First some background. China is a closed currency economy. This means all domestic transactions (online and offline) are priced in China’s domestic currency, the RMB. The Chinese government regulates the exchange rate of the RMB, keeping it favourably low against other currencies to encourage export business, a strategy which has fuelled the country’s massive economic growth over the past two decades.
As an exchange rate controlled country, local citizens cannot send and receive RMB payments internationally. But consumers resident in China have to make their consumer payments (for domestic purchases and international purchases) in RMB. Which means online payment processors need to provide a means to accept payment in RMB from Chinese buyers, the RMB payments have to be converted into foreign currencies behind the scene, and then foreign merchants are settled in foreign currencies.
For online sellers located outside of China, this does not mean you cannot accept online payment from customers in China, but it is not quite as easy as you’re used to, nor are there as many online payment options as available for doing online payment business with clients in North America or Europe.
Probably the easiest way to accept online payments from customers in China is via credit card (VISA or Mastercard). Although most consumers in China use Union Pay, the home-gown Chinese credit card, there are still many millions of VISA and Mastercard holders in mainland China.
If you have your own online merchant account to process credit card transactions, then customers in China can pay on your website with their VISA cards and Mastercards. The amount settled into your bank account will be in the currency of your merchant account set-up (dollars, Euros or Pound Sterling for example), while the customer in China will pay the purchase amount converted into RMB, with the currency conversion done by the credit card company at the official Chinese government exchange rates.
If you don’t have an online merchant account, there are a few other options you might wish to consider. You could open an account with one of the many online payment services that allow you to accept third party payments by credit card. I don’t need to spell these out as they proliferate the marketplace.
When you add up the transaction fees, foreign currency fees and cross border fees, expect to pay about 5% of your gross revenue in fees to the processor. With your own online merchant account you can expect to pay between 2-3% in total fees. So it really depends on your anticipated sales volume as to which credit card option is the best for your business.
Your third option is to set up an account with one of China’s two largest online payment service providers, Tenpay.com or Alipay.com. Both of these companies offer programs to allow foreign companies to collect online payments from Chinese buyers in RMB.
With the Alipay cross-border website payment program, you’ll pay a $1,000 USD account set up fee, with a 3% payment transaction fee on all future payments. You will need to price your online goods and services in RMB, and they offer an API, and I am guessing that they also offer various payment buttons and an IPN, but this should be verified by contacting Alipay directly.
Alipay will remit your account balance to your home country bank account when it reaches a $5,000 USD equivalent balance on a weekly, monthly or quarterly basis. Your RMB balance is converted into USD (or EUR, JPY, GBP, CAD, AUD, SGD, CHF, SEK, DKK, NOK, HKD ) at the official Chinese government exchange rate. This program is clearly geared for high volume sellers and may not be for everyone. And I am not sure who covers the cost of the international bank wire when your funds are remitted from China to your bank account.
Alipay is by far the largest online payment service provider in China with a 46.9% market share, so they would probably give you the largest reach into the Chinese market, but they are really not set up to do business with smaller online businesses.
Tenpay.com is the second largest market leader with a 20.4% market share, and on the surface they would seem a reasonable second choice, perhaps more ideal for smaller business owners. So I spent some time exploring their website and was disappointed with what I saw.
Their cross-border online payment page in English provides no information on how their system works. There is no pricing or product information whatsoever. Unfortunately, Tenpay.com cannot be seriously doing business with any foreign online merchants (large or small) with a zero information web page. It is really a shame, as it seems there is plenty of opportunity for a Chinese domestic payment company to court smaller foreign businesses wishing to do business in China.
Until this happens, smaller online business owners situated outside of China will have to resort to getting their own online merchant accounts, or working with one of the many third party online credit card payment processors.