PayPal Makes Chinese Acquisition: Highlights and Insights

PayPal (PYPL) recently made a move that could shake the Trump administration. At a time when President Trump is suggesting delisting Chinese companies in the US, PayPal is acquiring a Chinese company.

On September 30, the US-based digital payments solution provider announced that it plans to acquire a majority stake in GoPay (Guofubao Information Technology Co. Ltd). On October 1, PayPal stock opened at $104.03.

With this acquisition, PayPal would be the first overseas company operating in China’s digital payments segment. The US tech company plans to purchase GoPay shares through a subsidiary in Shanghai. PYPL could soon gain access to the vast Chinese online payment market, making it the first overseas company in the sector.

PayPal’s Chinese venture

PayPal plans to purchase a 70% stake in GoPay though one of its subsidiaries in Shanghai, Yinbaobao Information Technology (Shanghai) Co. Ltd. Although the People’s Bank of China has approved the majority share purchase by PayPal, the value of the acquisition is not yet public.

After the deal closes, PayPal would have a controlling interest in GoPay. Additional information should be released after the closing of the agreement. GoPay made the announcement public on September 30.

Founded in 2011, GoPay has amassed a considerable customer base in the People’s Republic of China. Guofubao’s customer base encompasses both the B2B and B2C segments. The company provides financial services, financial technology (or fintech) for mobile payments, online payments, and cloud account services.

The Chinese digital payments company has partnerships with selected banks for bank depository solutions. It also provides cross-border business, trade, and payment solutions.

Guofubao has been expanding its outreach after receiving its Internet payments license in China. The Central Bank of China approved the license in early 2015. The People’s Bank of China also approved multiple payments licensing between January 2015 and December 2016. GoPay’s payment solutions encompass the e-commerce sector, cross-border commerce, the tourism industry, aviation, and logistics.

With the purchase of a controlling stake in GoPay, PayPal would have access to the Chinese provinces. It would also garner a major footprint in Central Asia and Southeast Asia.

How could PayPal benefit in China’s digital payments domain?

Reliance on mobile and digital payments is increasing in China. In 2018, the China Internet Network Information Center (or CNNIC) reported an annual increase of 10.7% in mobile payments. According to this report, the digital payments market was 13% higher than in 2017.

According to Statista, China ranks first based on the highest aggregated transaction value in digital payments. Statista also forecasts a CAGR (compound annual growth rate) of 18.5% from 2019 to 2023. Currently, the transaction value per customer for digital payments in China is higher than in the US, the UK, and France. Plus, the market penetration for digital payments is the highest in China.

PayPal has been active in China since 2005. Since then, PayPal’s presence in China has grown at a snail’s pace. PayPal made its first landmark move in China after an agreement with Chinese Internet company Baidu (BIDU) in 2017. Baidu ranks among the world’s largest companies.

After the deal is concluded, PayPal merchants around the world would be able to accept payments from Baidu Wallets. At the time of the agreement, other Chinese digital payment service providers were also following an aggressive expansion plan.

Digital payments: Competitors in China

The leading online payment service providers in China are WeChat Pay and Alipay. Alipay is the payment platform operated by e-commerce giant Alibaba (BABA). WeChat Pay is a payment platform operated by Tencent Holdings.

Both digital payments service providers are familiar names among Chinese merchants, restaurant owners, and consumers. PayPal would have to take bold steps to capture significant market share from these two established payment platforms.

PYPL stock so far in 2019

This year, PayPal’s stock price has been increasing from January through the last week of July. Its stock price declined sharply from $121.30 on July 24 to $103.60 on August 5. PYPL stock has been relatively stable since then.

The market’s response to the GoPay acquisition has been neutral so far. On September 30, PYPL stock saw an intraday high of $104.32 and dipped to its daily low of $102.26 by midday. PYPL finally closed at $102.53, down 1.02%.