Introduction to China’s booming mobile money market – Q&A with Charmaine Oak, Shift Thought

With a vast number of Chinese already using digital wallets to pay for goods online, it’s was only a matter of time before mobile money took off. Now that standards are in place, and licenses issued to 250+ online/mobile payment providers, coupled with the availability of cheaper smartphones and mobile Web, the time has now come. This year 300 million people in China will pay for goods and services using their mobile phones, according to estimates from analysts Shift Thought.

With a vast number of Chinese already using digital wallets to pay for goods online, it’s was only a matter of time before mobile money took off. Now that standards are in place, and licenses issued to 250+ online/mobile payment providers, coupled with the availability of cheaper smartphones and mobile Web, the time has now come. This year 300 million people in China will pay for goods and services using their mobile phones, according to estimates from analysts Shift Thought.

This introduction to the Chinese mobile money business is brought to you by Charmaine Oak, practice lead digital money for analyst/consultancy Shift Thought, who recently published Digital Money in China 2013.



What is Mobile Money
Mobile money is any service where the mobile phone is used to access financial services. The broadest definition of mobile money, favored by the industry association GSMA, encompasses the entire set of mobile financial services, including mobile banking, mobile money transfer, mobile wallets and mobile payments.
Shift Thought usually restricts the definition of mobile money to financial services that provide a stored value account, where the customer relationship is not with a bank. These accounts may typically be identified by a mobile number. However for the purposes of this interview we will use the broader definition to cover the range of services likely to be of interest to readers.

How big is mobile money in China?
Estimates for the size of the mobile payments market in China vary considerably. In one of the largest estimates yet, a July 2013 report from the Internet Society of China (ISC) forecasts that Chinese mobile payment service providers will process transactions worth more than 9 trillion yuan (US $1.5 trillion) in 2015. Compare this to Gartner’s prediction that mobile payments for the entire world will be worth $721 billion by 2017.
Shift Thought’s estimates side with the more conservative, with a forecast that China mobile payments will be worth $34 billion in 2013.

What is the potential?
Of the 32 categories of digital money services, monitored by Shift Thought, many present tremendous opportunities in China, as this market of 1.35 billion people rapidly embraces new technology and e-commerce.
Both online payment and online banking have enjoyed a huge uptake. Now both services are increasingly being used on the move, resulting in a large number of mobile banking and mobile payment users. Shift Thought expects that there will be 300 million mobile payment users in China contributing $34 billion to the market.
Mobile money transfer is another high growth area in China. Money transfer has been a highly desirable market, both within the country and internationally. A huge number of Chinese people move away from home to work, creating great demand to transfer back to their families. A good indication of the level of Chinese working away from home is Chinese New Year, when workers return home to celebrate, in one of the largest travel events worldwide.
There is a tremendous potential for both contactless and remote mobile payment in China. There has been considerable investment in the rollout of contactless cards and contactless payment terminals, as well as other payments infrastructure, including sophisticated ATMs. There is also a drive to promote financial inclusion in rural areas by offering mobile money services to those without access to bank accounts and other financial services.

What is driving the market?
Availability of cheap smartphones and affordable mobile Internet services has greatly increased the traction in this market. Two recent events in particular have driven a renewed interest in the market. Firstly, the release of licenses to third-party payment service providers, and secondly, the announcement of mobile payment standards. Online payment providers grew rapidly in the absence of regulation, reaching a point where they presented a threat to traditional financial service providers. New regulations have forced all third-party payment providers (both online and mobile) to obtain licenses. The first tranche of licenses was issued in 2011; since then 250 licenses have been granted. The latest licenses even included foreign companies, but, so far, mobile payment licenses have been restricted to Chinese companies.
Meanwhile mobile payment standards are being finalized, and this should address the current problem of highly fragmented markets caused by multiple standards.

What is holding it up? What are the barriers in terms of fraud, regulation etc?
Since 2004 many local players have entered this space, and global players have attempted to break into the Chinese market. Large foreign banks and mobile operators made do with small shares in large Chinese companies, hoping that this foothold will grow into something larger.
All elements of mobile money, even mobile payments and mobile banking, progressed at a snail’s pace as the authorities experimented with multiple standards before determining which to back.
Locally owned companies enjoy multiple advantages as compared to multi-nationals.
Regulations come from many directions, and not unlike the US, this is a country where you need to carefully look at the requirements at province and even municipality level.

To what extent have Chinese people adopted mobile payment? What do they pay for – is there any data on this?
So far the mobile payment and mobile banking markets have been highly fragmented across the different provinces of China. However consumer adoption has recently taken off due to the coming together of a number of factors that encouraged uptake. People started by using mobile payments for topping up prepaid phones, but this has now evolved into the use of a broad spectrum of local and remote payments, including purchasing tickets and virtual content.

To what extent are they using mobile wallets (as opposed to credit cards etc.) to fulfil these payments? Why are they likely to adopt wallets?
The use of mobile wallets is being driven by the popularity of digital wallets for online e-commerce. Over 2013 the trend is for large online payment providers to offer mobile wallets to their existing digital wallet customers.
China is an interesting case study – this could prove to be the first time that new mobile services arise of the back of an extensive digital wallet/online payments market. There is a customer base of hundreds of millions of digital wallets users, who are likely to use the same via mobile, as smartphones become cheaper and high-speed mobile Internet more affordable/available.

Who are the major players in this market?
In China, the big hitters hail from across multiple industries. The way this market has evolved is unique, as is the sheer variety of heavy-weight players bearing down on the alternative payments scene. Despite being some of the world’s largest businesses, many Chinese banks, including the “Big 4” – Industrial and Commercial Bank of China, China Construction Bank, the Agricultural Bank of China and the Bank of China – have found themselves at a disadvantage in the mobile payment space, as they are forced to compete with equally large mobile operators – China Mobile, China Unicom, China Telecom – as they and an array of other providers are granted licences to carry out payment services.
The relatively young and highly nimble payment operators such as Alipay, from online giant Alibaba, and Tenpay, from social media giant Tencent, have grown beyond recognition, on the back of an SME market eager to do business on the Internet. Now they are using widely available, cheap smartphones and mobile Internet technology to offer their digital wallets as mobile wallets to a captive consumer base of merchants and consumers shopping on the go.

What are the opportunities for businesses, such as transport providers, retailers?
Alipay claims to have 550 million registered digital wallet holders, which is considerably more than PayPal’s 128 million active registered accounts. Now Alipay has entered the mobile payments world with the launch of the Alipay Wallet mobile app for Android in January 2013, offering attractive incentives for its digital wallet holders to transact using their mobile devices.
A number of NFC projects are taking off around China. As in other countries, these are largely driven by their use for transport and ticketing. Shift Thought estimates that more than 400 Chinese cities have started city card programs, with more than 200 million contactless cards issued and 600,000 contactless terminals installed.
Meanwhile, mobile commerce is also growing strongly as the mobile internet becomes increasingly accessible even in the more rural areas of China.

What are the opportunities for operators?
All the large mobile operators now have payment provider licenses and are working through their own payment service companies. They are joining forces with payment providers and banks to launch pilots and services, for example China Mobile, China UnionPay, Gemalto and partners. Considering the strength of the mobile operators and their reach into all parts of the country, expect them to create a number of interesting new services and new revenue streams over 2013 and beyond.

What are the opportunities for financial service providers?
Traditionally banks and financial institutions were the only ones who could offer certain financial services. But now they face significant challenges as non-banks receive approval to provide financial services. The nature of these services depends on the terms of each license, but collectively covers a wide spectrum, including mobile payments, mobile remittance, mobile wallets and mobile commerce.
Today, an army of 250 would-be payments providers have received third-party payments provider licenses are rapidly seizing key market segments with unique and highly differentiated services that capitalize on the unique captive customer bases of each provider.

Why do you believe that companies should think about digital money rather than mobile money?
China presents a classic example in support of the Shift Thought Digital Money approach. Services started strongly on the Internet and have now gone mobile, in contrast to a number of African countries that grew on the Kenyan M-PESA model (i.e. where many people were first introduced to financial services via a mobile device).
Regarding the relative importance of digital money services, China currently has the largest number of online shoppers in the world. Shift Thought estimates that gross merchandising volume in 2012 was $1.29 trillion, and that in June 2013 there are 220.65 million users.
It is imperative that new entrants understand the existing dynamics and key players across the whole digital ecosystem, or they risk losing out as the mobile money market explodes over 2013 and beyond.
International players need to partner with local companies; those without good partnerships may find themselves having to sit out the dance while their competitors take to the floor.



Charmaine Oak, is the practice lead digital money for Shift Thought. Oak has worked for and advised diverse companies including Western Union, RBS, Orange FT, LogicaCMG and Wipro. Shift Thought offers consultancy and publishes reports on key mobile money markets worldwide and provides clients with access to detailed information on 1,500 digital money initiatives and 5,000 players worldwide, through a Digital Money Portal. The Digital Money in China 2013 report outlines the complexities of the China payment market, regulations and timelines and provides a complete guide on the ecosystem, with details on all current initiatives and players.



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Charmaine Oak, practice lead, digital money for analyst/consultancy Shift Thought

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Shift Thought Digital Money in China 2013

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