UnionPay. Consumers with UnionPay cards will be able to initiate PayPal transactions in the third quarter, says PayPal, the online payment processing service owned by eBay Inc. The partnership is designed to make it easier for Chinese consumers to make cross-border transactions.

“PayPal’s partnership with China UnionPay removes an important friction point that exists across borders,” says Scott Thompson, PayPal president. “We are thrilled to eliminate the payments barrier so merchants can welcome millions of new Chinese customers to their sites.”

PayPal says it has 81 million active accounts across the world.

PayPal in China will face competition from Alipay, the online payment service operated by China-based e-commerce firm Alibaba Group, in which Yahoo in 2005 bought a 39% stake. Alipay says it has 300 million registered users. Alibaba also operates a consumer auction site, Taobao.com, which analysts have estimated controls up to 90% of the consumer-to-consumer online retail market in China.

The competition for PayPal is stiff, but not impossible to overcome, says Scot Wingo, CEO of ChannelAdvisor Corp., which helps online retailers sell through third-party sites. PayPal figures to have an edge by working with China UnionPay, a heavyweight in China’s banking and payment industries. And the size of China’s consumer base presents a significant opportunity for PayPal.

“There is formidable competition, but 300 million in China is small,” he says. “It’s still very much an open space.” He notes that PayPal also is investing in expanding its regional workforce, showing the seriousness of the effort. “PayPal has a pretty decent shot on this.”

PayPal’s entry into China comes as more Chinese consumers are turning to the web for commerce. Annual online spending in China will increase to 1 trillion yuan ($146.46 billion) in 2013 from 248.4 billion yuan ($36.38 billion) in 2009, according to China-based iResearch Consulting.

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