Toine Roojimans shared a presentation on payment systems, infrastructure, and habits in China at Barcamp Shanghai 2009, a key topic of interest for anyone hoping to do ecommerce or any online business involving actually collecting money from online customers …online.
Here’s a rundown of his slideshow and talk:
The China market (for online payment settlement) is fragmented.
- There is no Paypal for the Chinese market.
- Why? Because Paypal doesn’t really target Chinese consumers. They target overseas merchants.
- Alipay, a Chinese payment-settlement service similar to PayPal run by Alibaba, has a lot of political enemies.
- They don’t share with Unionpay (see below).
- Some other payment settlement services: Yeepay, 95bill
Yeepay, Alipay, 95bill?
What is UnionPay?
- Government appointed authority on payment.
- Takes a cut on every transaction.
- Banks hate them (they’re a monopoly that makes money doing nothing).
What about credit cards?
- Credit cards don’t actually exist in China. They’re really “post-paid” Unionpay cards, where the payment is actually processed by Unionpay. Visa (for example) only works (or is involved) outside of China.
- Credit cards have to be co-issued with foreign banks. They are like hybrid cards, half Unionpay (used domestically) as issued by a local Chinese bank and half-credit card (used abroad) as issued by a foreign bank (such as HSBC).
- Most Chinese people don’t have credit cards.
- However, there is a hard push for issuing and adopting credit cards. For example, go to any busy commercial area and you’re likely to see small booths and stands where you can sign up for “Lock&Lock” storage containers.
- These are operated by credit card representatives who are paid a “bounty” of 80-100 RMB per card issued. They take some of this money to buy these “free gifts” that are in turn used to attract more people to sign up.
- While the above is true for first-tier cities, 2nd and 3rd tier cities are “still miles away.
- For reference, even Shanghai only has ~500k POS (point of sale) terminals.
- Market penetration of credit card POS terminals is only 20%…of what it “should” be compared to other western cities. Thus, there is certainly a lot of growth potential.
How do I pay online?
- Most common is COD (cash on delivery).
- Taobao -> Alipay
- Get a bank account:
1. Activate online payment (2 forms, 4 stamps)
2. Set quota for online payment/month/day (if go over, must call to reset quota)
3. Sign in to online banking (get out your random number generator or your SMS)
4. Get another code
5. Pay
- Chinese people love stored value cards, where a user purchases online “credit” or “points” offline through convenience stores or other vendors. These cards usually contain codes that are entered into online accounts, crediting those accounts with online currency/points. Toine says these are China’s “answer to micropayment.”
Circle Pleasure, the company Toine works for, makes 3D worlds in Korea and are entering China. How do they plan on handling online payment transactions in China? Will they use Alipay like others?
Their idea is to “do it better.” This has involved them becoming one of 67 companies in China licensed to sell pre-paid stored-value cards. Their twist is to make their cards and online currency open and “available to everybody” in the sense that they are willing to partner with anyone, allowing the stored value to be used for other people’s services, goods, and businesses. All they ask for is a 1% flat transaction fee. They also offer tax invoices (those who understand China’s tax system will better understand the implications involved in this).
Going forward, they recognize that what they’re doing isn’t really different from what already exists in China, so they also want to import fancy Korean technology and develop a next-generation licensed secure payment system around a USB key with integrated RFID, security chip, memory, etc. The idea here appears to be creating a portable physical device and new payment infrastructure that can be used to pay for many things and transfer money from other systems, such as banks, and offer other perks, such as e-coupons and discounts.
Sounds ambitious, right?
More CNR Barcamp Shanghai 2009 coverage here.
correction: Some other payment settlement services: Yeepay, 95bill-should be 99bill.
Chinese Banking service is about 20 years behind the Chinese economic development. Why? all the banks were used to be stated owned and many of them still are; The central bank is very close-minded. If you really want to dig out this topic, could come up with another long post.
Chinese banking {{{shudder}}}
The 20% penetration refers to the market penetration of the POS machines themselves. (Sorry my slides were a bit rushed, I made them during barcamp, it was an improv presentation) Credit card penetration is even worse than that.
Another little tidbit of info: if you use an American credit card that uses US$ to pay, the amount you owe is first converted from US$ to HK$ then from HK$ to RMB. And I can go on for quite a while about stuff I have been discovering here. We hope our ambitious plan will help speed things up a bit.
Hey Toine, I’ve edited in your correction. Thanks! Great presentation by the way.
Hi
Great article, but it is now 2 years old, is there any update on this subject?
You need a licence to sell store value card in china? Which government department control that? Who else has this license?
Of course you can do your own vip card or prepay card, however without the pre-pay card license it also means you’re prepaying all the taxes even though people did not spend money yet.
If you want to do a real prepay card system you’ll need a special license from the bureau of industry and commerce that exempts you from paying taxes over prepaid points, until points are actually spent.
Then you need another license from the tax bureau to confirm that.
Which is why we can issue fapiao’s with every prepay card, in every category where you can spend the points.
I see. So the license is for tax p and fapiao’s purposes. I thought they had a new pre-paid care license that you need to get. They had a membership pre-paid card license trail run before back in 1998 and they dropped it in 2003. Since then, there is no law governing the pre-paid card.
Toine — great insight into the payments market in China. I’d be curious to understand your take on the recent regulatory/licencising requirements that the PBOC has issued (2009 No. 7) to try and license 3rd party payment companies. What will the impact be on the space in China?
I’m also intrigued when you say that Alibaba has many political enemies? I thought Jack Ma’s strengths and relationships would damper this given his past work for the government… more curiosity on why you’d highlight that…
Hi Albert,
In my view this issue is linked to a news article that passed my desk a while ago, the article (shanghai daily, forgot the date) referred to the increasing number of complaints coming from people using 3rd party payment companies and unlicensed pre-pay card companies. This is related to the current economic situation, where you see companies trying all kinds of dodgy incentives to try to attract cash flow. In my view, it is not so much an attempt to shut down this industry, as more an attempt to map it, and I predict you will see more involvement from the government related to the actual processing side, but less from the tax authority side. In an attempt to protect consumers and also some other motives that I shall not go into detail about now.
As for Alibaba, the issue is that once you piss off UnionPay, no matter the connections you have, you will not maneuver your way out that quickly. UnionPay is a state enforced monopoly and defiance of it is not taken lightly. The attitude towards this industry regarding this issue is much stronger than for instance in telecom. Not until Alipay aligns itself with UnionPay, and probably gives up a sizable portion of its potential fees (fees that have so far been rejected for being non-compliant with regulations), and probably also shares afterwards. Feel free to mail me if you have further discussion points :) (toine (a.t.) circlepleasure.com)
Wow, I learned quite a bit.
I had no idea that Alibaba and UnionPay were at odds. How exactly did this happen? And I’m guessing this is why there’s a third party in the way (Lakala, via that little card-swipe thingy that some convenience stores have) if I want to use any old UnionPay card to pay for an Alipay-processed transaction instead of directly doing it with a bank transfer online.
Also, what, exactly, is the deal with Visa in China? So how does ICBC manage to offer a debit card on the mainland with only a Visa Electron logo? And how do some stores accept Visa cards directly?
I think this post will highlighting the importance for e-commerce in china market. I think this will be increasing after some time and the transaction are also increase. But the procedure must be secure then this will be successful.
This is a rude report…