Great Payments Transformation

Turning innovation into revenue in China’s payments market 

By Mary Chong, Partner, KPMG China


As China looks to redefine its payments industry, many organizations – both domestic and global – are keenly monitoring what is soon to be the world’s largest payments market. Indeed, the real question today is not whether China will modernize their payments environment, but rather how local and global players can take advantage of the opportunities that are now emerging.

Turning innovation into revenue

An ecosystem evolution

Over the past few years, it has become increasingly apparent that China is determined to transform their payments industry. The clearest indication comes from the Chinese government itself, which, in the 12th Five-Year Plan, has made the payments industry a high priority.

Much activity is already underway. For example, the Chinese government has granted almost 200 licenses to domestic non-bank third party payment service providers to effectively expand the payments ecosystem and promote the healthy development of the online payments industry. The government has also taken steps to ensure that license holders are robust enough to survive: all new license holders are required to have registered capital of at least USD25 million in order to receive a nationwide business license, and should have been making profits for two successive years. It is predicted that this approach will bring greater choice and competition to the domestic payments market and, simultaneously, protect the general public.

New license holders are required to have registered capital of at least USD25 million

There has also been heavy investment by the government into developing the underlying infrastructure for the industry. More than USD154 billion is now being spent to improve processing capabilities (particularly in areas such as cloud-based data centers) and telecom companies are rapidly improving their capabilities in areas such as mobile payments.

For their part, the Chinese public has proven to be remarkably open to innovation, driven by a desire for more convenience and adoption of mobile technologies. In China, the 18-35 age group not only has the highest mobile adoption levels, but are also the greatest users of social media capabilities. This has led forward thinking companies such as TenPay and China Rewards to explore opportunities to monetize this market through the integration of online shopping channels and loyalty programs. Early evidence shows that this combination of technology, value proposition and market is a recipe for success.

Turning innovation into value

However, the market is still largely dominated by four key players (AliPay, TenPay, Union Pay and 99bill) who, collectively, hold an estimated 80 percent of the domestic payments market. But while these big players effectively control the ‘volume market’ by offering convenient and innovative consumer-focused solutions, there is still tremendous opportunity for new market entrants.

Many have been focused on establishing unique market niches in which they can develop an end-to-end value proposition. SmartPay, for example, is focused on city-wide bill payments and lottery; QQ is rapidly establishing itself in the gaming sector; and AliPay and China PayPal are fighting it out in the consumer online auction and virtual market segments.

But other small third party players seem to be struggling to articulate their business value proposition. In many cases, these parties not only hold licenses in the Chinese market, but also valuable technology innovations and applications. However, many of the smaller players are somewhat less focused on dominating the market as – with an estimated 431 million mobile users – they recognize that even small levels of market share can bring significant revenue. For these players, great opportunities still exist by delivering leading edge solutions to demanding consumers. Handpay, for example, is partnering with banks to provide their mobile commerce platforms by delivering enhanced payment security through smartcard overlays.

Opportunity for foreign investment

While licenses are currently restricted to domestic service providers only, there is still significant opportunity for foreign organizations. By partnering with either existing or new domestic players, foreign companies can bring their ideas and best practices into the China market and assist in stimulating continued innovation.

And while the Asian payments market will likely transform with or without the participation of foreign players, it does provide an environment where the best operators in the world can deliver leading edge services to the largest market, while simultaneously helping the rest of the industry outside China to develop their own business propositions.

What to expect at Sibos

Those attending this year’s Sibos conference in Japan will undoubtedly see a frenzy of activity related to the China market, with scores of new Chinese players busy building their networks and hunting for partnerships. Foreign players would be well advised to come to Sibos with a clear view of the value that they can bring to China and a strong mandate from their boards for exploring and establishing partnerships with local players.


Yvon Audette Yvon Audette (KPMG in Canada): Global players are now under great competitive pressure to participate in the Chinese payments market. Indeed, while China’s players are largely focused on driving the domestic market, they are also looking for foreign partners who can help them gain greater connectivity into the global market. Ultimately, this means there is significant room for the development of mutually beneficial partnerships. But foreign entrants will need to carefully evaluate their options before leaping into the market. The bottom line is that the Chinese market is looking for assistance in understanding the global market and how to adopt foreign principals; foreign players will need to suport their local partners in order to maximize their business potential.

Mitch Siegel Mitch Siegel (KPMG in the US): The enormity of the Chinese market will lead to the continued development of numerous regional and niche solutions which, with support of the Chinese government, will create a need for inter-operation and standardization. However, innovation will eventually take over as larger companies acquire smaller ones and scale the capabilities to the broader market.

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