After having surpassed the number of US Internet users in 2008, the number of Chinese Internet users is projected to overtake 700 millions (1) in 2017. However, the percentage of Internet users using online banking in China is still noticeably lower than the one in the US. Nevertheless, the number of online banking users has increased from 40.3 millions in 2007 to 221.5 millions in 2012. One can observe an even more drastic rise in the number of online payment users, increasing from 33.2 millions to 220.7 millions (2). This impressive rise has of course attracted numerous competitors in the online payment service market.
By talking with members of the new urban Chinese generation you will quickly understand that online shopping is not anymore reserved to punctual purchases but is now designed for everyday consumption. In a megapolis like Shanghai the high concentration of population allows an impressively well constructed delivery network to flourish, making online shopping the quickest and often cheapest way of purchasing food, clothes, electronic devices, furniture and many more. Needless to say that online shopping goes hand-in-hand with online payment. Regarding the great ambition of the Chinese online shopping Magnat, Jack Ma (president of the Alibaba Group), a real star in China, the best is yet to come for the online payment industry. The numbers speak actually for themselves: online shopping represents nowadays 12.4% of the total retail sales and is forecast to represent 28.6% of it in 2018(3)
As for most occidental consumers online payment implies using a computer, however for Chinese consumers using a mobile phone seems to be a much more common way to pay online. Furthermore, mobile phones are not only used for online purchases but serve also as real electronic wallets for everyday life. “Why taking a purse when you have a phone?”, would probably be one question a young Chinese would ask a standard European being definitely less familiar with these payment technologies. To illustrate this thought, the following video shows how a young woman can spend a whole day in China without having to use her wallet:
To give an overview of the online payment industry in China it is important to notice that it is dominated by local third-party payment providers such as Alipay, Tenpay and UnionPay. Alipay is regularly accessed by approximately 80% of online payment users, followed by Tenpay with only 21% of online payment users. On the third position, UnionPay stands with only 17 percent of online payment users accessing it in a regular basis(2).
Alipay has most certainly benefited from its affiliation with the Alibaba group and the aura of its leader. In the meantime, Tenpay benefits from a successful partnership with WeChat, one of the most used chat service in China with which you can not only chat with your friends but you can also order food, clothes or a taxi. These two examples show that partnership seems to be an essential ingredient of success in the e-payment market.
The Chinese E-payment industry has been hit lately by an unexpected change of rules. The new draft rules imposed by the central bank on July 31 limit the maximum amount an individual can pay online per day through third-party payment service. Only customer who can pass multiple methods of identity verification can avoid this new limitation. These rules, lobbied by the Chinese traditional banks, aim to correct the “unfair advantage” given to third-party payment companies, as they have been benefiting from the lack of regulation for capital, liquidity and provision requirement these past years. The growing requirement for identification methods will push the online companies to continue to develop new technologies.
One of the latest identification technologies that has not been launched yet is a visual recognition service. Using the phone’s camera, the customer will be able to confirm his identity by simply facing the camera. This new technology will also enable identity verification by recognizing not only a face but by recognizing a specific item as a piece of jewelry, a pet or a tattoo.
This promising and challenging market has attracted the interest of international player such as Swatch. The Swiss company has recently presented a pay-by-the-wrist watch in China in collaboration with UnionPay and Bank of Communication. Their contactless payment technology allows customers to pay for purchases in shops all around the country. Furthermore, an even bigger player, Apple has announced that they plan to enter the China’s e-payment industry the upcoming years.
Regarding these recent developments, everybody should keep an eye on the revolutionary technologies and services that might appear soon in this challenging and evolving Chinese industry.
Contributed by Loris Savary, Junior Project Leader at swissnex China
1. “China Internet Users”, internetlivestats.com, available at: http://www.internetlivestats.com/internet-users/china/.
2. W-M.To and L.S.L Lai, “Mobile Banking an Payment in China”, It pro May/June, 2014.
3. “China’s E-commerce Sector,Online Retailing in Transition”, Fung Business Intelligence Centre, 2014, available at: http://www.funggroup.com/eng/knowledge/research/china_dis_issue122.pdf.
“New Rules Leave China’s Online Lenders Facing Sweeping Changes”, Bloomberg Business, 2015, available at: http://www.bloomberg.com/news/articles/2015-07-20/new-rules-leave-china-s-online-lenders-facing-sweeping-changes.
“ China Curbs Online Payment in Fresh Blow to Internet Finance”,Blomberg Business, 2015, available at: http://www.bloomberg.com/news/articles/2015-08-03/china-tightens-online-payment-in-latest-blow-to-internet-finance.