Maverick China Research

Recent reports quote China Unionpay statistics stating China's mobile payment users grew to 19.2 million users in June. This came as somewhat of a surprise to us. In a report from April, China Unionpay's mobile payment subsidiary, UMPay, claimed over 40 million mobile payment users on its platform alone. According to other reports (1,2,3) in 2007, UMPay's mobile payment platform reached 50 million users. (UPDATE: UMPay's English website claims over 100 million users as of December 2008.)  No one else seemed to question these numbers, and that tells us that the market knows not to take them too seriously. While we don't necessarily agree with the stereotype that statistics in China are useless, in this case the stereotype appears to be correct.

In researching China's mobile payment sector, we constantly deal with contradicting "statistics" and wildly varying definitions of what constitutes an m-payment user. In our recent Mobile Payment report and other published work, we try and make accurate estimates for users and other key metrics, and then move on to more important questions--which business models are working, who is making money, and how the market will evolve in the coming years.

A few months ago we interviewed 20 Chinese online merchants and thought I'd share some of my findings with you here.

The 20 companies I interviewed were chosen at random from a list I compiled a few weeks ago. Although the 20 interviews do not give the data analyzed a solid statistical reliability, we have, however, found that the answers we were given are highly indicative of China's payment industry as a whole.

The participating online merchants in this survey included the sellers of clothing and accessories, electronic tickets and game cards, online education services, software sellers, online bookstores, and others.

Accepted Payment Methods

Out of the 17 online merchants who answered this question 100% accept payment through a third-party payment provider (such as an Alipay stored-value account), 71% accept credit or debit cards (mostly debit cards), and most importantly almost half of all merchants interviewd still use cash on delivery; only 35% accept direct wire transfers.

Pacific Epoch reports that Tencent plans to offer an offline recharging service for its online payment tool Tenpay. Tenpay plans to send employees to collect customer money in person in exchange for a RMB 15 service fee and that customers can use the service to recharge Tenpay accounts with RMB 10 to RMB 1,000.

The recent acquisition of Bill Me Later by Paypal highlights the large descrepency between the online payment industry in the US and in China. In the US, discussion are about market share, growth, and added value to consumers. Increased competition (coupled with market growth) has led to a market for M&As, which over the last 6 years has included the acquisition of no less than two market leaders - Paypal to Ebay in 2002 and the recent Bill Me Later sale to Paypal.

In China, however, discussions are about business models, funding, and network buildout. One of the major holdbacks for online payment companies in China is actually the absence of an established credit card infrastructure. Paypal, while also offering a stored-value account payment solution, operates a payment platform that is closely reliant on established Visa and MasterCard payment networks in the US. Paypal offers merchants (especially smaller and medium sized merchants) the ability to accept credit card payments without have agreements directly with banks and credit card companies. Bill Me Later, while offering consumers value as an alternative to online payments via credit cards at merchant sites, actually still relies on Visa's and MasterCard's payment network in the backend for processing. Payment companies in China do not have the luxury of established credit card networks to develop online payments and that has immensely slowed industry development in China. 

As credit card networks and third-party payment networks in China develop simultaneously in China, we are seeing new types of payment models developing.

In our market reports, we take an in-depth look into the various types of online payment and mobile payment models being developed in China as well as the companies striving to become China's equivalent to Paypal. 

According to Alipay representatives, the top online payment company in China expects to break RMB 100 billion in transaction volume this year. At an estimated RMB 350 million in daily transactions, year-end 2008 volume would be RMB 128 billion. End-2008 tranactions are expected to reach 540 million, or an average of RMB 237 per transaction.

With new offline payment options and the Alibaba Group's acquisition and integration of Koubei.com (a Chinese classifieds listing site) with Yahoo China, we are very positive about Alipay's continued growth as China's top online payments provider, going forward. Alipay's main merchant partners (and sister companies under the Alibaba Group) Taobao and Alibaba.com are each continuing strong growth in their respective markets, which combined contribute the majority of Alipay's 90 million registered users.

In our latest market report, Alipay, Alibaba's Payment Arm - 2008 update , we reveal how Alipay has grown to become the top e-payments company in China, in spite of Paypal China's challenge early on and challenges from numberous payment startups in the market today. In our report series on Third-party Payment Companies in China, we have identified the top 10 payment companies to track, covering both online payments and mobile payments, and discuss the strengths and weaknesses of each in becoming the "Paypal of China".