Trend 1: Fourth Round of Payment Licenses
If you remember from our previous commentaries, in 2011, the People’s Bank of China (PBOC) mandated that any company providing payment products or services be licensed in order to operate. This brought a much needed dose of regulation to what was previously quite an unregulated industry. Since then, 4 rounds of payment licenses have been approved, the last being on June 28th, when another 95 payment companies qualified to provide payment products and services in China.
Among the fourth round of licenses, digital TV payment licenses were issued by the PBOC for the first time. Digital TV payment enables customers to conduct bankcard payments through their TV set and remote control, which means TV value-added services will become more convenient, including TV shopping, VOD (Video on Demand) and ticket ordering.
So far, 196 third-party companies have received payment licenses from the PBOC, covering online payments, prepaid cards, mobile payments, acquiring businesses, telephone payments and now digital TV payments; about 60 companies are still waiting for their licenses. However, in the future the PBOC will likely be more strict on applications, so the pace of issuing licenses will slow down.
Trend 2: Big Progress on Mobile Payment Standards
Although they have co-founded a payment company called Union Mobile Pay for payment business as early as in 2003, China Mobile and China Union Pay held different mobile payment standard preferences – China Mobile, the biggest MNO in the China with almost 700 million subscribers, developed its own 2.4 GHz standard, and China Union Pay (CUP) insisted the 13.56 MHz international payment standard. After three years of contention and standoff on standards, recently the two mobile payment giants officially signed a cooperation agreement, teaming up together to provide mobile payment services.
Now, according to the agreement, China Mobile and CUP will together launch NFC mobile payment products which integrate bankcard accounts into SIM cards for mobile payment. Although specific details about the cooperation have not been released, this cooperation may mean that the contention over mobile payment standards will end soon - 13.56 MHz may become the mainstream standard, which will help further support the development of China’s mobile payment industry.
Trend 3: MNOs will aggressively promote near field payment products and services in the second half of 2012
We expect that near field payment market will boom in 2012 as the three main MNOs further promote their near field payment services after conducting the services only in trial areas from 2010 to 2011.
By issuing co-branded ‘payment stickers’ with Shanghai Pudong Development Bank, China Mobile integrates the near field payment function into a mobile phone: so far over 70,000 co-brand cards have been issued and by putting the sticker on the back cover of their mobile phone, customers can use the mobile phone to complete a small value payment on POS terminals. China mobile plans to launch the complete NFC phone country-wide in the next half of year.
China Telecom continues to expand its near field payment business areas around China by cooperating with local banks. The company is also working with third payment companies to promote its mobile payment business.
Although little lagging behind its two competitors, China Unicom announced that it would launch its new near field payment products in the 2nd half of the year.
Trend 4: Further growth of financial IC cards
According to the PBOC, as of the first quarter of 2012, the total number of financial IC cards in circulation reached 32 million, representing a year on year 34% growth rate. So far 43 commercial banks have the capability to issue IC cards and will continuously expand the proliferation of IC cards in China.
In addition, 97.4% of all the POS terminals in China are now accepting financial IC cards and another 50% of ATMs will become IC-enabled by the end of 2012.
The development of financial IC cards started in March, 2011 by PBOC, though the cost of one IC card is about 15 times as much as that of normal magnetic stripe card, PBOC will continue to push commercial banks to issue IC cards.
Trend 5: Stable Growth of Third Party Online Payment
According to iResearch, the total transaction value of online payment in China reached 776 billion RMB, with a 112% year-on-year growth rate. Alipay, China’s biggest third-party payment company, still maintained the largest market share with almost 48% of the total transaction value, followed by TenPay (a third-party payment company belong to Tencent which is one of China’s largest Internet companies), with 20% market share, and ChinaPay (a subsidiary of CUP), with 9% market share.
In 2012, China’s third party online payment companies will continue to struggle with additional regulations from the PBOC and stronger competition, while at the same time needing to continue development across multiple market segments through cross-online and offline customer channels.