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Dong Ximiao: Quick Pass churns payment market


Source:    Published: 2016-4-18

In recent years, China has seen an explosive growth in its mobile payment industry. According to the operational report on the payment system of People`s Bank of China (PBC), the growth of Chinese mobile payment business has exceeded 100 percent for two consecutive years, and what`s more, the growing rate as to the number and amount of the newest batch of mobile payment business reaches 253.69 percent and 194.86 percent respectively. The "Code Scanning Group" represented by Alipay and WeChat Payment has, however, accounted for more than 90 percent of market share, almost forming a monopolistic situation, while Baidu Wallet, Tenpay and other third party payments are also striving to increase market share.

The position of traditional financial institutions on the payment market, however, is very embarrassed, which even descends to the "passageway" of third party payments. In spite of continuous explorations, traditional financial institutions still have not found an effective method yet.

According to a senior insider of payment industry, what lead traditional financial institutions to "lose every fight" for payment market are different product systems and standards and rules, complex operating steps, fragmented platform resources, lack of user`s thinking, more attention on security and ignorance of user experience. Also, as to domestic mobile phone manufacturers, they are more sensitive to price cost due to weak brand effect, coupled with payment being a kind of low-profit business, so they fail to arise in the payment market under the current circumstances that each fights his own battle, disposal environment is bad, usage scenarios are relatively insufficient.

But the "Cloud Quick Pass" of UnionPay has produced various payment products with financial institutions and mobile phone manufacturers, which have organically combined state-owned financial institutions, domestic mobile phone manufacturers, NFC industrial chain and other participants, and make banking financial institutions and domestic mobile phone manufacturers join into the competition of payment market.

According to the insiders, the alliance formed by UnionPay and banks with mobile phone giants such as Apple, Huawei and Samsung will certainly strike the current mobile payment interest pattern greatly. "This shock is the result of natural market competition, and it has positive significance to the industry and consumers at the same time." Dong Ximiao, executive president of Hengfeng Bank Institute and visiting fellow of Chongyang Institute for Financial Studies, Renmin University of China, believed that the purpose of financial sector to develop mobile payment service should be serving people`s livelihood and benefitting the public, the payment methods provided by Samsung and others have enriched mobile payment market and provided multiple choices for consumers, so they can become the initiative selections in the natural market competition.

Too early to change the pattern

It, however, still has a long way to go for "Quick Pass Group" to change payment market pattern. As to how to improve the current situation of the lack of software and hardware conditions, it is one of the important subjects for "Quick Pass Group" to solve.

The biggest advantage of "Quick Pass Group" is its higher safety level, because it applies financial smart card, NFC contactless radio frequency, trusted service management (TSM), payment tokenization (Token), dynamic key management and other innovative technologies and security guaranty mechanisms. Taking Token technology as an example, all information is "disposable" like the boarding check which is invalid once used. "Quick Pass Group", however, still shows many "short planks". The first is that it will challenge the established payment habits of consumers. As the "Code Scanning Group" represented by Alipay and WeChat Payment has already occupied a considerable number of shares in the market based on a variety of marketing activities, forming user precipitation and user habits, it will take quite long time for "Quick Pass Group" to reach a competitive level.

At the early online stage, "Quick Pass Group" can only be used by limited mobile phone brands and models, which results in a higher "threshold". For example, the models of Samsung Pay which are supported as the first batch include Galaxy S7, Galaxy S7edge, Galaxy S6edge+ and Galaxy Note5 in total, so the coverage is very limited. Meanwhile, mobile phone terminals which can support "Cloud Quick Pass" are mainly limited to the middle and high-end models of major mobile phone brands. So, as to the cardholder, whose mobile phone doesn`t support NFC functions, choosing this kind of payment method means changing a mobile phone, which is too expensive.

From the point of hardware environment, the coverage of "Quick Pass Group" is determined by the layout of offline POS. As shown by UnionPay data, there are more than 7 million POS terminals nationwide with contactless payment ability at present. According to the deployment of the central bank, all POS terminals will support this kind of contactless payment function by May, 2017. In spite of a considerable number, in many actual instances, cashiers don`t know how to operate them.

It is understood that many domestic mobile phone manufacturers like Xiaomi, Lenovo and Meizu are stepping up the development and promotion of payment products in the similar patterns to provide universal mobile payment service based on "Cloud Quick Pass" for different mobile phone users. Insiders believe that, from the point of industry development, the "Code Scanning Group" led by private third party payments and "Quick Pass Group" led by financial institutions and mobile phone manufacturers may coexist for a long term.

Cooperation being required for industrial development

At present, when the competition is intensified, the further development of payment market requires all parts to work together and take active actions. Dong Ximiao believes that issues about financial security and data sovereignty must be paid much attention to, and mobile payment industry must be considered within the strategic level of financial security, network security, even economic security and national security. Meanwhile, laws and regulations such as internet security act and big data act shall be formulated as early as possible, and the negative list shall be prepared clearly in order to ensure that there are laws for all parts of the industry to abide by during opening cooperation and innovative development. And as to the supervision, the principles of making appropriate supervision, encouraging innovations and standardizing development shall be followed. Meanwhile, it`s necessary to unify regulation scales, treat all participants equally and avoid supervision arbitrage and bad money driving out good money in order to lead the healthy and orderly development of market, which can encourage all participants to upgrade efficiency and service constantly during orderly competition and provide consumers with diversified, safe and convenient payment options.

Meanwhile, insiders said that all parts of the industry including financial institutions and the third party payments shall speed up the construction of the disposal environment of mobile payment. "Code Scanning Group" is required to improve its safety level further in order to guarantee consumers` rights and interests. Meanwhile, "Quick Pass Group" gets certain breakthrough as to the combination of convenience and security, but its service environment is not optimistic, which requires the upgrading of hardware and the improvement of soft cashier environment.


Dong Ximiao,a visiting fellow of Chongyang Institute for Financial Studies at Renmin University of China, was quoted in this article.


Key Words: quick pay   bank   finance  

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