Tang Bin, Yeepay’s CEO, has recently given an interview for Chinese portal eNet. Yeepay is one of China’s leading third-party payment providers, operating telephone, mobile, and online payment platforms. In the interview - The direction of electronic payment, available in Chinese only, Tang Bin talks about Yeepay’s performance in the market and about the state of China’s third-party payment industry as a whole. In this interview Tang Bin made a few interesting points, some of the key ones are summarized below.
The Chinese e-payment industry is 10 years lagging behind the USA, mainly due to China’s credit system and financial infrastructure which are not yet developed.
I have to agree with Mr. Tang. One of the biggest inhibitors for growth in China’s e-payment market is the underdevelopment of China’s financial sector.
Cash is by far the favorite and most widely used form of payment in China. For convenience, for perceived security, for a lack of other payment options (notably in smaller towns and villages), and even for no better reason that it being a lifetime of ingrained habit, cash is king.
In most western countries, the operators of online payment platforms are largely based on existing credit (and debit) card networks that had already been established. In China, however, while the first credit card was issued over 20 years ago (by the Bank of China in 1986), adoption was very slow - strict government regulations, the lack of a unified appraisal system, and insufficient infrastructure were the main culprits. While looser government restrictions have helped to jumpstart credit card adoption since 2003, the industry remains at a young stage of development.
Credit cards issued in China and in the US (M)
Source: Maverick China Research, 2007
Several Chinese e-commerce websites and third-party providers, however, found innovative ways to get around the problem of China’s underdeveloped financial sector.
Ctrip and eLong, two Nasdaq-listed online travel agents, offer prime examples. The websites for both Ctrip and eLong serve primarily as flight and hotel listing directory. Once an order is submitted through the websites, a sales representative will contact the customer (via email or phone) to confirm the ticket being issued and make the arrangements for delivery; payment is then collected in cash when the paper ticket is delivered.
Smartpay, a leading mobile payment provider, has set up a network of dealers who offer unregistered users the option to purchase Smartpay’s mobile top-up services in cash. Users no longer have to be “banked” in order to use Smartpay’s services.
Alipay has partnered with China Post and Remittance Bureau offering users an option to top up their online Alipay account with cash at the local post office. For further information take a look at our recent blog entry about Alipay’s multi-channel payment options.
The delay in issuing third-party payment provider licenses does not hinder the development of China’s e-payment market; the bottleneck is consumer trust and consumer habits.
Again I agree with Mr. Tang that the delay in issuing licenses is not the problem, but I disagree with the fact that consumer habits are not favorable. The challenge is finding the right business model that works in China.
Alipay, for example, has gained a large user-base of approximately 50 million registered users and has addressed the trust issue and settlement risk with its escrow service. Alipay’s escrow service allows buyers on e-commerce sites to withhold payment until they have first confirmed receipt of the product from the seller.
Tang Bin thinks that the second half of 2007 would be a good time to grant the payment licenses. Right now, the uncertainty is having a negative influence on the market. Large merchants, for example, are worried about the status of third-party payment providers that they partner or may partner with.
I too think that it will be better for the industry if license issuance is not dragged out as it currently is with China’s 3G licenses.
In 2005, Tang Bin estimates that there were 60 third-party payment providers operating in China, but as of now there are only around 10 major players in the market. In the future, Tang Bin expects this number to decrease further to around six.
In our series of Chinese third-party payment provider profiles we have focused on the following ten major companies: China UnionPay (CUP), Union Mobilepay (UMPAY), Smartpay, Alipay, Yeepay, IPS, Chinapay, 99Bill, Tenpay, and PayEase.
However, we have also identified several other Chinese third-party payment providers operating in China: Cncard, Easecard, OkPay, Guangzhou Huanxin, China M-world, Junnet, Chinaebank, Clear2Pay, Pay Easy, Chinapnr, China Dotman, Tecom Asia, Golden China, Lianlong Botong, Universal iPayment China, Beijing Cloudnet Internet.
Commenting on Yeepay’s competitors - Alipay and Tenpay, Tang Bin states that although Alipay and Tenpay have their own advantages: more specifically a large user-base, their platforms are designed to offer services for Taobao.com and Paipai.com, respectively. It will be hard for them to enter other payment fields such as airline ticketing and insurance. Yeepay, however, has a clear advantage in these fields.
I strongly disagree with Mr. Tang here. Alipay and Tenpay can leverage their current user-base when partnering with new merchants (50 million registered Alipay users and 40 million registered Tenpay users). Alipay already claims 300,000 merchant partners and has even ventured overseas in pursuit of international merchant partners. In addition, both companies have strong financial backing from Alibaba Group and Tencent, respectively.
Right now Yeepay is focusing on the domestic market, but have plans to go public, and afterwards try to enter the global market.
Going global is an ambitious plan. So far the only Chinese third-party payment provider to go global is Alipay. As of now, they only have a handful of retail partnerships outside China. Although I expect this number to grow in the future, and there are probably numerous merchants outside China who would love to gain access to the Chinese market, I believe that the majority of business will still be coming from domestic merchants for the foreseeable future. The Chinese e-payment market is still far from saturated.
Yeepay is not yet profitable.
Well, actually Yeepay is not the only one. I doubt that there are many (or any) third-party payment providers in China that are profitable. Smartpay and UMPay who are m-payment leaders are not profitable; Alipay provides its services to Taobao for free… and these are some of the market leaders. It is safe to guess that some of the smaller players are not raking in the big cash either. This further underscores the developing state of these companies and of the payment industry as a whole.
