The Internet in China is red-hot these days, as illustrated by the frothy greeting U.S. investors gave the newly offered shares of Chinese Web-search engine Baidu.com Inc. and word that Yahoo Inc. is discussing buying a stake in Chinese Web company Alibaba.com Corp.
But Internet commerce is still a young and immature industry in China, partly because it remains difficult to pay for products and services online.
Very few Chinese have credit cards, and, until recently, there have been few online-payment services. The result: Many online deals in China still end in a face-to-face transactions. Couriers, for example, sometimes show up at a buyers' homes to collect cash, or deals are sealed in person on street corners.
Now that's changing, as more Internet-based payment systems go online in China and snare new customers. Web giant eBay Inc., whose PayPal payment service operates in 56 countries, said last month that it had entered the China market through initial deals with local Web portals NetEase.com Inc. and Tom Online Inc.
In addition, a Shanghai start-up called 99Bill Corp., founded by a former NetEase executive, launched online-payment services earlier this year. The company has secured funding from DCM-Doll Capital Management and Peninsula Capital, both Silicon Valley venture capital firms.
Meanwhile, AliPay, an online-payment service owned by business-to-business marketplace Alibaba.com, says it has registered about 3.8 million users in China.
China's online-payment market is still at a "very early stage," says Christophe Uzureau, a senior analyst with research firm Gartner Inc. in Hong Kong. E-commerce providers in China are expected to ring up about $762 million in revenue this year, according to investment bank Deutsche Bank AG. By comparison, U.S. online retailer Amazon.com Inc. alone pulled in revenue of $6.9 billion last year.
The growth of online-payment services -- which let people buy things on the Web through online accounts electronically linked to their bank accounts or credit cards -- is considered crucial to promoting electronic commerce in China.
Moreover, delivery services that transport goods bought online, including the postal system, often are not reliable in China. "One of the things that's more pervasive [online] in China is fraud and distrust," says Robert Peck, an analyst with investment bank Bear Stearns & Co. Inc. in New York.
Enter companies like PayPal, 99Bill and AliPay. PayPal hopes its global brand and experience will win it customers, particularly when it extends its services to Chinese online-auction site EachNet.com in September. EachNet is wholly owned by eBay. PayPal is also offering "buyer protection" against fraud for transactions on those sites.
Home-grown Chinese payment services think they have an edge over foreign companies because they understand the nuances of how local people like to use the Web, says Oliver Kwan, chief executive of 99Bill.
Kwan's company has teamed up with NetEase to sell inexpensive "prepaid" online-payment cards at convenience stores and Internet cafes that kids can use to pay for online games on NetEase's popular Web site. Many Chinese youngsters play games online, often paying as they go in Internet cafes, because they cannot afford video game consoles.
Last month, 99Bill -- which facilitates payments for digital content such as movie and music downloads, in addition to physical goods -- also signed a deal with Baidu, China's biggest Web-search engine, through which Baidu will use 99Bill's service on parts of its Web site.
For its part, AliPay, which made its debut on Alibaba.com's popular TaoBao auction site in 2003, remains the Web-payment leader in China. That gives it "a huge head start" on all the newcomers, says Porter Erisman, an Alibaba.com vice president.
Yahoo is expected to pay $1 billion and turn its China operations over to Alibaba in return for a 35 percent stake in the Chinese Web company, according to a person familiar with the matter. The companies have scheduled a news conference for today in Beijing.