CHINA | A recent report by consulting firm AT Kearney ranked China as the top developing economy for e-commerce. This upswing in online commerce and electronic on-site payment processing is part of a general upswing in the Chinese economy and a further sign that it is developing from a purely manufacturing base into a fully fledged digital economy. This revolution is being spearheaded not by international companies cashing in on a developing market, but by a rash of local firms such as Alibaba and SooBest.
The Chinese Market
The AT Kearney report stated that China’s online retail market alone was worth an estimated $23 billion U.S. dollars making it the second biggest in the world. According to a report, approximately 50 percent of online transactions were completed using e-commerce payment methods in 2009. This has since risen to about 74 percent and is likely to keep rising. Of the rest, 11 percent will still made using cash on delivery. This means people in China are slowly overcoming the fear of paying online before you see the product and see the delivery person face to face.
In China’s former capital, Nanjing, online retail shopping has been growing fast. Year on year sales went up by 1800 percent in the first quarter of 2012. Online retail’s share of the retail market in the city grew from a mere 0.16 percent to 2.64 percent.
Sites like Alibaba, China’s version of eBay, are leading the charge for internet commerce in the country. Their aim is to make it easier for consumers to buy the products they desire. Indeed, the founder of the company, Jack Ma has told his employees that they represent a stimulus to “China’s domestic consumption” and are in fact fuelling its economic success. He and McKinsey consultant, Chen Yougang, both agree that e-commerce is the solution to the unrealised consumption desires of small and mid-sized cities in China just as Wal-Mart once provided that opportunity in small town America.
Live by Touch
Companies across the country are also trying to deal with e-payment solutions to problems. For some purchases a large amount of cash is required or a credit/debit card is needed to make a transaction. Naturally, both of these things can be stolen. Companies like Live By Touch are trying to finds ways to make payments easier and more secure. The company’s service is only based in Shanghai at the moment, but what they do is allow customers to pay with a fingerprint. The payment machine recognises the fingerprint and links it to a payment hub online and withdraws the money from the bank account. As fingerprints are unique, it is very safe way to do transactions.
If Alibaba are dealing with ways to offer products to people and Live By Touch are working out how to pay for products, companies like SooBest are looking at business to business (b2b) solutions and even business to business to customer (b2b2c) solutions. With the internet linking the world together, SooBest have brought together manufacturers, sellers and customers known as the “manufacturer + SooBest + Global Buyers” model. In theory this makes the order to delivery time a lot quicker. At the moment it specialises in gardening equipment, wedding gowns, mobile phones and beauty products, but is continuously developing its range.
A Downside for Investors
As with other areas of its economy, China remains a door half open at best. In many areas the door is unlocked, but the chain is still on. According to Reuters, the e-payment service industry is going to be regulated better by the State Council. This means that companies providing e-commerce payment facilities will now have to register with the council for approval. Companies backed by non-Chinese money will be required to apply
China Maverick Research’s Managing Director, Dave Carini told Reuters that it was “difficult to say what the government’s policy” will be in terms of enforcing the law and whether there will any crack down on foreign backed companies. This was because there have been no precedents set so far.
As China develops it is likely to move more towards e-payment options. Recent surveys talking to millennials, people aged between 18 and 28 showed that the majority see most of their payment actions being online. It seems that moving money online is going to continue to expand with internet banking, e-commerce payment options and electronic means of paying on-site such as fingerprints, mobile phones and dongles. In fact, 80 percent believe all their payments will be electronic in the future.