China Payments Research

The Annual Payments Report by the Payment and Clearing Association of China was published on May 19th and showed the continuing growth in payment transactions in China. The total amount of online payments reached RMB 2,042 trillion, spread between commercial banks and payment service providers (PSPs).

The long expected payment system of smartphone producer Xiaomi has finally entered the market. By cooperating with China’s dominant card-payment processor China UnionPay, users can now make purchases by using their phone and Xiaomi Pay through China UnionPays’ Quickpass system. The company’s latest offering comes as the third-party mobile payment market continues to grow tremendously. According to research firm Analysys Mason, the market valuation was set at 16 trillion yuan in 2015. This has attracted not only Chinese companies such as Huawei and Xiaomi, but foreign companies, as well.

There's a clearing platform in development that might change the playing field of the payments industry in China. The Payment and Clearing Association of China had a member congress in April and has approved a proposal to build an Internet payment clearing platform for non-bank payment institutions.

China’s fintech sector has enjoyed significant development, but has recently been constrained by more active regulators who have increased their rate of regulation to try and stay ahead of the industry development. After two years of planning and industry development, a public-private body was established by the People's Bank of China - the National Internet Finance Association.

Tencent was reporting its quarterly earnings on March 17th and for the first time the company disclosed its WeChat Wallet fees that the company pays to partner banks. Tencent CEO Pony Ma said the fees are 0.1% of each transaction and totalled more than RMB 300 million in January.

China’s mobile giant Huawei held a signing ceremony in Huawei's Shenzhen headquarters with Bank of China to co-develop next mobile based payment system Huawei Pay. This announcement was just released after Apple Pay and Samsung Pay claimed to make its entry in to China.

Recently a lawyer in China caused a stir in the payments industry by filing a complaint with the People's Bank of China (PBOC) on Meituan, China’s major O2O platform which is worth tens of USD billions. The complaint alleged that Meituan is engaged in payment settlement without having a required payments license.

For many years, the Chinese government has encouraged cross-border investment, both to support the domestic stock markets, but to also give domestic investors more choice in investment options and products. One such program was the QDLP program or Qualified Domestic Limited Partner scheme. Due to the renewed focus on controlling outflows, this program is now stopped. 

Although UnionPay is known for its control of the domestic Chinese payment market, it also has over 50 million cards issued overseas. So in other words, a China UnionPay branded card issued by a foreign bank in a foreign country and a foreign currency. In its international push, UnionPay would like its cards to be used both online and offline. Foreign cardholders are increasingly using them for paying at POS and for ATM cash withdrawal, however, there was never a compelling case to use UnionPay cards online, where established card brands like Visa and MasterCard dominate.

When talking about O2O (Online to Offline), we should keep in mind that the key to the O2O business success lays in the hardware and acceptance support from offline merchants. Eventually, it’s up to merchant’s willingness to accept a new digital payment method or not. Beyond the merchant fee and technology required, the key criteria for a merchant to decide is the user base of a particular payment method.

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