Maverick China Research - Maverick China Research

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.

A Short Survey of Online Merchants in China

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.

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Tenpay's Door-to-Door Recharging Service

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.

Pacific Epoch reports that Tencent plans to offer an offline recharging service for its online payment provider 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.

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The Credit Card Handicap in China

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, the discussion is 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.

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Alipay to exceed RMB 100 billion in transactions for 2008

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.

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C2C Online Merchants Now Need to Register

Recently the Beijing Administration for Industry and Commerce announced new regulations for online merchants, including the millions of individuals selling through sites such as Taobao, Eachnet, and Paipai, China's top three C2C e-commerce websites:

According to the e-commerce supervision and management regulation promulgated on its website by the Beijing Administration for Industry and Commerce, from August 1, 2008 profit-making online shops must get a business license before starting operation.

However, the regulation also says that nonprofit online shops that are intended to sell or exchange items for personal use do not need to register.

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Alipay Signs Deal with Joyo Amazon for Online Payments

On June 26, 2008, Joyo Amazon (amazon.cn), a subsidiary of Amazon in China, announced it will now accept payments via Alipay another channel of payment, the largest third-party payment company in China. This announcement followed months of rumors about the deal.

Prior to the addition of Alipay, the payment methods accepted by Joyo Amazon included cash-on-delivery, bank remittance, payment by bank card (debit card or credit card), and telephone payment (supported by PayEase, another third-party payment company in China). This "package" of payment methods is fairly typical for most e-commerce sites.

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Beijing Subway Moves to Contactless Card Payments

The three million people who ride Beijing's subway every day entered a new era on June 9, as the sale of paper tickets stopped and all riders began using contactless cards:

With the introduction of the new Automatic Fare Collection (AFC) system, passengers can now buy the new tickets from vending machines at the entrance to each platform.

People with Yikatong prepaid cards that can be used on buses and the subway network, can continue to use them.

Before yesterday, most passengers bought paper tickets which were checked manually.

Actually, the majority of subway riders had already purchased a contactless Yikatong card before June 9, but many less frequent riders and tourists were still buying paper tickets. Many of them were confused at the new system, and some had tried using their identification cards or even business cards, according to one subway worker I talked to. The city put out an extra six thousand employees to help explain the new system to passengers.

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Bank of East Asia Issues Unionpay-compliant Debit Cards in China

On May 27, the Bank of East Asia (BEA) has become the first foreign bank to issue debit cards in China. BEA's three types of China Unionpay-compliant debit cards are the Bauhinia Card, SupremeGold Card and SupremeGold Platinum Card. The minimum deposit amount to open an account is 5,000 RMB for the Bauhinia Card, 500,000 RMB for SupremeGold, and 2 million RMB for SupremeGold Platinum. Previously, the lowest initial deposit amount for foreign banks was 100,000 RMB. Despite the lower threshold, BEA's debit card accounts will still target wealthier users. (In comparison, one can open an account at a domestic bank for as little as 10 RMB.)

BEA is promoting its cards aggressively, but the company is limited to no more than one million of the debit card accounts in 2008. Given such a small limit, I believe that BEA simply hopes to use the cards to expand its presence in China. As restrictions on foreign banks (presumably) continue to be relaxed in the coming years, BEA would be well positioned to offer a wider range of services to a much greater number of customers.