In most countries online payment platforms are largely based on existing credit and debit card networks. In China, however, a large number of China’s potential e-commerce consumers are still without credit cards or debit cards, or just simply "unbanked".
In September we illustrated China's reliance on cash by comparing credit card penetration and total population in China and the US. Cash is by far the favorite and most widely used form of payment here, and although it may seem like a step backwards in terms of technology, the added convenience of a cash-based e-payment channel is fitting for the current state of payments in China.
It is no surprise that some of China’s leading third-party payment providers are adding cash-based and non-bank based payment options to their offerings. Three main payment methods and their providers are detailed below:
Cash remittance
Alipay is one of the first Chinese third-party payment providers to add a payment option allowing users to top-up accounts with cash through China Post, China’s postal service. This service was launched in March 2007 in selected China Post branches throughout China. Alipay users who want to make purchases on Taobao, for example, can transfer money into their Alipay account using cash at the local post office.
In our blog post about Alipay's multi-channel payment options we provide more detailed explanations of this and other payment methods.
Mobile toll stations
To make mobile payment services available to China’s unbanked population, Smartpay, China’s leading mobile top-up company, has formed a network of approximately 30,000 “dealers” spread across 11 provinces. (I have written about Smartpay’s "toll stations" briefly in a previous blog entry.)
Targeting mobile users in rural China is a key part of Smartpay’s strategy because the process of topping up a mobile account requires, in many cases, travel of several kilometers just to find the nearest top-up card vendor. Smartpay dealers allow users with bank accounts to easily use Smartpay’s services, which in turn gives Smartpay access to a much wider range of potential users.
Smartpay dealers are not only limited to rural areas but are also situated in larger industrial cities such as Shanghai, and offer other top-up services such as online game cards and long-distance calling cards. Smartpay dealers include individuals, student unions, grocery stores, or neighborhood shops. Since the licensed “dealers” have the ability to top-up others’ accounts through their mobile phones, Smartpay is able to compete in urban areas that are already well served by top-up cards and other common cash-based solutions.
Targeting the unbanked with pre-paid cards
IPS is one company that uses mobile and telephone prepaid cards in order to reach unbanked users. This service takes advantage of the popularity of prepaid top-up cards used for phone bills, online games, and virtual currencies in China. The cards are usually purchased with cash at newspaper kiosks, small shops, and internet cafes.
IPS operates a service called Ipay (Ai-mi in Chinese–which translates literally as "love rice" but also implies "love of money"). Ipay acts as a virtual currency account allowing unbanked users to make online purchases. To top up his/her Ipay account, an IPS user purchases a prepaid mobile top-up or long-distance IP phone card (from China Mobile, China Unicom, or China Netcom), logs in to IPS’s online portal, and inputs the card number and password. The card’s credit is transferred to his IPS account, allowing him to make purchases from a number of online merchants.
The Ipay has been successful with the "pre-banked", such as teenagers who do not yet have bank accounts but are already accustomed to buying things online. One side effect of the service is that many students who receive monthly phone allowance from their parents are now converting their excess phone credit into usable currency.
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