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Mobile Payments in China: Disruptive in Actions – Raymond Cheong (Partner, KPMG)

What is the current state of mobile payments?

The acceleration of smartphone adoption has resulted in an eruption of the mobile payment market, especially in China. For example, 55% of China’s internet users have made a mobile payment, versus only 19% of U.S. internet users. The transactional value of global mobile payments has skyrocketed from only $240 billion in 2011 to nearly $1 trillion forecasted by 2015. Additionally, the shift from PC to mobile is more and more apparent, with smartphones being the most common starting place for online activities (versus PC only a few years ago).

Driven by exponential growth in user base, China is embracing the technologies related to mobile payments and is making use of all the latest technologies. This trend is evidenced by the top consumer mobile applications survey completed in 2012, with money transfer applications holding the #1 spot (followed by location-based services and mobile search). Consumers now spend more time interacting with online retailers on smartphones and tablets than they do on desktops and laptops.


Who are the mobile players in the mobile payments value chain?

Interestingly enough, it’s the internet and technology companies that will lead the mobile payments market share over the next two to four years, not banks. Within China’s C2B payment industry, growth will be contributed by China’s e-commerce market. With respect to B2B, Alibaba currently dominates this market with over 79 million registered users and a marketplace with importers and exporters from over 240 countries and regions. The B2B market currently accounts for approximately 85% of gross merchandise value in China’s e-commerce market.


Where are the trends for mobile payments?

There are three primary trends for mobile payments: O2O, enforced security, and partnerships with banks.

 O2O has become very prevalent in the mobile world, including making purchases through mobile apps, QR code scanning for commercial purposes and deal-of-the-day websites such as Groupon, Gilt Group and Living Social. The effect will be an increased degree of digitalization in the retail market, which will ultimately help the growth of location-oriented businesses. There are various benefits of O2O. First, it will allow businesses to track every transaction that is done and monitor the effects of campaigns in each channel. Second, O2O will benefit from the diversity of online advertising methods, while providing customers with the real-life experience with products offline. Last but not least, it will help businesses track and study consumer behavior by pushing advertisements on a real-time basis.

Despite the countless security measures that have been implemented through e-commerce transaction phases, e-commerce providers are still facing various security threats give the nature of the industry. As the mobile payments industry matures, we will see increase self-imposed security measures and regulatory requirements governing the industry.

Lastly, we will begin to witness the application of value-added services such as mobile wallet and microfinance within mobile payments. For example, China Merchants Bank began cooperating with Tencent’s WeChat in May 2013 to provide social media banking. What began as a basic service that notified customers about things like their account balances and credit card purchases has expanded to an offering range of banking services, including money transferring and credit card payment.

How will mobile payments transform your business?

So what impact will the rise of mobile payments have on your business? There are a variety of factors that will impact this effect, such as retail category, geographic presence, price range, and the targeted demographic population. For example, the top three categories for online spending, based on a survey by “China’s Connected Consumers”, are cosmetics, female shoes and female apparel. From a geographic perspective, Northern China holds the title for greatest amount of mobile spending, while Central China has the least. Males tend to spend more than females when purchasing online, and 45-49 is the age group with the highest expenditures.


As e-commerce has become the single largest drive of total retail sales in China (representing over 20% of total annual retail sales growth), there will be increased scrutiny on promoting and regulating its growth so as to ensure a sustainable and secure path forward.


About Md. Moulude Hossain

FinTech | AVP, Business Development KONA Software Lab Limited


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