How Will PayPal Benefit from the UnionPay Deal?

On January 22, PayPal (NASDAQ:PYPL) announced a broad partnership with China UnionPay—a state-backed financial services company. The company said that the deal will help PayPal accelerate growth in respective networks. UnionPay is a leading payment card company.

Under the arrangement, UnionPay customers will be able to link their cards and PayPal accounts. Linking the cards and accounts will help customers make cross-border transactions easily. Therefore, the deal opens the door for UnionPay cardholders to purchase from 24 million merchants that accept PayPal globally.

The other component of the deal involves PayPal customers being able to use their PayPal accounts to shop at UnionPay merchants in China.

UnionPay and PayPal deal provides multiple opportunities 

The deal with UnionPay should benefit PayPal in several ways. First, bringing UnionPay customers to the PayPal network will give PayPal merchants exposure to millions of new potential customers. UnionPay has issued more than 130 million cards to customers outside Mainland China.

Second, the ability to pay with a PayPal account at UnionPay merchant locations will be convenient for PayPal customers. The deal should help PayPal boost its customer retention in the face of intensifying competition in its market.

PayPal had 295 million active customers at the end of the third quarter of 2019. The company will release its fourth-quarter results on January 29. The company will release its latest customer numbers.

Above all, the UnionPay deal will help PayPal jumpstart its business in China. The deal comes after PayPal’s acquisition of GoPay—a Chinese payments company. GoPay has licenses to provide digital payment services in China. Therefore, the GoPay acquisition paved the way for PayPal to go big in China with domestic operations.

Fight for space in China

However, Alibaba (NYSE:BABA) and Tencent (OTCMKTS:TCEHY) firmly control China’s market. The two companies alone command more than 90% of China’s mobile payment market, according to iResearch China estimates.

Overall, PayPal isn’t concerned as it enters the domestic Chinese market. In an interview with Bloomberg last year, PayPal CEO Dan Schulman said that the Chinese payments market is expanding rapidly. He thinks that PayPal will find room in China despite the big headstart that Alibaba and Tencent enjoy.

PayPal stock gained more than 2.0% after it announced the UnionPay partnership, which pushed the stock’s year-to-date gains to 9.0%.