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China UnionPay Has to Meet Three Challenges to Win Mobile Payment Campaign
On December 18, 2015, China UnionPay (CUP) and Samsung Electronics announced the cooperation on the Samsung Pay service, whereby both parties will first deliver the security chip-based Samsung Pay service on the latest Samsung mobile devices to CUP cardholders in the Chinese Mainland.
  • 04 Jan, 2016
  • Finance
  • 5722
Event Review:
On December 18, 2015, China UnionPay (CUP) and Samsung Electronics announced the cooperation on the Samsung Pay service, whereby both parties will first deliver the security chip-based Samsung Pay service on the latest Samsung mobile devices to CUP cardholders in the Chinese Mainland. At the same time, CUP and Apple announced on the same day they will launch Apply Pay, an all-new simple, safe and private payment option, in China. In future, CUP cardholders can easily add their CUP cards to iPhone, Apple Watch and iPad.

Analysys Insight:

In 2015 Q3, China’s third-party mobile payment market reached RMB 4,391.4 billion in size, a jump of 26.39% quarter on quarter, shows the Quarterly Monitoring Report on China’s Mobile Payment Market 2015 Q3 published by Analysys. Alipay ranked the first with a market share of 71.51%. Tenpay grew rapidly and took a market share of 15.99%. Lakala still ranked the third with a market share of 6.01%.

As one of the earliest players in China’s mobile payment market, Alipay has ranked atop the mobile payment market amid the penetration of smart phones and with its inherent advantage in the e-commerce background. Benefiting from the swift growth of Wechat Pay, Tenpay ranked the second in the mobile payment market. Over the past two years, Alipay and Tenpay have both strengthened the effort to attack and invest in offline scenes, and gained many active users after fierce struggle. Besides, both vendors have both used the payment business to extend upward and develop relevant financial service.

Lakala entered the offline payment market earlier with terminals, and focused on convenience stores, communities and other scenes. At the same time, Lakala has also moved towards to credit reference, loan, wealth management and other business areas based on the payment business. As disclosed, in the full year, Lakala realized a transaction volume of RMB120 billion in the credit business, a volume of RMB5 bill per month in the wealth management business, and RMB 2.7 trillion on the integrated Internet finance platform.

Despite robust growth of China’s mobile payment market, China UMS, a mobile payment arm under CUP, has always failed to perform well, and takes only 0.49% of the mobile payment market, according to the Quarterly Monitoring Report on China’s Mobile Payment Market 2015 Q3 published by Analysys. At the same time, Apple, Samsung and other mobile phone manufacturers are also seeking the way to edge into China’s mobile payment market. In the opinion of Analysys, the recent cooperation will enable all parties to get what they want and benefit all.

Also, the cooperation means CUP will compete face to face with Alipay, Tenpay and other third-party payment institutions in the offline payment market, while Samsung, Apple and other mobile phone manufacturers will also cut into China’s mobile payment market through the cooperation. However, CUP will have to meet three challenges before it can take a slice of the pie in the offline mobile payment market:

Challenge 1: CUP need to refine its terminal network supporting NFC payment as soon as possible

The “Cloud Flash Pay”, a new payment service of CUP, needs a mobile phone supporting the NFC function and a POS terminal bearing the “Flash Pay” logo. However, only 25% of mobile phones nationwide now have the NFC function, and there are only 3 million “Flash Pay” terminals among over 10 million POS terminals nationwide. CUP has already realized the construction of the terminal network is a shortcoming and will access a new channel with recent cooperation with mobile phone manufacturers. At the same time, CUP has launched the Internet POS terminal in Chengdu and plans to upgrade traditional POS terminals at merchants.

Challenge 2: How to improve users' recognition and use of NFC payment

In Q3, Wechat Pay had 150 million active users and Alipay had 190 million active users, which strongly relates to their promotion with heavy subsidy. At the same time, Alipay has the natural e-commerce attribute and Wechat Pay has the inherent social nature. Compared to them, CUP has the natural bank card nature. It has a large user base, which, however, is isolated from the Internet to some extent. Therefore, CUP now faces the biggest challenge form how to attract users to use the NFC payment based on mobile phones. Besides, it will have to meet the challenge from how to convert Alipay users and Wechat Pay users into its own users and how to attract cash and card users to select the NFC payment.

Challenge 3: How to build diversified scenes to land CUP’s mobile payment

The keywords for the mobile phone market are “safe, convenient and complete in scene”. In the current mobile payment market, mainstream mobile payment applications basically meet the safety requirement in technology. As to convenience, Alipay puts the payment function on the tier-1 page and the Wechat Pay function is put a little behind the homepage, but still allows users to use the transfer service very conveniently. In the opinion of Analysys, scenes will remain an important factor deciding whether a payment agency will occupy the mobile payment market in future. 

 In conclusion, to grow well, CUP will first need to join hands with carriers, banks, mobile phone manufacturers, wearable device manufacturers, software builders, offline merchants and other players in order to promote the NFC service. Second, it will need to effectively promote and cultivate the user market, including providing adequate scenes and a high-quality experience for users.

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 Research Note:
To deliver the industrial analysis, Analysys mainly employs the industrial analysis model and combines the model with the market, industry and vendor research methods to mainly reflect the current market status, trend, deflection point and rules as well as the current status of vendors based on macroscopic industrial data, quarterly final user survey data, vendors' historical data and quarterly vendor monitoring information. 

 Analysys believes data derived from the aforesaid industry research methods fall into the error range generally accepted in the industry and can accurately reflect the industry trend and pattern.

Research results obtained from the professional research methods are for reference only. For actual data of vendors, please inquire a about their financial reports. 

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