The return of the Chinese consumers to Europe
Chinese payment methods and their acceptance in Europe
Today there are three main Chinese payment methods accepted in Europe.
Firstly, there is UnionPay which is the most popular bank issued payment card in China, and it is accepted by a growing number of merchants in Europe. UnionPay is larger than Mastercard and Visa in terms of the number of cards issued. Mastercard and Visa are listed on public stock exchanges, while UnionPay is not. UnionPay payment cards operate a payment network based on the Mastercard and Visa four-party payment processing model.
Secondly, Alipay is a mobile payment app that is very popular in China. You can use Alipay to make purchases online and in-store. Alipay is accepted by a growing number of merchants in Europe, including some major retailers like Harrods and Selfridges. Alipay is developed and operated by Alibaba Group. Alipay operates on a two-party model, which means that there are only two entities involved in a transaction, i.e., the buyer and the seller. The buyer uses Alipay to pay the seller, and the seller receives the payment directly into their Alipay account. The buyer creates an Alipay account and links their bank account to it, but you must have a Chinese bank account. Think PayPal, but Hangzhou, China, not San Jose, USA.
Thirdly, WeChat Pay is another popular mobile payment app in China. You can use WeChat Pay to make purchases online and in-store. WeChat Pay is accepted by a growing number of merchants in Europe, including some major retailers like JD.com. Like Alipay, WeChat Pay operates a two-party payment processing model. WeChat Pay is owned by Tencent.
There are over 2 million merchants in Europe that accept UnionPay according to their website. Some of the leading European acquirers such as Adyen, Barclaycard, Credit Agricole, Credit Mutuel, Fiserv, Global Payments, JP Morgan, Nexi Payments, Worldline, WorldPay, and so on, all accept UnionPay cards. This certainly does not mean their merchants automatically accept UnionPay cards.
The number of merchants across Europe that accept Alipay and WeChat Pay is difficult to determine. Estimations range from 1 million to 2 million merchant locations. EDC believe that Alipay has twice as many acceptance locations in Europe than WeChat Pay.
Where are the tourists?
According to World Tourism Organization (UNWTO), \he global number of international tourist arrivals reached 80% of pre-pandemic levels in the first quarter of 2023. An estimated 235 million tourists travelled internationally in the first three months, more than double those in the same period of 2022. This sounds a promising growth rate and a clear indication that there is a recovery of tourists to pre-pandemic levels.
Conversely, the number of Chinese visits to Europein 2022 is expected to be around 25 million, according to the World Tourism Organization (UNWTO). This is a significant decrease from the pre-pandemic level of 141 million visits in 2019. The decline in Chinese visits to Europe is due to several factors, including the COVID-19 pandemic both at home and in Europe, the war in Ukraine, and the economic slowdown in China.
To accept or not to accept – that is the question.
There is no doubt China is a major economic power, and there are a growing number of Chinese tourists and expats in Europe. By accepting Chinese payment methods, merchants can reach a wider customer base and increase their sales. The hospitality sector is a good place to accept Chinese payment methods. By doing so, hospitality businesses can make it easier for Chinese tourists to book restaurants, make travel arrangements and book hotel accommodations.
Of the 486 Parisian restaurants listed in the Michelin guide only one restaurant accepts UnionPay cards. For any UnionPay cardholders reading this article, the name of that one restaurant is Marius et Janette at 4 avenue George-V, Paris, 75008, France. Admittedly, the Michelin guide is not the best barometer of the acceptance of Chinese payment methods in the hospitality sector. However, it is indicative of the dominance of the US-born payment methods, such as Amex, Mastercard and Visa that are accepted in high-end restaurants. Flick through the Michelin guide and check the accepted payment methods, as any potential customer would, and you will find all the leading US card brands accepted whereas less than 1% of the restaurants will accept UnionPay cards. Restaurants ought to be welcoming Chinese tourists and accept Chinese payment methods, such as UnionPay.
As for hotel accommodation, all the major large city-based hotels will accept UnionPay, whereas only the larger hotel groups, such as Hyatt, Marriott, AccorHotels accept Alipay and WeChat Pay as well as UnionPay. There is not much more work required in the hotel sector to improve acceptance of Chinese payment methods.
In terms of retail, it is the luxury fashion brands, such as Gucci, Prada, LVMH, Richemont, Kering and Dior, that already accept the most popular Chinese methods including UnionPay, Alipay and WeChat Pay. This makes perfect sense; Chinese tourists love to spend their money on luxury goods. In 2021, according to a recent China Tourism Academy report, Chinese tourists spent an estimated $269 billion on luxury goods while traveling abroad, representing 25% of the global luxury market. 2021 was the first year that the number of Chinese tourists traveling abroad had increased since the COVID-19 pandemic began. The luxury retail sector is ready and able to accept Chinese payment methods from those returning Chinese tourists.
Finding the right equilibrium
The economic relationship between the acceptance and the issuance of payment methods is a complex one. Finding the right equilibrium between acceptance and issuance of payment methods can be a challenge. The acceptance of a payment method can increase the demand for that payment method. This is because consumers are more likely to use a payment method that they know is accepted by the merchants they want to shop at. This is not relevant in the case of Chinese tourists because they are arriving in Europe with their preferred Chinese payment methods already in their wallets. In the case of Alipay and WeChat Pay, it’s not a piece of plastic, it will be an app on their smartphone. Chinese consumers will not have access to Visa or Mastercard branded card payments unless they loaded a Visa or Mastercard prepaid card before departing China. Not a popular option and a service that is not readily available in China.
The acceptance and issuance of payment methods can affect the overall level of economic activity. This is because when consumers have more convenient and secure ways to pay for goods and services, they are more likely to spend money. According to Statista, there were approximately 270 million Visa cardholders in Europe in 2022. It is probably closer to 250 million. Visa is the most popular credit card brand in Europe, followed by Mastercard and American Express. With an estimation of 25 to 35 million Chinese expected to visit Europe in 2023, the proportion of merchants accepting Chinese payment methods is shockingly small.
The number of merchants in Europe that accept the popular Visa and Mastercard brands is particularly difficult to come by. According to Visa in its 2022 annual report there over 100 million worldwide locations that accept the Visa brand, and for Mastercard on a 2022 earnings call, their CEO mentioned they have 90 million locations. Based on EDC experience, Europe represents around 20% to 25% of global card accepting merchant locations. Therefore, this number is huge compared to the estimated two million European merchants that accept UnionPay (even less for AliPay and WeChat Pay). In conclusion, the ratio of Visa and Mastercard cardholders to Visa and Mastercard accepting merchants does not compare with that of UnionPay. As for AliPay and WeChat Pay the gap is even wider. The potential for increased adoption of these Chinese payment methods throughout Europe presents a significant opportunity to bolster the recovery of the European tourist industry as more Chinese tourist return to Europe. This, in turn, will can have a positive ripple effect on the overall economic situation in Europe.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).