Thoughts on the SMG-China UnionPay Partnership

Recently China UnionPay and Shanghai Media Group (SMG) announced a partnership "...to explore online payment solutions based on multiple terminal platforms in the broadcasting and TV industry such as digital TV, IP TV, mobile TV, Internet TV and TV shopping":

The CUP-SMG strategic cooperation aims at integrating the the new media digital TV with e-commerce and financial payment. Through sharing channels and recourses, it promotes the creative functional application of TV, mobile phone, computer and other terminal platforms so as to help the user to make online payments for TV shopping, program ordering and TV games. Such an approach realizes seamless connection between “watching TV” and “using TV” and facilitates the rapid and sound development of China’s new-style cultural media, financial payment and e-commerce industries.

China UnionPay runs China's inter-bank transaction settlement system; SMG is the country's largest cable TV provider outside of CCTV. While much smaller than CCTV, SMG has been faster to adjust to the changing tastes of its audience, while CCTV remains hampered by its role as a key government propaganda organ. Both CUP and SMG have broad interests, but the initial focus of their partnership is likely to be in developing pay-per-view and video-on-demand platforms.

It's going to be difficult to get Chinese viewers to pay a premium for TV services, for a number of reasons:

• Consumers aren't used to paying much for TV. In Beijing the current cost for cable is 18 RMB per month, usually paid a year at a time. In comparison, a standard home broadband connection is 120 RMB per month, and at China Mobile, the nation's largest telecom carrier, the average subscriber paid 77 RMB per month for mobile service in 2009. Despite the relatively low cost, it's still not uncommon to hear people complaining about last time prices went up (from 12 RMB per month in 2003).
• Cable TV content simply cannot compare to what people can download and stream, usually for free. Every day millions of people spent 2-4 RMB per hour in internet cafes simply to watch TV shows and movies. And just like everywhere else, young people in China are the most comfortable with watching video on a computer instead of a regular TV.
• While SMG is constantly trying to expand the range of content it can provide, China's State Administration of Radio, Film and Television (SARFT) is constantly finding new topics to remove from TV, including gossip about celebrity scandals, foreign cartoons, and shows about plastic surgery.

For a sample of just how much can go wrong in pushing premium TV in China, check out this article about WinTV's attempt to set up a subscription-only system for English Premier League matches.

Takeaways from Payment China 2010 Conference in Beijing

On May 11-12, I attended the Payment China 2010 conference in Beijing. The event covered on a wide range of topics within China's payment industry, and the most common theme among the presentation was a familiar and optimistic one: that Chinese consumers are increasingly using using non-cash payment methods, and that this development opens the doors for the introduction other forms of electronic payment.

Liu Fengjun from China UnionPay discussed the company's recent partnership with PayPal for online payment. Mr. Liu talked about the increase in the average consumer’s disposable income, which has led to a greater value being placed on quality products. Since Chinese consumers are far more likely to associate quality with foreign brands, Liu believes that online purchases of imported goods will continue to grow strongly.

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Boaz Rottenberg Attends Dinner with Israel Ambassador to China, Amos Nadai

Maverick Co-Founder and General Manager Boaz Rottenberg attended a dinner at the residence of Amos Nadai, the Israeli Ambassador to China, on April 22, 2010 in Beijing. The event was held for Israeli Chamber of Commerce (IsCham) corporate members in China.

GoDaddy partners with AliPay, Alibaba partners with PayPal

So far in 2010 there have been a couple of interesting pieces of news concerning the Alibaba Group and its payment platform, Alipay. In January GoDaddy announced that it had begun accepting Alipay payments for domain name registration and other web services. A few days ago, Alibaba announced that it has begun to accept PayPal payments on its AliExpress site.

Here's a screenshot of GoDaddy's current payment method selection page, courtesy of AdesBlog:

We have reported in the past on Alipay's plans and struggles for expanding overseas. Expect to see Alipay popping up as a payment option on more and more non-Chinese websites in the future.

Maverick China and Yankee Group to Merge?

Back in December 2009, someone named Gabriel Gheorghiu, writing for something called the "TEC Blog", penned an interesting piece entitled "What-if Scenarios for Analyst Firm Mergers and Acquisitions":

Now that Gartner is acquiring AMR, we cannot help but wonder what will be the next acquisition or merger in the business software research field. There are not so many companies doing business software research and analysis, so the number of permutations is quite low. Let’s look at some of them and what the end result would be.

Gartner acquires Aberdeen and launches The Magic Axis (Magic Quadrant + Aberdeen Axis). If theydecide to acquire Forrester, that would be the Magic Wave (Magic Quadrant + Forrester Wave). Aberdeen and Forrester will probably not merge or acquire one another because the Axis Wave simply doesn’t sound right.

To avoid any COMMfusion, ITI and ITTI could merge and form ITTTI. After US President Obama’s visit to China, Maverick China Research and the Yankee Group might merge, forming the strongest analyst firm in the world, which will slowly acquire all competitors.

 

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Happy New Year From Maverick China Research!

Dear clients, colleagues, and friends,

We at Maverick China Research would like to wish all of you a happy and prosperous Year of the Tiger!

 

Consumers Still Favor Cash

The flip side of having a "bankcard penetration rate" of 26% is that bankcards are still not being used for most payments. As in many developing countries, cash remains the most widely used form of payment in China. For convenience, for perceived safety, for a lack of other payment options, and even for no better reason that it being a lifetime of ingrained habit, cash is king. Even with recent advancements in payment and money transfer services (such as debit cards and interbank fund transfers), it is still quite common in China to settle major transactions with cash.

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Bankcards Used in a Quarter of Consumer Spending

According to the PBOC, China's "bankcard penetration rate" (defined as the total bankcard payment for consumer goods, excluding wholesale and real estate transactions) as a percentage of gross national retail sales was just under 26% by the end of September 2008. At the end of 2007, this figure was at 22%, and as recently as 2005, it was below 10%. In top-tier cities such as Beijing, Shanghai, and Guangzhou, the figure is higher but still below those of developed economies.

The rapid growth and utilization of bankcards, however, shows that Chinese consumers are willing to adopt alternative payment methods and is a positive sign for the development of electronic payments.

Next: Consumers Still Favor Cash

Credit Card Use Remains Low; POS Terminals Limited

While credit card issuance has grown quickly in the last two years, overall numbers remain very low. According to the PBOC, at the end of 2008, China had an estimated 145 million credit cards, up from 90 million in 2007.

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Bankcards Issued: 1.8 billion

The phenomenal growth of bankcard issuance (and banking in general) is one indication that Chinese consumers who grew up in a purely cash economy are open to adopting new methods of electronic payment. According to China UnionPay, the sole interbank fund transfer network and card issuer in China, about 1.8 billion bankcards had been issued by the end of 2008, up from 762 million in 2004. Included in this figure were 145 million credit cards, up from 90 million at the end of 2007.

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