By Vivian Ni
Jan. 30 – Although China has made it more difficult for foreign investors to enter its e-payment sector over the last year, the potential profits offered by the country’s massive consumer population are proving too attractive to miss. Recently, American Express – the U.S. financial service provider that has long considered China as its critical strategic market – established a new partnership with a growing Chinese payment service company, Lianlian Group, by means of equity investment and technology authorization.
AmEx said on January 18 that it will license its digital wallet Serve – a next-generation commerce technology developed to target lower-end consumers – to the Zhejiang-based Lianlian Group. The Chinese company will be allowed to apply the technology in its payment services, but will not necessarily use the Serve brand.
In order to provide technical and consulting support to Lianlian, AmEx plans to expand its Chinese presence and open a new office in Hangzhou, the capital city of Zhejiang Province.
In addition, AmEx also made an equity investment of US$125 million in its new partner. Instead of going directly into Mainland China, where regulations are tougher, the investment took a detour and flowed through Lianlian Pay – a Cayman Islands-based offshore entity of Lianlian Group.
The eight-year-old Lianlian Group primarily provides mobile top-up services. According to an AmEx announcement, the company has served approximately 300 million mobile phone accounts and operates a network of over 300,000 small business agents across China. However, compared to the other big-name companies AmEx is in collaboration with, Lianlian is less well-known and the alliance is widely interpreted as a departure from AmEx’s typical business strategy.
While AmEx’s previous credit card business partnerships with several major Chinese banks focused on accelerating cross-border payments, the cooperation with Lianlian will likely lead the U.S. company to reach the vast e-commerce opportunities deeper down in the Chinese market. It is believed that the deal will help AmEx improve its operating leverage in China and reach out to its merchants more efficiently, compared to other foreign payment service companies.
Attaching great importance to China, AmEx has been a pioneer in penetrating the Chinese market in recent years. Under China’s tightened regulatory environment last year, AmEx earned a foothold in the country’s online payment business ahead of others by establishing a joint venture with Tencent Holdings, whose online payment unit was in the first batch of companies that had received an operation license issued by the People’s Bank of China (PBC).
While acknowledging the remarkable success AmEx has achieved in China’s e-payment market thus far, some experts warned that there are still risks of ambitious expansion in this particular field. Sudden re-regulation by the government could increase the chance for some Chinese companies to not act by the rules.
In order to acquire the critical PBC license last year, major Chinese e-commerce company Alibaba – which Yahoo has a significant stake in – transferred its online payment platform Alipay to a different domestic company without notifying Yahoo properly.
“Hopefully they (AmEx) will have more luck than Yahoo did,” said Brian Riley, a research director at consulting firm Towergroup. “It will be a test of American Express’ mettle.”
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