Late on Wednesday, PayPal (NASDAQ:PYPL) announced a global partnership with China's government-backed UnionPay, which will further expand the company's network in the country. In a press release, the companies said the move would grant UnionPay customers access to PayPal's payments network, and that it lays the groundwork for PayPal to be an accepted payment method at locations in China that take UnionPay.

UnionPay is the world's largest credit card company in terms of payment volume. The collaboration allows its customers to link UnionPay cards to their PayPal accounts and use them in cross-border transactions, as well as in a number of countries outside of China where PayPal is accepted.

Late last year, PayPal became the first foreign company to be granted a license as an online payment provider in China. This latest move will no doubt expand the company's footprint in the world's most populous country.

The PayPal logo outside the company's headquarters

Image source: PayPal.

More details

The companies said that UnionPay cards would be added to PayPal wallets in Australia, the Philippines, Singapore, South Korea, and Thailand, with 30 additional markets to come later in 2020. This will allow UnionPay customers to shop at any of the 24 million merchants globally where PayPal is accepted. There are about 130 million UnionPay users outside mainland China who will benefit from the move.

The details were a little fuzzier regarding exactly what PayPal will get out of the deal. "It will also give PayPal the opportunity to explore the option to expand PayPal's digital wallet to physical retail locations where UnionPay is accepted in China, or internationally," according to Jim Magats, PayPal's senior vice president of global payments. "At PayPal, we are proud of this landmark agreement with UnionPay International and the global impact that this creates for our joint customers, building on our status as the first foreign payments platform licensed to process online payments in China," he said.

"Both parties will jointly explore and implement the application of new products and new payment modes in the field of cross-border payment, hoping to better serve our cardholders and create greater value for both sides," said Larry Wang, vice president of UnionPay International.

The companies are "committed to collaborating to better serve joint customers and merchants to grow digital payments in China and globally. This will include the opportunity for PayPal customers from around the world to use PayPal at the merchants where UnionPay is accepted," the companies said in a joint statement.

Jim Magats and Larry Wang smiling and shaking hands

Jim Magats, PayPal's senior vice president of global payments, and Larry Wang, UnionPay International vice president. Image source: PayPal.

A tough nut to crack

China opened the door to such collaborations when its central bank, in an unprecedented move, announced in early 2018 that it would allow foreign third-party payment companies such as PayPal to operate within its borders for the first time. The People's Bank of China said that foreign payment processors would have to set up a local business or link up with a domestic partner, and it also required the establishment of data-backup systems and payment service facilities. The rules further stipulated that customer data must be stored and maintained within the country's borders.

PayPal has its work cut out for it, as the mobile payments space is well-established in China with two hometown favorites controlling the majority of the transactions. Tencent's WeChat app and Alibaba's AliPay process over 90% of all digital payment transactions in China, boasting 600 million and 400 million users, respectively.

However, if PayPal can successfully break the stranglehold that incumbents have on the market, it represents a lucrative opportunity. In 2018, China's mobile payments market soared to 468 trillion yuan, or roughly $65.5 trillion at current exchange rates. This is a large and growing market for PayPal to tap.

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