A Late Start to Electronic Payments

Due to the late development of the domestic credit card market, China's electronic payments market is essentially developing 50 years later than the US and other developed markets. This late start presents some challenges for consumers and companies interested in new payment systems. It also has left fewer legacy systems in place, however, and China's market remains more open to alternative e-payment technologies and companies.

The first Chinese credit card was not issued until 1986 by the Bank of China. Adoption was slow over the following two decades due to a lack of consumer demand, a dearth of merchants which accepted card payment, and the lack of a unified appraisal system in the banking sector. It was not until the founding of China UnionPay in 2002 that bankcards in China were finally unified under a nationwide network and began to be used in large numbers.

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Taobao and the Dominance of the Alibaba Group

Taobao is the largest online marketplace or online retail store in China today, controlling over three-quarters of the domestic C2C and B2C markets. Paipai, the second largest online marketplace in China, controls less than 10% of the market.

Taobao is sometimes referred to as China's eBay, but it has become a critical e-commerce platform for businesses as well. Since the company was formed in 2004, it has managed to overcome formidable challenges from global incumbents such as eBay and Amazon.

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Chinese Internet Users and the Role of Internet Cafes

The majority of China's internet users are under the age of 25, have at least secondary education, and are living in cities. They are not necessarily wealthy, though; as the figure below shows, approximately 74% percent of internet users have a monthly income of less than RMB 2,000 (~USD 300).

The Internet Bar Phenomenon

One of the main causes of the conflicting numbers of internet users derived by surveys is the predominant use of Internet bars in China. Internet bars in China remain the only internet access points for many of China's youth, as ownership of a personal computer is not common outside China's most industrialized cities.

 

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360 Million Internet Users

As of the third quarter of 2009, there were an estimated 360 million internet users in China, according to the China Internet Network Information Center (CNNIC). During the first 9 months of 2009, China added a whopping 62 million users, almost 7 million new users each month.

Although many dispute these numbers (some claiming higher numbers, others claiming lower numbers) and the methods used to obtain them, it is clear that internet use is becoming widespread and China has now eclipsed the U.S. as the largest online population in the world.

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Why is Alibaba Separating Its Domestic and International Management?

Alibaba Group has announced that its online B2B trading platform Alibaba will split its management team into international domestic groups. Hong Kong's Media magazine speculates that the move is due to disappointment over the company's international expansion efforts:

Alibaba’s restructure runs in parallel with its plans to bolster its name internationally. Earlier this month, it announced the appointment of a lead creative agency in Europe, the Middle East and Africa as part of its US$30 million advertising campaign launched last year to promote its brand internationally.

David Wolf, CEO of Wolf Group Asia, said that while launching a large-scale advertising campaign to attract worldwide users to its site is good practice in the current e-commerce environment, the restructure may be a forced move as Alibaba has spread itself too thin.

"Alibaba has chosen to go wide and spread across global markets, but in China its competition is getting stronger and if it doesn’t focus on the domestic market, it may find it’ll be losing its leadership position," Wolf said....

Christie Travers, corporate marketing manager of DHK, a competitor of Alibaba, points out that hiring a creative agency in July, nine months after Alibaba launched its global campaign, is also indicative that its global push has struggled to gain traction....

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Chinese Mobile Payment Users Gone Missing

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.

Is KongZhong profiting off unused TD-SCDMA credit?

Rumors on the Chinese net (examples here and here) are implying that KongZhong is involved in dealings to profit off unused TD-SCDMA credit.

According to these reports KongZhong is buying the remaining value from expiring trial TD-SCDMA accounts on a grand scale. These accounts were given free to users of China Mobile's newly launched TD-SCDMA commercial trials and were usually valued at RMB 800.

KongZhong is rumored to use the remaining balance in each account to purchase its own WVAS (wireless value-added services) products through China Mobile. The rumors state that KongZhong has spent millions of RMB buying these expiring accounts; the following diagram provides a simplified explanation of how this scheme works.

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New Beijing Office Location!

We have moved to a new office and have changed our address. If you have tried to contact us recently but have not yet received our reply, please accept our apologies. Our new address is as follows:

Dongwai Building 8/F #812,
12 Xinzhong St., Dongcheng District,
Beijing, China 100027

北京市东城区新中街乙12号东外公馆8层812室

Tel: +86-10-6416-8586
Fax: +86-10-6472-1446, ext 8011

 

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