UnionPay comes to Braintree merchants (PYPL)
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PayPal-owned payment gateway Braintree announced that it will enable its European merchants to begin accepting purchases via China UnionPay, China’s state-run card network, according to a company blog post.
Braintree merchants in most European countries will be able to easily enable UnionPay acceptance through the Braintree software development kit (SDK). The move could ultimately be a boost for PayPal and its subsidiaries in Europe.
European merchants have reason to look for ways to more easily attract Chinese shoppers.
- Chinese cross-border e-commerce is on the rise. Chinese shoppers are expected to spend $118 billion on cross-border transactions this year, marking a 31.4% increase from 2015, according to Bloomberg. That’s a big market that European merchants likely want a piece of. It’s worth noting that competition is stiff — major e-commerce players in China like Alibaba and JD.com also offer cross-border shopping options — but the pursuit could be worth it.
- The news comes as brick-and-mortar merchants in Europe are looking to attract more Chinese customers as well. Recently, Alipay partnered with major European processors in order to bring wallet acceptance for Chinese tourists into shops across the European continent. This is indicative of European merchant and payment provider interest in finding a way to capitalize on growing Chinese cross-border spend both online and out-of-the-country.
This could ultimately serve as a customer acquisition channel for Braintree. Braintree’s SDK makes it easy for merchants to add UnionPay acceptance and therefore immediately open up their shops to the owners of UnionPay’s roughly 5.4 billion cards. That could ultimately bring more merchants to Braintree for all their processing needs, which means that as merchants are capitalizing on China, Braintree could see growth and revitalization in its European segment from an uptick in overall clients.
The rapid rise of online and mobile retail sales has opened up a new market for payments companies to pursue, and is also creating a new generation of online payment providers called gateways, which act essentially as the online version of an in-store payment terminal.
Companies like Braintree, Adyen, and Worldpay help process online transactions, which are growing much more rapidly than in-store sales.
Payment gateways specifically stand to benefit from the rapid growth of the online processing market, worth an estimated $10.7 billion this year, even though their revenue is a very small slice of the total. BI Intelligence, Business Insider's premium research service, estimates that the US online processing market will increase at a five-year CAGR of 13% to $17.5 billion by 2020, driven by the increase in online shopping volume.
Gateways could moreover be disruptive to the old guard of processors. For example, Alipay has become a top-ten global merchant acquirer almost overnight because of its massive processing volume through Alibaba's marketplaces. And the emergence of online-to-offline (O2O) and omnichannel commerce is giving gateways a chance to divert significant in-store volume away from legacy processors.
Evan Bakker, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on payments gateways that explains what they do, the benchmarks on which they compete, their growth drivers, and the key players. It also assesses the potential for gateways to impact legacy processors.
Here are some key takeaways from the report:
- Payment gateways help e-commerce merchants accept online transactions. They serve as the online version of a payment terminal and front-end processor for online and mobile sellers. Gateways typically sell bundled services, including payment acceptance, data reporting, and fraud management.
- Gateways have an opportunity to capitalize on the growing online processing market. BI Intelligence estimates that the US online processing market — from which gateways extract some of their revenue — will be worth about $10.7 billion this year. The market will grow to $17.5 billion by 2020, driven by the increase in online shopping. As online sales rise, gateways' addressable audience — e-commerce merchants — is getting both larger and more valuable, affording gateways an opportunity to seize and compete for more potential revenue.
- Gateways pose threats to the old guard as more merchants embrace the online-to-offline (O2O) business model. Many of the most successful tech companies, like Uber and Airbnb, leverage an O2O model, in which customers pay for in-person goods and services digitally. With an early-mover advantage among these types of retailers, gateways might begin to displace revenue from legacy processors because they will substitute rather than complement in-store processing volume.
In full, the report:
- Explains how gateways function and compete with each other in the payments ecosystem.
- Identifies the factors enabling gateways to capture long-term growth.
- Forecasts the size of the online and in-store processing markets to give context on the industry gateways operate within.
- Lists the key gateway providers and explains what makes each successful.
- Assesses the disruption opportunity for gateways and how this will affect legacy processors.
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