China Payments Research

According to PBoC 2013 Annual Report, the payments industry in China is growing fast, 17% in 2013 alone and 25% on average in the last five years.

After setting up its strategy as “All in Mobile E-Commerce” at the beginning of this year, Alibaba has been gradually building up its Online2Offline business - now focusing on healthcare. 

The latest payment report released by PBOC shows that by the end of 2014Q1, the cumulative number of bank cards issued reached 4.39 billion. Debit cards are still the most widely used card type, accounting for approximately at 3.97 billion.

The latest payment report released by PBOC shows that in 2014Q1, electronic payments kept a steady growth with the most eye-catching performance being from mobile payments.

According to the Chinese Financial Certification Association, in the major 35 cities of China only 3% of electronic (Internet and mobile) banking clients use Near Field Communication technology as a payment method. With all the convenience of the NFC technology it seems strange that the trend didn’t pick up yet.

The latest financials from Tencent Group shows that overall growth stayed strong in the first quarter of 2014 as revenue hit RMB 18.4 billion, 78% of which were value-added services. E-commerce however suffered as revenues declined 24% as compared to Q4 2013. Tencent indicated that the lagging performance was a seasonal factor; in addition Tencent has recently re-focused its e-commerce strategy.  

As known, Tencent setup a partnership with Jingdong this year, acquiring 15% of the online retailer which also holds QQ wanggou and Paipai. The acquisiton is an indication that Tencent is serious about e-commerce, but they still seem to be searching for the right business model. Yet with Alibaba listing soon, Tencent will have to show rapid returns on their investment in order to keep a increasingly impatient set of investors happy. Tencent's e-commerce challenges must now be confronted to stay ahead of the game.

 

20140515 TencentQ1Financials

After the PBOC’s suspension of QR code payments and virtual credit cards, they have begun soliciting comment on draft guidelines on “Payment Institutions Network Payment Business Management Approach” (provisional).

After what seems like forever, on February 18th, the regulators gave us a milestone reform for cross-border trade.

 

Over the past weekend, Alipay announced that it processed about US$150 billion in mobile payments in 2013 which is potentially more than PayPal and Square combined. PayPal cleared US$27 billion in 2013 and Square's number is not public, but likely far less than even PayPal's. 

Mobile Payment Transaction Value

That's a huge number and makes Alipay the largest mobile payments platform in the world. It wasn't really a question of if it would happen, but when. With over 300 million users and 100 million mobile users, Alipay's mobile payment growth has tremendous market scale which is part of the reason for the success of their Yu'ebao investment product that just seems to keep growing and growing... 

The Alipay Wallet 7.6, which was rolled out on October 29, 2013, provides over 30 functions and services. It is reported that the launch of this new Alipay Wallet has extended its services in new areas and provides some significant benefits to consumers. Among these services, the most innovative are “payment with soundwave technology”, “transferred payment with emotional feelings”, “payment by snapping payment cards”, “Official Accounts” and “loading money into on-purpose campus card”.  

Payment with Soundwave Technology

The application of soundwave technology in Alipay Wallet with smartphones allows consumers to make payments conveniently even when there is no 3G or Wi-Fi signal, such as at subway vending machines. By holding the phone close to the payment receiver on the vending machine, the phone can authenticate and authorize payment via sound.

Alipay has already setup relationships with eleven vending machine operators that cover about 90% of the Chinese market. At the end of 2013, this soundwave technology will be used in over 50% subway vending machines.

In addition, soundwave technology can also be used to purchase movie tickets.  After paying for movie tickets from Alipay wallet, consumers can get tickets by releasing noise generated by smartphones which will be recognized by ticket machines in the cinema.  

“Transferred Payments with Emotional Feelings”

To provide a more ‘humanized experience’, the Alipay Wallet 7.6 allows users to use personalized icons and voice messages when transferring payments. Unlike a payment that might come across saying ‘You have received 100RMB’, users can now choose from abundant personalized icons or leave voice messages with the receiver when conducing payment transmission. This may not seem that interesting, but in China, a lot of business is conducted over instant messenger and phone chat where emoticons and electronic signals of feeling are important, it does add an interesting element.  However, it should be noted that the new function only supports payments within Alipay.

Payments by Snapping Bank Payment Cards

The new Alipay Wallet has an enhanced “code scanning” function. In addition to existing scanning QR codes, bar code, tracking numbers, it offers service of scanning bank payment cards. This new function can distinguish information automatically including issuing banks, types of banks, card numbers, which make it convenient for users to transfer money.  In addition, it adds function to pay off credit card bills automatically.  Currently users can use Alipay Wallet to inquire credit card bills of 14 different banks. In addition, as long as the automatic payments function is active, Alipay Wallet will pay off credit card bills automatically 5 days before the deadline and will inform users by free text message.

Official Accounts

Official Accounts connects consumers directly with merchant accounts through the app for services. Basically the “Official Accounts” includes around 10 banks, such as Industrial Commercial Bank of China (ICBC), China Merchant Banks (CMC), Agriculture Bank of China (ABC) and etc; three most famous telecom operators of China Unicom, China Mobile and China Telecom; and other merchants such as, McCafe, One Foundation, hospitals etc.

Within banking accounts, Alipay Wallet offer users’ inquires into balance, inquiries on account transaction details and inquiries on bank outlets. From telecom operators’ accounts, customers can inquire their bills and alternate mobile phone packages. Moreover, Alipay Wallet’s cooperation with McCafe, hospitals and other merchants, make it convenient for customers to recoup the coupons, pre-register, register in hospitals, as well as enjoy other services.

Loading Money into single-purpose Campus Card

Another new feature of Alipay Wallet is for university students. Instead of finding a recharge machine, students can load money into their 'on-purpose' campus card directly by Alipay Wallet. There are currently around 20 universities in Beijing, Shanghai, Guangzhou and Suzhou, cooperate with Alipay for this service.

Key Thoughts

The new Alipay wallet 7.6 is an interesting development. Many of the functions make a lot of sense to just about anyone around the world - like the soundwave technology. The others, like the 'emotional payments', might seem a bit different, but are very tailored to meet the needs of the local users which has been one of Alibaba's keys to success across all of its platforms and it's where foreign players have often struggled in the past. 

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