PayPal Holdings Inc. officially opened the door to a vast market for payments on Thursday with the closing of its deal for 70% of the equity in China’s Guofubao Information Technology Co. Ltd., better known as Gopay. The Peoples Bank of China had already okayed the deal, for which terms were not announced, on Sept. 30.
With the acquisition, PayPal wins the right to be the first foreign company that can directly offer online payments in China, a market boasting 500 million online shoppers who are expected to ring up almost $2 trillion in sales in 2019. “We’re pleased to complete this historic transaction, which enables us to broaden our participation in such a dynamic market,” Dan Schulman, president and chief executive of PayPal, said in a statement Thursday. “This important step will allow us to be a stronger partner to Chinese financial institutions and technology platforms.”
The deal represents the culmination of “years” of work with Chinese officials, Schulman told equity analysts during an earnings call in October days after coming to terms with Gopay. Among PayPal’s first moves with the company will be a focus on cross-border payment services for Chinese merchants and consumers, Schulman said during the call.
But PayPal also clearly sees a huge opportunity to present goods offered by Chinese merchants to the more than 270 million consumers who maintain PayPal wallets. “We can connect their vast e-commerce system to our vast market of consumers. Now we can start to facilitate that,” Schulman told the analysts.
While PayPal is the first foreign company to process online payments in China, it’s not the first American payments company to score a breakthrough in that market, which historically has restricted entry by foreign players by requiring that they operate through domestic third-party partners.
American Express Co. a year ago won so-called preparatory approval from the Peoples Bank of China for a clearing and settlement license. As part of the arrangement, AmEx entered into a joint venture with Lianlian Yintong Electronic Payment Co. Ltd., also known as Lianlian Pay, to process domestic transactions on AmEx cards.
AmEx, along with PayPal and other foreign payments networks, have been jockeying for years to enter the Chinese market. In 2017, Chinese authorities released details on how foreign firms could apply for domestic clearing licenses. Visa Inc., Mastercard Inc, and AmEx all applied.