eBay Inc.’s PayPal division will become the first foreign company to secure a payments license in China, CEO John Donahoe predicted, but he cautioned that the e-commerce giant is taking a cautious approach to expansion in the country.
Donahoe sees “encouraging signs” from the Chinese authorities, but said it remained next-to-impossible to guess when its fast-growing PayPal unit will finally get the green light to operate in the world’s second largest economy, he told the Reuters Global Technology Summit on Monday.
“I am confident that PayPal will be the first non-domestic company to get a payments license in China. That could be in three months or five years,” said Donahoe.
It is not clear whether PayPal will have to do this through a joint venture with a domestic company in which it owns a minority 49 percent stake, or whether it will be able to own a majority stake, Donahoe added.
“That’s the multibillion dollar question for Visa, MasterCard and everyone else in payments, not only PayPal,” said Gil Luria, an analyst at Wedbush Securities. “I don’t think there is anybody who is not Chinese who knows the answer.”
However, Donahoe’s comments suggest that PayPal is in a good position to get a Chinese payments license in the future and that the company is making progress toward that goal, albeit slowly, Luria added.
Foreign Internet companies traditionally operate at a disadvantage versus locals such as Alibaba and Baidu Inc in the country, which formally opened to international business just over a decade ago when it joined the World Trade Organization. The financial and retail industries remain largely dominated by domestic companies such as Bank of China and Alibaba.
“The evidence would suggest that a non-Chinese company is at a disadvantage. We have chosen not to compete aggressively,” he said at the summit, held at the Reuters office in San Francisco.
But “over time you’ll see the Chinese domestic economy try to connect with the global one.”
eBay does around $6 billion of business volume in China currently, much of it Chinese companies selling to the rest of the world, Donahoe said. He expects growth there to continue to outpace the rest of the world.
The e-commerce market in China will grow 43 percent a year to $401.7 billion between 2012 and 2015, according to J.P. Morgan estimates. E-commerce in the U.S. is growing 10 to 15 percent a year, according to comScore.
eBay launched in China about a decade ago, aiming to match buyers and sellers in the country online, as it successfully did in the United States and Europe. However, the company pulled out in late 2006 after spending heavily on the effort.
Late last year, eBay dipped its toe back into China, through a partnership with online fashion retailer Xiu.com.
Donahoe said eBay was working closely with foreign governments to combat online fraud and crime, especially money-laundering. About a quarter of PayPal transactions are cross-border. While eBay has not experienced state-sponsored attacks itself, it has noticed a marked increase in such cyber attacks, generally, in the past 12-to-24 months, he added.
On the recent debate about the extent to which the U.S. government conducts surveillance within its own borders, Donahoe said eBay has never been asked to participate in a broad information-gathering exercise. But he said it does comply with legitimate requests for data on a case-by-case basis.
Donahoe personally welcomed the debate that has arisen since news first broke that the National Security Agency is gathering information from a broad swath of other Internet companies through the Prism program.
“It’s appropriate for us, to have a bit of a national dialogue and debate on privacy and on cyber security. And just so that what sometimes goes unspoken gets spoken,” he said.
“We’re trying to make sure that all of our privacy policies and how we comply stand up to the spotlight. As the digital world becomes more of our everyday lives, there will be more opportunity and need for more of a dialogue.”
(Additional reporting and writing by Edwin Chan; Editing by Edward Tobin, Andre Grenon and Phil Berlowitz)