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Deloitte: Financial institutions, operators, 3rd-party payment enterprises active in China's emerging mobile payment market

Open business model more likely to be successful


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Publish date: 3 August 2012

Although mobile payment in China is clearly in its infancy, its potential has spurred leading players, including financial institutions, operators and dedicated third-party payment enterprises to actively strengthen their presence in this business. Their entry has boosted the development of the industry. According to Deloitte's survey, Trends and prospects of 2012-2015 China's mobile payment industry, 66.67 per cent out of the 87.39 per cent who participated indicated that their companies have developed a mobile payment strategy and now offer mobile payment services. Virtually all of the remaining 20.72 per cent have a strategy in place but have yet to launch services.

Deloitte's latest report was developed based on a survey of more than 100 companies in the value chain of the mobile payment industry. The report, which includes face-to-face interviews with more than 20 executives and managers, offers an in-depth analysis on the current state and challenges of China's mobile payment industry. Based on the responses, it also forecasts the development, ecosystem and market landscape of the mobile payment industry.

Mr William Chou, Managing Partner of Deloitte China Technology, Media and Telecommunications said, "The development potential and prospects of China's mobile payment market is exciting. However, the current mobile payment industry is still in its infancy with a relatively low penetration rate. Most mobile businesses and mobile payment products have only been deployed on a trial basis and the business models of various parties along the mobile payment value chain have yet to become mature. Generally speaking, the industry is still at the exploratory stage."

The report analyses the current state of China's mobile payment industry and indicates that in contrast to mobile payment, the remote payment sector is relatively mature. There are mature products available to the general population, such as Alipay's mobile payment solution. Both mobile e-commerce transactions and the amount of mobile payments within the remote payment sector are rising. In contrast, near-field payment based on near-field communication (NFC) technology is developing at a relatively slow pace and remains focused on urban commercial pilot projects for financial institutions, mobile operators and other companies.

As its popularity increases, mobile payment is poised to become a mainstream payment method within the next three years. The penetration rate of both NFC payment and remote payment is expected to expand. Ninety-three per cent of Deloitte's respondents believe that near-field payment will receive moderate to high market attention in the next three years and 95 per cent of respondents believe that remote payment will enjoy the same attention. According to the report, the market interest will encourage more players to join its value chain and facilitate the innovation, promotion and popularity of mobile payment tools.

As their active efforts gather momentum, financial institutions, mobile operators and third-party payment agencies are currently the main driving forces in China's nascent mobile payment industry. This trend is expected to carry on through 2015. Based on Deloitte's survey, 21.37 per cent of the respondents believe that banks will dominate the mobile payment industry by 2015, and those who believe mobile operators, UnionPay and third-party payment agencies will dominate the industry account for 20.48 per cent, 16.96 per cent and 15.86 per cent respectively.

Dr Wang Peng Cheng, Managing Partner of Deloitte China Financial Services Industry, said, "The business model, dominated by financial institutions focused on providing specialized financial services, can leverage the existing financial network, clearing system, customer and merchant resources. But it has little control over terminal equipment manufacturers. On the contrary, the operator model has strong control over end-users and terminal equipment manufacturers, but lacks merchant resources. The third-party payment model has an advantage in users and online merchant resources but lacks sufficient offline merchant resources and wields only a limited influence on the terminal equipment manufacturers. Although each model faces many challenges, players are generally adopting a win-win-win attitude."

The Deloitte survey also shows that collaborative and open business models tend to be more successful, especially the option involving cooperation between financial institutions and operators. In the area of near-field payment, 47.71 per cent of respondents believe that the financial institutions-operators model is most likely to be successful while 43.81 per cent believe so for the remote payment segment. In addition, an open mobile payment platform has a high recognition from respondents. Within this open model, 34.86 per cent of respondents are convinced of the strong likelihood of success for near-field payment, and 32.38 per cent for remote payment.

Looking ahead, Deloitte believes that a third-party credible service management platform independent of financial institutions, mobile operators and third-party payment organisations offers huge development opportunities. Because of the complexity of the mobile payment value chain and intense competition among players to promote their own interest, it would be difficult to simply rely on a single standard and a credible service management platform to change the current situation and boost the industry development. Therefore, various parties across the value chain should adopt an open attitude and explore possible areas where they could work together for their mutual benefit. The ecosystem of the industry should be developed based upon a model, which can accommodate the interests and needs of potential participants. Development of the mobile payment industry should be driven by constant reference to market standards and interoperability of sustainable platforms.

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Wilfred Lee
Company:
Deloitte Touche Tohmatsu
Job Title:
Public Relations Senior Manager, Clients & Markets
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Email
wilflee@deloitte.com.hk
Name:
Bonita Chan
Company:
Deloitte Touche Tohmatsu
Job Title:
Manager, Clients & Markets
Phone:
Email
bonchan@deloitte.com.hk
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