NFC in China: mass acceptance will probably be reached in 2015

Written by Denis Suslov || 02 Jun 2014

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.

 While consumers don’t want to get through the arduous process of applying for a NFC sticker or making a big change like buying a new phone, the main concern is still security breaches, according to 2013 Electronic Banking Survey report by the CFCA.

NFC in China still a very nascent industry

Business players did add to the sluggish adoption as well. With common NFC standards only agreed in 2012, the biggest players were also reluctant to cooperate and were protecting their interests. At the same time Unionpay did deliver 3 million NFC-compatible POS terminals to most merchants in the main cities, but it was focused on promoting its own QuickPass-branded cards. UnionPay’s main competitors in the field are mobile network operators (MNOs), who were dawdling with local NFC solutions and couldn't reach a conclusion about a common standard. Another major player, Alipay, the biggest third-party payment provider, ignored the NFC technology and proceeded with bar code scanning instead. While the company will gain some user base, the service’s market share will remain marginal as it is more cumbersome and requires both Internet and a switched on mobile phone.

It seems like NFC in China just has not reached critical mass in the market yet – as has Unionpay in bankcard industry and Taobao in e-commerce – a point where a service becomes so popular that everyone is getting in. But we suppose that such a moment is coming soon – with some groundwork laid already, like over 3 million China UnionPay’s “QuickPass” POS machines installed in China, and some public transportation in several cities accepting NFC payments. Probably the last drop is coming soon: Apple is likely to incorporate NFC payment function in the next generation iPhone and has reached an agreement with China UnionPay on a mobile payment service, according to a source close to the matter. With Apple’s high brand awareness in China, the technology can finally go mainstream and millions of consumers will pay with their NFC-enabled phones. Also, smart phone manufacturers like Samsung and Xiaomi are promising to incorporate the technology in more new phones, which, along with 4G, will bring a new wave of mobile phone upgrades.

Enabling Technologies

In the meantime, how do consumers upgrade their current smartphones to make use of the technology? NFC-enabled SIM and SD cards are the solution. In 2013 China Mobile announced its cooperation with China UnionPay to launch NFC-based mobile wallets. As the former is the main MNO and the latter is the dominant bankcard switch operator, we expect the enterprise to gain a significant traction. The SD card solution will find users among those whose phones don’t currently support NFC technology and who are not willing to change to a mobile network operator or a mobile package. Therefore, an SD technology provider will have to partner with either a bank or a third-party payment company, since China UnionPay offers NFC-SD on their website already and strongly promotes proprietary IC cards. NFC-SD cards will find demand in the next 2-3 years and will be essential for transition period which will end once all mobile phones carry NFC chips.

Overall, we expect 2014 to be the year of NFC in China gains momentum thanks to the IPhone 6 introduction and push by China Mobile - China UnionPay alliance. The 2015 will probably be the year when the technology will become a household name and will reach the point of no-return.

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