Toine Roojimans: Payment In China – Systems & Habits

china-merchants-bank-unionpay-credit-card-visa-ctripToine 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?

usb-flash-driveTheir 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.

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