China has all the conditions required for a rapid take-off in mobile payments, says a report published by consultancy firm Celent. Government support, close cooperation between financial institutions and mobile operators, low bank card penetration and high mobile phone usage are all factors identified by the firm as necessary for market growth, and are all present in China.
That China has vast potential will not come as much of a surprise given the raw statistics. The country has 740 million mobile phone users -- the largest number of any country and double the number of its internet users. Remote mobile payment penetration (where payments are made via mobile phones and bills are settled by banks) still only accounts for 10% of the market (as of 2009), but the number of users is expected to jump to a whopping 410 million by 2013, said the report.
Meanwhile, the penetration rate for contactless mobile payments (where payments are made through SIM cards and where bills are settled by mobile operators) accounted for only 0.5% of the market in 2009. But again, the number of contactless users is expected to top 400 million by 2015. Additionally, market penetration by bank cards, credit cards and internet banking is low at 35%, 13% and 21% respectively, leaving a gap for mobile payments to fill.
So mobile payments may enjoy a very favourable outlook in China, but efforts by the authorities to develop the sector have long been hindered and progress has been slow, at least until the last couple of years. Social factors, such as cash transaction habits and credit systems, have slowed down adoption, while questions over security and convenience have also been issues for potential users. For their part, vendors have only recently established clear profit models which have eased this bottleneck on the industry.
After years of scratching around with trial services, substandard technology and limited services, industry players are now starting to get their act together. Three types of industry players have emerged in the form of: mobile operators (best positioned for contactless mobile payments); banks and financial institutions (licensed to handle high-value payments); and third-party payment companies (offering the most innovative products/discounts). The three groups are jostling for market position.
“The market grew very slowly in the past, but now many market players have gained experience through their pilot projects and have established their own business models. These players are now advancing into the entire Chinese market,” said the report. In other words, take-off is coming, and it is expected to be rapid.
Take the Japanese experience as an example: mobile payments took just six years of development to penetrate up to 50% of the market. In China, increased investment by operators and financial institutions has resulted in increased 3G network coverage and greater availability and variety of services and products. Alliances between mobile operators, financial institutions and third-party payment companies are also helping industry leaders to emerge. Witness last year’s purchase by China Mobile of a 20% stake in Shanghai Pudong Investment Bank, thereby strengthening its ability to offer high-value payment transactions.
Should domestic credit card operator, China UnionPay, manage to link secure digital (SD) cards (compact data storage devices used to store digital files) to its credit and bank cards, it would open the market further. This combination of bank cards, securities/insurance company cards, and stored-value cards (for airlines, shops and hotels etc) would assist customers in asset management and risk control and take mobile payment services in China to a new level.
All the factors are there, and 2011 should prove a dynamic year for mobile payments in China.