Retail stores are preparing for holiday traffic again, and the shopping needs of Chinese travelers have become more of a priority than ever. Although Chinese consumers prefer to buy online, one of the biggest reasons Chinese travelers make fewer in-store purchases during their travels is simply that their transactions get declined.
There are a few main culprits behind this, but also one payment method that’s resolving some of these nagging issues and putting extra dollars into retailers’ pockets.
Debit Card over Credit Card
“Travelers often rely on their Chinese bank-issued debit cards to pay,” said Lily, a sales associate at a luxury store in Boston. But sometimes travelers don’t have enough money on their debit card or aren’t allowed to use them for overseas transactions. In a rough calculation, Lily said that failed card transactions could account for up to 1 percent of her monthly sales.
But, what about credit cards? Chinese consumers are not big fans of credit cards, and there are cultural reasons why.
“Traditionally, Chinese people didn’t want credit cards because they didn’t want to owe anyone money,” explained Cheng Lian, a Chinese Academy of Social Sciences research fellow. “They are also worried about the risk that giving away their credit card could lead to credit card fraud, so they have learned to be extra cautious when using a credit card overseas, and are more comfortable with a debit card.”
Increasing Scrutiny on Large Credit Card Purchases
Even with a credit card, consumers can’t splurge easily. For luxury brands selling higher-priced goods like jewelry and watches, this is a grave problem. “It’s gotten harder and harder to land a successful deal,” said one sales associate at a high-end jewelry store. He said that increased scrutiny on capital outflow control has made it incredibly hard for travelers to purchase engagement rings that could cost upwards of $20,000.
At the beginning of 2018, in an attempt to curb money laundering and tax evasion, the Chinese government instituted a new annual limit — $15,000 (RMB 100,000) — that people can withdraw from their personal Chinese bank accounts while overseas, which is linked to their credit cards.
But in other instances, a credit card being declined is not China-specific. Oftentimes, human error is at fault: travelers forget to alert their banks about travel plans or their account might get frozen if they are flagged as security threats. In other instances, technical issues authenticating EMVs (short for Europay, MasterCard, and Visa cards, which use a global standard to authenticate chip-card transactions) between the U.S. and China are the culprit, according to the cross-border mobile payment and marketing solution company Citcon.
“Card transactions decline is a problem that exists for a lot of vendors we work with,” said Head of Marketing from Citcon, Evelyn Yang. “Credit card alerts and fraud monitoring are great for consumers, but often large overseas purchases are unnecessarily flagged.”
Mobile Payment as an Alternative
Fortunately, mobile payment platforms allow tourists to make purchases overseas, ideally with the same amount of security as traditional banking systems. While they are usually constrained by spending limits, mobile payments are a convenient and familiar method for travelers when making in-store purchases as these platforms are used on a daily basis in China. In fact, 90 percent of Chinese travelers prefer using a mobile payment when overseas, according to Nielsen’s research on Outbound Chinese Tourism and Consumption Trends.
But another reason for Chinese travelers to use mobile payment options is their favorable exchange rates, according to Nielsen’s research. With Alipay and WeChat Pay, customers don’t have to worry about excess foreign transaction fees, and they get a competitive market exchange rate. Both mobile payment companies complete transactions with on-the-spot exchange rates provided by the user’s Chinese bank, and both Alipay and WeChat Pay offer various discounts and rewards to customers, which can be favorable to those offered by banks.
Unsurprisingly, retailers have benefited from implementing mobile payment methods for Chinese tourists. International Shoppers is a duty-free and specialty retailer that operates airport retail and duty-free stores. They have locations in many cities favored by Chinese tourists, including JFK International Airport in New York and Logan International Airport in Boston. the company also operates a number of stand-alone branded shops for brands like Hermes, Salvatore Ferragamo, Bvlgari, and others. The company didn’t disclose specific numbers, but it said once they started accepting Alipay and WeChat Pay last year before Chinese New Year, they noticed a significant drop in declined transactions from their Chinese customers.
Mobile payment players are looking beyond the payment ecosystem, to using the technology as a marketing tool. For example, one of the benefits of accepting WeChat Pay is that it gives merchants the opportunity to promote their business on WeChat’s social media platform and its 1 billion monthly active users.
Without a doubt, stores that offer multiple payment options may have a better success rate with Chinese customers.