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China is expected to become the second largest market for mobile commerce — just behind the US — as of 2018, more than tripling the size of its m-commerce market in just five years. The Asian country continues to record historic landmarks in mobile communications, with the country already home to the largest number of mobile subscribers and smartphone users worldwide. In addition, China has a well-developed digital payments market and a strong usage of financial cards that will likely lay the groundwork for the rapid expansion of China’s mobile payments market in the coming years.
The rising popularity of the internet across China has not only changed the way that consumers shop, but it also has driven both e-commerce and mobile commerce purchase volume. The country has a well-developed digital payments market with many of the country’s internet users already utilizing digital wallets, online banking and even mobile payments. Of all internet users in China, 79% surfed the internet with their mobile phones, according to the latest report by the China Internet Network Information Centre (CNNIC). Alipay, a local online payment system similar to PayPal, reported having 500 million registered users in early 2013. Alipay’s parent, Alibaba, also has been investing millions in the shift from e-commerce to m-commerce, including even offering online retailers smartphones in exchange for purchasing a mobile-service package.
A natural progression in the sector has been towards the utilisation of mobile phones to execute payments for goods and services. Simple, quick and convenient are the major advantages of mobile payments, catering to the on-the-go consumption for many time-pressed consumers, particularly those in high-tier cities. Already, China is the leading mobile market, both in terms of total mobile telephone subscriptions and smartphone units, according to the latest figures from Euromonitor International. Driven by its huge population of 1.3 billion, China has raced ahead of the world in terms of its mobile market, crossing 1 billion mobile telephone subscribers in 2012, according to Euromonitor data. In a few short years, China is projected by Euromonitor to become the second largest mobile commerce market globally with a $US123.8 billion in mobile commerce volume in 2018 — just behind the US at US$134.3 billion. Euromonitor’s m-commerce definition refers to payment transactions involving the exchange of funds for either goods or services conducted via a mobile handset, which may include in-app purchases, those made on the mobile web browser or when the mobile phone interacts directly with the POS terminal to send payment.
Despite the projected growth on the horizon, the m-commerce market in China today remains in the nascent stage with an estimated US$15.4 billion conducted in m-commerce volume — that’s less than 1% of the total US$3.9 trillion in card payment volume processed in 2013. From a competitive standpoint, the mobile payments market remains highly fragmented with state telecom and banking giants competing against one another as opposed to cooperating on the nationwide deployment of such services. As a result, no single brand has become synonymous with mobile payments offerings.
In one of the biggest deployments to date, China UnionPay introduced a contactless mobile payment system called Quick Pass across 14 cities in mid-2013, with the joint efforts from the Bank of China and China Mobile, the world’s largest mobile operator. Since then, CUP has signed agreements with 10 leading banks, including Bank of Shanghai, Bank of Beijing, China Everbright Bank, China CITIC Bank, GF Securities, China Minsheng Banking Corp. and Shanghai Pudong Development Bank. CUP also has debut its mobile application, called the Wallet, which allows consumers to link their CUP cards to certain phones from China Mobile in order to initiate low-value payments at participating retailers. The product enables users to make mobile payments at POS terminals, locate participating retailers and even download deals and other rewards directly to their mobile device.
Online and mobile payments have benefited from strengthened regulations. To further boost the efficiency and security of financial transactions, the People’s Bank of China — the country’s central bank — has regulated that all magnetic stripe cards in developed regions be replaced with financial cards with an integrated circuit (IC) by the end of 2014. China UnionPay, has taken it one step further by enabling its Quick Pass system to accept contactless transactions for smart IC cards, which can further reduce the transaction time. In late 2013, the People’s Bank of China also announced that it would be drafting new rules to regulate mobile payments. The rules are expected to encourage innovation and interoperability across competing services. Previously in 2010, China’s central bank introduced regulations requiring non-financial institutions to apply for a license in order to provide mobile payment services. The central government was hoping to deepen its involvement and strengthen regulation of third-party payments in order to ensure sustainable growth.
Assuming that China’s current huge base of online-only wallet users make the leap from their computer to mobile financial services, China likely will become one of the dominant mobile markets globally in just a few years and provide a major opportunity for those wishing to compete in the mobile payments space. Although China’s mobile payments market — and its payments market in general — remains in infancy stage, the country’s status as an emerging market may provide more opportunities for mobile development than an already established market, such as the US. Given that emerging markets have fewer homes with access to PCs and there are fewer physical bank branches, mobile becomes almost like a financial lifeline for emerging market consumers. In contrast, mobile financial services in developed markets have steep competition as they have to unseat established financial services offerings. The main issue that may hold back consumer adoption is consumer fears around security, which may require players to adopt additional security initiatives to better protect the mobile payment service user’s interest. That being said, the convergence of forces — including China’s giant e-commerce market, the continued growth of smartphone users and strong usage of financial cards — likely will be unstoppable.