China UnionPay’s strategy for mobile payments and Android Pay

Written by || December 17 2014

This is part two of a two part series looking at China Unionpay's launch of Android Pay. Part one examined the potential impact of Android Pay on the mobile payment industry. Today we take a look at China Unionpay's business strategy in the mobile payments space as it launches Android Pay. We also answer the question of why China UnionPay would even be interested in having their own mobile payments app in the first place.



China UnionPay (CUP) was founded in 2002 as the sole banking card association in China and has since enjoyed monopolistic power over the traditional payments industry. However, with the shift from card-based transactions to online and mobile, CUP's market position is now facing headwinds. 

Domestic market challenges 

CUP is a government-entity whose main business has always been providing card services. Although this has been incredibly profitable, CUP is a relatively slow to move company and has therefore been a bit less innovative, which was fine for a period, but with the large domestic tech-companies rapidly innovating, it has been tougher for CUP to stay on top. Leveraging their online and mobile platforms, Alibaba’s Alipay and Tencent’s Tenpay have emerged to become the two largest 3rd party payment providers in the market and are continuously gaining momentum and marketshare.

Faced not only with competition from homegrown tech companies, changes in regulation might be the biggest challenge for CUP. In June 2014, the People’s Bank of China (PBOC) released a regulatory notice that clarified rules for card issuance and account management, and will eventually permit the establishment of new bank card associations including Visa and Mastercard.

Facing the challenge

One of the key areas where CUP is pushing to maintain its market share and grow its revenue base is in mobile payments. Like many other payment providers in China, CUP has launched its own mobile wallet, but has yet to have much success. CUP seems to see Android Pay as a way to put themselves at the forefront of the mobile payments movement, but how exactly would this work?

NFC acceleration

Over the past couple of years, NFC or near-field communication, payments have gathered pace in China since standards were agreed in 2013. It is entirely possible that NFC will become the most popular way for customers to pay with their phone as they shop.

This of course directly competes with CUP’s bankcard business.

So, as CUP moves forward with its Android Pay plans, controlling the NFC infrastructure will be vital for them to remain competitive. With smart marketing and exclusive rights, China UnionPay could leverage their existing three million NFC POS terminals across China and make Android Pay the number one go-to-app to be used at these terminals.

But, one of the biggest challenges for the industry is that it is often too expensive for smartphone manufacturers to implement NFC chips into the phone and has therefore been perceived as too risky. To overcome this, China UnionPay has started to subsidize NFC chips.

Potential to control Secure Element

Subsidizing the NFC chip helps move the industry along, but it also opens up the potential that CUP could control the secure element (SE) of the NFC chip. Currently in China, MNOs are ‘in control’ insofar as the SE is provided through MNO's SIM-SWP solutions that contain an SE and are often bundled with phones. Industry experts say that China UnionPay will have more scope in defining the partners for security standards through Android Pay and will use Chinese manufacturers for security modules.

International Expansion

A streamlined mobile payment solution, such as Android Pay, could also help CUP expand their international mobile payments network. CUP would enter into partnerships with international merchants, allowing customers to conduct NFC payments through Android Pay on international POS terminals. Compared to third party payments, China UnionPay could strike international partnership deals much more easily as they already have a fairly strong global footprint with their bankcard network and the brand is gaining awareness across the world.

China UnionPay is ultimately interested in accelerating the development of NFC and ensuring that it occurs under the China UnionPay umbrella. Besides entering into partnership agreements, it is developing its own mobile wallet solution as it presents financial benefits and helps against the competition. Investing in a mobile payment software that seemingly integrates with the rest of the Android software and is well marketed can prove to be much more popular than incumbent players’ mobile solutions. If China UnionPay is successful with Android Pay, the mobile payments picture may look much different by next year.