China is Asia’s largest payment cards market in terms of card transaction value and volume, accounting for 77.1% and 45.8% shares respectively in 2016. What comes next for the regional giant?
China’s average annual spend per card is high, at $1,388.7, as compared to peers such as Malaysia ($695.2), Thailand ($492.8), the Philippines ($351.7), Indonesia ($283.5) and Cambodia ($112.6).
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Cash, however, remains a popular payment instrument among Chinese consumers, especially in rural areas. This is primarily a result of limited consumer awareness of the benefits of electronic payments, and relatively poor access to banking infrastructure.
The government and the banks have begun to provide basic financial access to the unbanked population by expanding banking infrastructure, launching new branches and making efforts to change consumer payment habits.
As a result, payment cards are gradually becoming more accepted, with their use consequently growing between 2012 and 2016. The share of the Chinese population aged 15 or above with a bank account increased from 69.3% in 2012 to 84.6% in 2016.
Rises in the economically active population and per capita disposable income, the growing popularity of online shopping, the increased acceptance of cards at retail outlets, and the adoption of contactless technology supported the growth of payment cards from 2012.
The emergence of digital-only banks is likely to accelerate further a shift towards electronic payments in China. WeBank, which was launched in January 2015, became the country’s first digital-only bank, allowing consumers to conduct transactions entirely online or through mobile phones.
WeBank’s launch was followed by MYBank and Baixin Bank in June and November 2015 respectively.
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By GlobalData
CUP maintains hold
CUP maintains holdIn China, China UnionPay (CUP) is the sole scheme provider of payment cards. According to central bank regulations, all banks and card issuers operating in the country are required to route renminbi-based transactions through CUP’s electronic payment network.
However, following a complaint by the US against China via the World Trade Organisation about discrimination against foreign companies in 2012, the WTO directed the Chinese government to open up the local payment cards market to foreign operators.
In October 2014, the Chinese government announced its decision to allow foreign companies to set up their own payment card clearing businesses, with effect from June 1 2015. In June 2016, however, the central bank set new rules enabling foreign competitors to begin operations in the market.
This move by the Chinese government has intensified competition in the payment cards market, and reduce CUP’s dominance as the country’s only authorised card clearing organisation. However, Visa and Mastercard have a long way to go before they can gain substantial market share from CUP, as they need to build up infrastructure from scratch.
Contactless mobile
Contactless mobileContactless mobile payments (m-payments) are expected to gain prominence in China, as retailers and mobile operators actively promote contactless technology. Consumer preferences for secure and convenient payment services are also gaining ground.
The latest initiatives were the launches of Apple Pay, Samsung Pay, Huawei Pay and Mi Pay in 2016, in association with CUP. Apple Pay entered the Chinese market in February 2016, in partnership with CUP. The service uses tokenisation technology to offer secure payments. Following the launch of Apple Pay, Samsung also launched its m-payment service in China in March 2016, also in alliance with CUP.
E-commerce growth
China is the largest e-commerce market in the world. In terms of transaction value, it recorded a compound annual growth rate of 39.7%, growing from CNY1.6trn ($225.8bn) in 2012 to $859.5bn in 2016, and is anticipated to reach $1.9trn by 2020.
The rapid adoption of smartphones, growing internet penetration, availability of secure online payment mechanisms, reductions in delivery times, and a growing consumer preference for online shopping, particularly among China’s rural population, given the relatively underdeveloped nature of bricks-and-mortar shops, are key factors leading to this growth.
Banks offer virtual credit cards to enable secure online shopping. Agricultural Bank of China launched virtual credit cards in November 2014, to protect customers from online fraud.
Similar to a physical card, the virtual credit card has a main card number, a card verification value (CVV) number and an expiry date. The principal difference is that the card data is sent to the cardholder via text message. The credit limit of the virtual card is the same as the cardholder’s existing physical card. The CVV number is automatically changed every three months to protect the cardholder. In the event of card fraud, the holder can cancel the card by telephone, and the issuer will provide a new virtual card instantly.
