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Next generation payment technologies: Insights from China

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Mainland China


Payment technologies in China have exploded recently. Today’s mobile payments combine various detection and identification technologies, such as Near Field Communication (NFC), and biotechnologies, for example fingerprint identification. These technologies enable many types of payments including P2P (peer to peer), functioning online, offline, short and long range.

Success stories: Alipay and Tenpay

According to Big Data Research[1], in 2015 Alipay and Tenpay were the two biggest players in China in the third party mobile payment sector, respectively holding some 79.8% and 12.9% of market share, in terms of user service consumption volumes. (See chart below.) These two market leaders are well-known for their digital payment platforms - Alipay and WeChat Pay. These can be fully integrated with traditional banks’ deposit accounts to enable real-time transfers between accounts.

 

 

Alipay started their service in 2003, aiming to facilitate B2C trading for a high profile online shopping website, Taobao. They have successfully commanded the largest market share of online payments ever since. In 2014-2015, Alipay established their O2O (online to offline) strategy, extending their business to offline payment services and eventually consolidating their role as mobile payments leader in China. So, once again the odds are in favor of the first successful player in a new market.     

By contrast, Tenpay, established in 2005, found it extremely difficult to break into the market. Then, in 2015, they rolled out a “HongBao” function in WeChat, an instant messaging app similar to Whatsapp. HongBao, also called “red pocket money”, is a Chinese New Year custom, where older people give a monetary gift to younger people in a red envelope. Tenpay digitalized this tradition in WeChat, which attracted huge payment volumes to their payment service -  WeChat Pay. After this breakthrough, Tenpay expanded their focus on offline mobile payment services to many industries including transport, health, hospitality and catering, entertainment and others.

 

Hong Kong

Hong Kong has its own complete financial system, with mature policies to govern the financial industry. However, the development of mobile payment technologies there is restricted. Paradoxically, Hong Kong pioneered digital money in 1997 with the Octopus card - a reusable, contactless stored-value smart card. Yet, since that launch there haven’t been any major and successful innovations in payment technologies originating from Hong Kong.     

Never-the-less, there are a few innovative players in the payments space in Hong Kong. For example, O! ePay operated by Octopus Cards Limited, is offering a P2P payment service. Jetco Pay provides payment services using text messages to instruct Jetco Network Banks to process the payments, so users are not required to go through complicated registration processes. The Tap & Go offer from HK Telecom, in partnership with Mastercard Paypass, focuses on Point of Sale (POS) payment services.

 

Conclusion

Success stories from China teach us that the key to successful innovation is to grasp and exploit opportunity as soon as possible, by identifying relevant and applicable ideas to satisfy users’ real needs. These are valuable lessons for traditional financial institutions worldwide who are taking their time to react to the fast-paced evolution in technology. These players will inevitably miss out in the payments space and risk losses to the entire banking business.

 

[1] http://www.bigdata-research.cn/content/201601/55.html

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About the Authors

tony cheng

Tony Cheng is a Consultant with extensive BA/PM experience in structured investment products and payments. He has managed and delivered projects in the areas of business transformation, process re-engineering, operation optimization and system implementation for clients in Hong Kong, Macau, Singapore and especially mainland China.

ron lin

Ron Lin is a Consultant at Capco Hong Kong with solid BA/PM experience, specializing in banking operations, financial control, compliance, pension and payments. He has delivered multiple large scale flagship projects in mainland China, Hong Kong and Macau.

 

The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco or FIS.