eBay Seeking China Nod for PayPal - Analyst Blog

By Shalu Saraf,

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eBay's Inc. ( EBAY ) existing payment platform, PayPal, sees ample expansion opportunities in China, an e-commerce market growing at a double-digit percentage rate.

In order to expand successfully and comply with the Chinese regulations, eBay is trying to obtain a domestic payment license from the Chinese authorities. This would enable Paypal to compete with AliPay, a payments company under local e-commerce giant Alibaba Group. If PayPal is lucky enough to get a license, it could become a major player in the Chinese online payments space by bringing its Paypal Here mobile card payments service to China.

Currently, PayPal offers cross-border transactions for its Chinese users but this license will allow the company to handle domestic payments as well, boosting its payments volume.

According to the global management consulting firm, Boston Consulting Group (BCG), China ranks second in terms of online shoppers, with 145 million buyers (versus 175 million in the United States). Another impressive forecast is that the number of e-buyers will jump, shoot and fly through 2015, growing from 145 million to 329 million.

Overall, ecommerce will account for 7.4% of the country's total retail value by 2015, up from 3.3% in 2011 indicating exceptionally high growth compared to the U.S., which took almost a decade to reach that level.

In the recently concluded fourth quarter, Payments revenue increased 12.0% sequentially and 27.6% from the year-ago quarter. Revenue from transactions was up 12.0% sequentially. For the year 2011, the company processed a total transaction volume of nearly $119 billion.

So, if PayPal manages to enter the Chinese market, still one of the world's fastest growing economies, the company could see a significant increase in its total payments volume, which would directly impact its net revenue from online payments.

Moreover, the company also plans to enter the domestic online payments market in India, which is somewhat smaller than China. According to BCG, the share of total retail carried out online in India was only 0.9% in 2010, but is projected to reach 4.5% by 2016. It therefore makes a lot of sense for established ecommerce players like eBay to tap this growth in China and India.

Of course, we remain concerned about the increasing competition from major online retailers, such as Amazon.com ( AMZN ), which has been joined by many other smaller players in recent times. Though eBay has been taking all possible steps to improve its PayPal payments business and shows great promise, here too competition may be expected to pick up as banks and other companies announce their own payment systems and Google Inc's ( GOOG ) digital wallet gathers steam.

Currently, eBay shares carry a Zacks #2 Rank, indicating a short-term Buy recommendation.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: AMZN , EBAY , GOOG

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