In the Chinese payment processing space, which is dominated by government-controlled entities such as UnionPay, the dynamic of pursuing new customers is markedly different from in the U.S. This point was a key factor when investment firm TA Associates chose to invest in YeePay, a company with limited ambitions.
One of the most attractive things that TA saw in YeePay was its promise to never offer certain services, according to Edward Sippel, managing director and co-head of Asia at TA Associates Asia Pacific Ltd.
In Sippel's view, other Chinese payment companies notably Alibaba's Alipay have scared off potential business customers by diversifying in a way that turned these providers into competitors of those businesses. "But YeePay is neutral" and plans to stay neutral, he said in an interview. "They are not wanting to compete with any of their customers."
TA announced an unspecified investment in YeePay this week in a partnership with Far East Horizon Ltd., which focuses on financial leasing and related services. According to TA, YeePay has more than 93,000 active merchant customers and operates in more than 20 provinces, processing the equivalent of $77 billion (U.S.) last year, which is more than double its 2013 amount.
The TA statement also spoke to substantial growth potential in the hardware side of payments, with Naveen Wadhera, TA's director and co-head of Asia, citing market estimates that only 10% of small and medium-size businesses in China have a point of sale.
According to iResearch, a Chinese research firm focused on digital operations, online payments in China hit 8.08 trillion Yuan (about $1.3 trillion U.S.) last year, with projections for this year of 11.8 trillion Yuan (about $1.9 trillion U.S.), a figure that the firm said would soar to 22.9 trillion Yuan (about $3.7 trillion U.S.) by 2018.
Sippel stressed some other key differences between the payment segments in the U.S. and China, areas that he has tracked from his Hong Kong office for the last 18 years. The biggest difference is that Chinese shoppers are now using several billion debit cards, with many consumers carrying multiple debit cards associated with multiple bank accounts. "But credit cards have absolutely not caught on," Sippel said.
"Your average Chinese consumer has no concept of debt. It's not part of their psyche," Sippel said. "For the typical Chinese family, nobody was knocking on the door and offering them credit."
In China, today's credit cards have nothing comparable to U.S.-style zero liability protections, he said. "If something goes wrong, it's usually a negotiation" between the merchant, the consumer and the bank. "The consumer probably gets saved."
Sippel also addressed what he sees as a common misconception about the Chinese market. Even though government-owned and government-backed companies are common and tend to be huge and powerful, China's government has a history of supporting competition, even against its own companies.
Later this year, "MasterCard and Visa are coming to town," he said, adding that his expectation for the two brands is that "they're not going to do it right. They're not going to do it perfectly" but "if nothing else, it will absolutely make UnionPay more competitive."
Mobile payments will continue to grow wildly in China, largely because very few Chinese consumers have desktops or laptop computers, Sippel said.
"There is tons of mobile momentum," he said. "For a lot of these consumers, the first time they transact, it will be on a phone. NFC is going to be huge in China."