The Vertical Portal for China Business Intelligence Global and China Mobile Payment Industry Report, 2019-2025 Published: June 2019 Property right statement: Copyright of charts, tables and sentences in this report belongs to ResearchInChina. For charts or tables marked as from other sources, original publishers own the copyright. The quoted data in this report are collected from public sources. If there is any problem related to property right, please do not hesitate to contact ResearchInChina. Global and China Mobile Payment Industry Report, 2019-2025 Study Goal and Objectives This report provides the industry executives with strategically significant competitor information, analysis, insight and projection on the competitive pattern and key companies in the industry, crucial to the development and implementation of effective business, marketing and R&D programs. Report Objectives To establish a comprehensive, factual, annually updated and cost-effective information base on market size, capabilities, output, sales volume, import and export, competition patterns, market segments, goals and strategies of the leading players in the market, reviews and forecasts. To assist potential market entrants in evaluating prospective acquisition and joint venture candidates. To complement the organizations’ internal competitor information gathering efforts with strategic analysis, data interpretation and insight. To suggest for concerned investors in line with the current development of this industry as well as the development tendency. To help company to succeed in a competitive market, and understand the size and growth rate of any opportunity. This report presents the ideal medium to understand the increasing opportunities in the field of this industry, including their market and applications, and will help research institutes, manufacturers, distributors, investors and other industry insiders to succeed in this growing industry. Intended Audience The report will be relevant to the following stakeholders: Marketing managers to identify new market opportunities and develop targeted promotion plans for their products; Research and development professionals to stay on top of competitor initiatives and explore demand for their products; Business development executives to understand the dynamics of the market and identify possible new markets; Information and research center librarians to provide market researchers, brand and product managers with the information needed to do their jobs more effectively. Methodology Both primary and secondary research methodologies were used in preparing this study. Initially, a comprehensive and exhaustive search of the literature on this industry was conducted. These sources included related books and journals, trade literature, marketing literature, other product/promotional literature, annual reports, security analyst reports, and other publications. Subsequently, telephone interviews or email correspondence was conducted with marketing executives etc. Other sources included related magazines, academics, and consulting companies. 1 Global and China Mobile Payment Industry Report, 2019-2025 Table of Contents 1. Overview ................................................................................................................................................................. 7 1.1 Definition ....................................................................................................................................................... 7 1.2 Classification ................................................................................................................................................. 7 1.3 Industry Chain ............................................................................................................................................. 10 2. Global Mobile Payment Market ......................................................................................................................... 12 2.1 Overview...................................................................................................................................................... 12 2.2 Regional Development ................................................................................................................................ 13 2.2.1 United States ..................................................................................................................................... 13 2.2.2 Japan ................................................................................................................................................. 17 2.2.3 India .................................................................................................................................................. 20 2.3 Competitive Landscape................................................................................................................................ 26 2.4 Development Trend ..................................................................................................................................... 28 3. Chinese Mobile Payment Market ....................................................................................................................... 30 3.1 Overview...................................................................................................................................................... 30 3.2 Regulatory Policies ...................................................................................................................................... 30 3.2.1 Industry Access ................................................................................................................................. 31 3.2.2 Main Polices ..................................................................................................................................... 32 3.2.3 Payment License ............................................................................................................................... 34 3.3 Market Size .................................................................................................................................................. 43 3.4 Market Structure .......................................................................................................................................... 44 3.5 Enterprise Pattern......................................................................................................................................... 45 3.6 Mobile Payment Overseas Layout ............................................................................................................... 49 3.7 Development Trend ..................................................................................................................................... 50 3.7.1 Tougher Regulation of and Tighter Access to Payment Market........................................................ 50 3.7.2 Security Issue Is Taken Seriously ..................................................................................................... 52 3.7.3 Industry Trend ................................................................................................................................... 54 4. Mobile Payment Market Segments .................................................................................................................... 58 4.1 Third-party Mobile Payment........................................................................................................................ 58 4.1.1 Overview........................................................................................................................................... 58 4.1.2 Market Size ....................................................................................................................................... 60 4.1.3 Market Structure ............................................................................................................................... 61 4.1.4 Competitive Landscape..................................................................................................................... 61 4.2 Mobile Banking ........................................................................................................................................... 63 4.2.1 Overview........................................................................................................................................... 63 4.2.2 Market Size ....................................................................................................................................... 64 4.2.3 Competitive Landscape..................................................................................................................... 65 4.2.4 Development Trend........................................................................................................................... 67 4.3 Operators’ Mobile Payment ......................................................................................................................... 67 4.4 Barcode Payment ......................................................................................................................................... 69 2 Global and China Mobile Payment Industry Report, 2019-2025 4.4.1 Technology........................................................................................................................................ 69 4.4.2 Status Quo ......................................................................................................................................... 70 4.4.3 Presence of Enterprises ..................................................................................................................... 73 4.5 NFC Payment............................................................................................................................................... 74 4.5.1 Technology........................................................................................................................................ 74 4.5.2 Market Size ....................................................................................................................................... 77 4.5.3 Presence of Enterprises ..................................................................................................................... 81 4.5.4 HCE Cloud-based QuickPass ........................................................................................................... 82 4.6 Biometric Identification Payment ................................................................................................................ 84 5. Mobile Payment Users in China ......................................................................................................................... 87 5.1 Overview...................................................................................................................................................... 87 5.2 Characteristics of Mobile Payment Users .................................................................................................... 87 5.3 Using Behaviors of Mobile Payment Users ................................................................................................. 90 5.4 Attributes and Behavior Preferences of Mobile Payment Users .................................................................. 98 6. Mobile Payment-related Industry Chain ......................................................................................................... 105 6.1 Mobile Netizens ......................................................................................................................................... 105 6.2 Consumer Terminal Devices ...................................................................................................................... 107 6.3 Intelligent POS Machine............................................................................................................................ 108 6.3.1 Overview of Products ..................................................................................................................... 108 6.3.2 Market Size ..................................................................................................................................... 115 6.3.3 Trend of Products ............................................................................................................................ 120 Figure Index Development Trends of Payment......................................................................................................................... 7 Classification of Payment Modes ........................................................................................................................ 8 Mobile Payment Industry Chain ........................................................................................................................ 10 Value Chain of NFC Mobile Payment ............................................................................................................... 11 Global Mobile Payment Transaction Value and Growth, 2016-2025E .............................................................. 12 Ranking of Countries by Mobile Wallet Usage Rate ......................................................................................... 13 Payment methods in the U.S., 2018 ................................................................................................................... 14 P2P Mobile Payment Transaction Value in the US, 2018-2023E ...................................................................... 15 Proximity Mobile Payment Transaction Value in the US, 2018-2023E............................................................. 16 Proximity mobile payment users in the US, by Platform, 2019 ........................................................................ 17 Major Electronic Payment Products in Japan .................................................................................................... 18 Number of Cashless Payment Users in Japan, 2016-2021E .............................................................................. 19 Mobile Payment Transaction Value Growth in India, 2015-2018...................................................................... 20 Development Status in India .............................................................................................................................. 23 Reasons for Choosing Digital Payment in India ................................................................................................ 24 Major Policies on Mobile Payment in India ...................................................................................................... 25 Mobile Payment Trend in India ......................................................................................................................... 25 3 Global and China Mobile Payment Industry Report, 2019-2025 Potential Mobile Payment Users in India, 2015&2020E ................................................................................... 25 Classification of Third-party Payment Licenses and Regulators ....................................................................... 35 Number of Payment Licenses Issued to Non-Banking Institutions in China, 2015-2019 ................................. 35 Number of Payment Licenses Issued in China by Type by the End of 2019 ..................................................... 36 Chinese Mobile Payment Market Size, 2015-2025E ......................................................................................... 44 Chinese Mobile Payment Market Structure, 2015-2025E ................................................................................. 44 Mobile Payment Transactions in China by Operating Model ............................................................................ 48 The Enterprises with Cross-border Payment License in China ......................................................................... 49 China Nets Union Clearing Corporation as a Regulator on Payment Institutions ............................................. 51 Trends of Policies on Mobile Payment in China ............................................................................................... 52 Ways for Chinese Payment Users to Contact Defrauds, 2019 ........................................................................... 53 Trends of Presence in Mobile Payment Business .............................................................................................. 55 Development Trends of Mobile Payment Platform ........................................................................................... 56 Trends of Cooperation between Mobile Payment Enterprises ........................................................................... 56 Mobile Payment Transactions in China, 2019-2025E ....................................................................................... 57 Chinese Mobile Payment Market Structure, 2025E........................................................................................... 57 Main Characteristics of Third-party Mobile Payment ....................................................................................... 58 Third-party Mobile Payment Industry Chain in China ...................................................................................... 60 Chinese Third-party Mobile Payment Market Size, 2015-2025E ...................................................................... 60 Structure of Third-party Mobile Payment Transactions in China by Type of Business, 2018-2019 ................. 61 Market Share of Third-party Mobile Payment in China, 2018-2019 ................................................................. 62 Mobile Banking Industry Chain ........................................................................................................................ 64 Mobile Banking Transactions in China, 2015-2025E ........................................................................................ 65 Mobile Phone Bank Users Scales of Major Banks in China, as of the end of 2018 .......................................... 65 Market Share of Mobile Banking in China, 2017-2018..................................................................................... 66 Operators’ Operating Models of Mobile Payment ............................................................................................. 68 Mobile Operators Dominate Mobile Payment Value Chain .............................................................................. 68 Framework of QR Code Payment System ......................................................................................................... 69 2D Barcode Payment Industry Chain ................................................................................................................ 70 Quarterly Transactions Scale of China's Off-Line Scan Payment, 2017-2019 .................................................. 72 Transaction Scale of China Integration Payment Market, 2016-2025E............................................................. 73 Modes of Unionpay 2D Barcode Payment ........................................................................................................ 74 Development Course of NFC Technology ......................................................................................................... 75 Technical Framework of NFC ........................................................................................................................... 75 Operating Models and Components of NFC Reader/Writer .............................................................................. 76 Main Implementations of SE in NFC ................................................................................................................ 77 China Mobile NFC Payment Transaction Scale, 2017-2019 ............................................................................. 80 NFC Payment Industry Chain ............................................................................................................................ 81 Process of NFC Payment ................................................................................................................................... 82 Installation of Cloud QuickPass ........................................................................................................................ 83 Mobile Phone Flash Payment Products Supporting UnionPay Mobile Phone Flash Payment .......................... 84 Development Trend of No-cash Society in China ............................................................................................. 86 Mobile Payment Users Structure in China by Gender, 2017-2018 .................................................................... 88 Mobile Payment Users Structure in China by Age, 2017-2018 ......................................................................... 88 4 Global and China Mobile Payment Industry Report, 2019-2025 Educational Background of Mobile Payment Users in China, 2017-2018 ........................................................ 89 Distribution of Mobile Payment Users in China by Region, 2017-2018 ........................................................... 89 Distribution of Mobile Payment Users in China by Region, 2017-2018 ........................................................... 90 Frequency of Mobile Payment by Users in China, 2017-2018 .......................................................................... 91 Amount Per Payment of Mobile Payment Users in China, 2017-2018 ............................................................. 91 Account Type Structure Used by Mobile Payment Users, 2018 ........................................................................ 92 Main Reasons for Using Mobile Payment in China, 2018 ................................................................................ 93 Proportion of Users Expecting Mobile Payment Development, 2018 ............................................................... 93 Problems with Usage of Mobile Payment by Users in China, 2017-2018......................................................... 94 Proportion of Security Problems Encountered by Mobile Payment Users, 2018 .............................................. 95 Proportion of Problems Mobile Payment Users Think to Solve in Client Terminals, 2018 .............................. 95 Proportion of Customer Rights Protection Measures Expected by Mobile Payment Users, 2018 .................... 96 Proportion of Problems Mobile Payment Users Concerned, 2018 .................................................................... 97 Analysis of Network Consumption Period, 2018 .............................................................................................. 97 Major Industries to Which Mobile Payments Are Applied, 2018 ...................................................................... 98 Payment Methods of Mobile Payment in China, 2018 ...................................................................................... 99 Proportion of Users Aaccepting Barcode Payment, 2018 .................................................................................. 99 Barcode Pay Scenarios of Chinese Mobile Payment Users, 2017-2018 .......................................................... 100 Proportion of Payment Methods Used by China Mobile Payment Users to Take Public Transportation, 2018 ................................................................................................................................................................. 100 Proportion of Payment Methods Used by China Mobile Payment Users for High Speed Payment, 2018 ...... 101 Proportion of China Mobile Payment Users Knowing about Mobile Payment Policies, 2018 ....................... 102 Mobile Payment Users’ Awareness of New Mobile Payment Technologies in China, 2017-2018 .................. 102 Mobile Payment Users’ Acceptance of Biometric Recognition Technology in China, 2017-2018 ................. 103 Comparison of Users' Concerns in Mobile Payment Using Biometrics in China, 2018.................................. 104 Netizen Scale in China, 2015-2025E ............................................................................................................... 105 Mobile Netizens in China, 2015-2025E........................................................................................................... 106 % of Mobile-terminal Online Payment Transactions in China, 2017-2018 ..................................................... 106 Global Smartphone Shipment, 2015-2025E .................................................................................................... 107 Global NFC-enabled Mobile Phone Shipments, 2015-2018 ........................................................................... 107 Number of Merchants Joining the UnionPay Network in China and YoY Growth, 2007-2025E.................... 115 Number of New Merchants Joining the UnionPay Network in China and YoY Growth, 2007-2025E ........... 116 Number of POS Terminals Joined the UnionPay Network in China and YoY Growth, 2007-2025E.............. 117 Number of New POS Terminals Joined the UnionPay Network in China and YoY Growth, 2007-2025E ..... 118 Number of Bankcards for Every POS Terminal in China, 2007-2025E .......................................................... 119 POS Terminal Ownership per Thousand People in China, 2007-2025E ......................................................... 119 China's POS Terminal Shipments, 2015-2025E .............................................................................................. 120 Functional Evolution of Intelligent POS Terminal .......................................................................................... 121 5 Global and China Mobile Payment Industry Report, 2019-2025 Table Index NFC Payment VS Remote Payment .................................................................................................................... 8 Comparison of Main Mobile Payment Technologies........................................................................................... 9 2D Barcode Payment VS NFC Payment............................................................................................................ 10 Main Applications of Mobile Payment .............................................................................................................. 11 Mobile Wallet Usage Rate for Users of Different Ages Worldwide .................................................................. 13 Financing Cases of Paytm, 2015-2019 .............................................................................................................. 21 Events in Leading Mobile Payment Firms’ Layout in India .............................................................................. 22 Comparison of Major Mobile Payment Platform in India ................................................................................. 23 Major Mobile Payment Enterprises and Products Worldwide by Country ........................................................ 26 Major Mobile Payment Platform Worldwide..................................................................................................... 27 Interpretations of Regulations on the Online Payment Business of Non-Banking Payment Institutions .......... 31 Main Policies on Mobile Payment in China, 2011-2019 ................................................................................... 32 Enterprises Having been Cancelled Payment Business License by the End of 2019 ........................................ 36 Enterprises Having Obtained Payment Business License by the End of 2019 .................................................. 37 Major Operating Models and Participants of Mobile Payment in China, 2019 ................................................. 45 Major Payment License Acquisitions in China, 2014-2019 .............................................................................. 47 Overseas Layout of Mobile Payment Firms, 2019 ............................................................................................ 49 Key Regulatory Policies & Contents on Chinese Payment Institutions ............................................................ 51 Vulnerabilities of Mobile Payment .................................................................................................................... 53 Development Trends of Mobile Payment Business ........................................................................................... 55 Implementations and Merits & Demerits of Mobile Banking ........................................................................... 63 Classification of Mobile Banking ...................................................................................................................... 63 Development Trends of Mobile Banking........................................................................................................... 67 Major Devices/Facilities for and Functions of 2D Barcode Payment................................................................ 69 Development History of Barcode Payment ....................................................................................................... 71 NFC-enabled Cellphone Models Officially Released in China, 2019 ............................................................... 79 Development History of Cloud-based QuickPass in China, 2015-2019 ............................................................ 83 Development of Chinese Face Payment Equipment .......................................................................................... 85 Comparison of Offline Mobile Payments ........................................................................................................ 108 Imagpay Breakdown Products and Characteristics .......................................................................................... 111 Product Characteristics of Major Imagpay Manufacturers in China ............................................................... 112 6 Global and China Mobile Payment Industry Report, 2019-2025 1. Overview 1.1 Definition Mobile payment is also known as smartphone payment. It mainly refers to a mode of service that users can pay for goods or services through mobile terminal devices (smartphone, tablet PC, etc.). Units or individuals directly or indirectly give payment instructions to banks and financial institutions for monetary payment and money transfer through mobile devices, internet or proximity sensor, thus successfully achieving mobile payment. Mobile payment integrates terminal devices, internet, APP providers and financial institutions, providing users with financial services like monetary payment. Traditional payment consists of banking payment and non-banking payment. Wherein, non-banking payment market falls into POS offline payment and online payment, of which the latter is split into internet payment and mobile payment. For a long time, banking payment and POS offline payment have been dominant in China’s payment market, and UnionPay is the leader. Development Trends of Payment Source: ResearchInChina 1.2 Classification By payment distance and interactive mode, mobile payment can be divided into remote mobile payment and NFC mobile payment. 1) Remote payment refers to a method of payment that users use short message or GPRS to give payment instructions through network provided by mobile operators, and get connected by backstage system to complete payment. Users can enjoy banking payment and other services through sending short message or logging in network with mobile devices. 2) NFC payment refers to a method of payment that users use near field communication technology (NFC) or Bluetooth and infrared technologies on their mobile terminals to realize information interaction with merchants (like convenience stores, shopping malls and buses) who have POS devices, for money transfer. It primarily includes 2D barcode payment and NFC payment. 7 Global and China Mobile Payment Industry Report, 2019-2025 In recent years, as mobile communication technology developed rapidly, intelligent terminals kept spreading and financial IC cards posted wide application, mobile payment has been a new development direction of electronic payment. Classification of Payment Modes Source: ResearchInChina NFC Payment VS Remote Payment Online Payment Offline Payment Remote payment NFC payment Application Highly electronic products and services Products and services of physical stores, Scenes like E-commerce platform such as shops, shopping malls, cinemas and Mean of Transaction buses. Technological Communication Support terminal, short massage, GPRS, etc. network, client Near field communication (NFC), 2D barcode code, sound wave, fingerprint, infrared, Bluetooth, etc. Payment Limit Security Level In general, payment limit is high, For depending on balance and quota of consumption accounts of source of funds. RMB1,000. Have low requirements on security; SIM Have high requirements on security; need card authorization is available. authorization of financial institutions. Source: ResearchInChina 8 micropayment, limit single are deposit restricted and within Global and China Mobile Payment Industry Report, 2019-2025 Comparison of Main Mobile Payment Technologies Payment Technology Definition Scenario Near Field Communication, Apple Pay uses NFC technology i.e., to near-field communication NFC allows data non-contact data wireless technology, exchange via point-to-point transmission between electronic devices bind Advantages and Disadvantages various bank cards; iPhone completes payment by approaching POS machine; Wearable devices can be a major application carrier by virtue of NFC technology Point-to-Point near-filed communication ensures confidentiality and security of data transmission and quicker payment without networking; A more complicated ecosystem; collaboration among chip suppliers, mobile phone vendors & merchants, UnionPay, and consumers Host Card Emulation is a new NFC technology launched by HCE Google at the end of 2013. China developed Free from limitations of hardware With physical security module QuickPass by combining HCE and security carrier on mobile payment of traditional NFC replaced by Token and ensure security; remotely-hosted achieving offline cloud SE, UnionPay technologies, payment mobile devices can achieve non-contact safe remote online payment. NFC communication finally terminals on Support only Android NFC mobile and phones and apply to only POS devices with QuickPass function even without SE hardware module Magnetic Secure Transmission can control magnetic field via emitter to wirelessly MST transmit magnetic-stripe data to POS machine, card-swiping and complete by simulating Samsung launched Samsung Pay mobile payment service which supports both NFC and MST payment technologies to compete against Apple Pay. Compatible with traditional magnetic-stripe POS machines, and merchants don’t need to upgrade POS machines’ Only Samsung Galaxy S6 edge + Galaxy Note 5 support the technology card-swiping Conduct identification physiological Biometric Technology Recognition features with Alibaba and face-recognition behavioral characteristics; fingerprint payment, launched Alipay technology Convenient and fast verification “Smile to Pay”; methods, better user experience; Apply Pay makes payment via recognition rate needs to be improved, face-scanning payment and fingerprint and security remains to be verified iris payment for now ID”. recognition Source: ResearchInChina 9 “Touch Global and China Mobile Payment Industry Report, 2019-2025 2D Barcode Payment VS NFC Payment 2D Barcode Payment Payment Method Merchants scan 2D NFC Payment barcode generated by APP on consumers’ Consumers’ smartphones touch merchants’ POS devices. smartphones Security Automatically generate 2D Automatically generate barcode accounts Hardware Requirement Low High Network Need mobile internet Available with network Industry Chain Relatively short Relatively long Beneficiary Side Clear pattern Complicated pattern Environment virtual Requirement Source: ResearchInChina 1.3 Industry Chain The huge industrial chain of mobile payment determines that participants of the whole industry chain will be far more than those of traditional electronic payment industry, from upstream technology and solution providers and equipment manufacturers to mobile payment enterprises such as telecom operators, third-party payment companies, bank card organizations, commercial banks, to the downstream merchants, all promoting the development of the whole industry in cooperation and competition. Mobile Payment Industry Chain Source: ResearchInChina 10 Global and China Mobile Payment Industry Report, 2019-2025 Value Chain of NFC Mobile Payment Source: ResearchInChina Main Applications of Mobile Payment Application Fields Application Scenes Information Commutation Customized information, software download, QQ, WeChat Entertainment Game, song, ringtone, photo download Public Utility Charges Water, electricity, coal fees, telephone charges, parking fees Commerce Online shopping, catering payment, supermarket shopping, air ticket purchase Finance State bonds purchase, funds, stocks, debt repayment Source: ResearchInChina 11 Global and China Mobile Payment Industry Report, 2019-2025 2. Global Mobile Payment Market 2.1 Overview In the past decade, the rapid development of mobile payment has greatly improved the inclusiveness and availability of global financial services. At the same time, mobile payment has become an entrance and platform, gradually extending to a variety of services such as wealth management, loans, education, medical care, mobility and entertainment, and fully penetrating into users’ life. This has amplified the breadth and depth of the global digital revolution, as well as raised the price and status of payment service organizations. At present, the development of global mobile payment has reached a new high, which is manifested by the radical expansion of payment institutions, the steady spike in transaction amount, a rising number of users, and the emergence of new service solutions which fill the gaps in the traditional financial system. In 2018, the global mobile payment transactions fetched USD4.296 trillion, a year-on-year increase of 38.4%. A high growth rate is expected in the next few years, and the transaction amount will be USD23.145 trillion by 2025. Global Mobile Payment Transaction Value and Growth, 2016-2025E Trasaction Value (USD bn) YoY Growth (%) 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2,211 3,104 4,296 6,109 8,961 11,141 13,979 16,772 19,846 23,145 40.4% 38.4% 42.2% 46.7% 24.3% 25.5% 20.0% 18.3% 16.6% Source: Merchant Machine; ResearchInChina At present, China has the highest mobile payment penetration rate in the world, with about 47% of mobile phone holders using mobile & digital wallets; the second-ranked Norway sees a utilization rate of 42%, which is significantly higher than other European countries. 12 Global and China Mobile Payment Industry Report, 2019-2025 Ranking of Countries by Mobile Wallet Usage Rate Source: Merchant Machine; ResearchInChina In terms of age, people aged 18-34 exploit mobile payment most often, and 48% of them use mobile wallets. Mobile Wallet Usage Rate for Users of Different Ages Worldwide Age Mobile wallet usage Without mobile wallet Without mobile wallet but be interested and interest 18-34 years old 48% 32% 20% 35-44 years old 44% 32% 24% 45-54 years old 37% 30% 33% 55-64 years old 29% 27% 43% Over 65 years old 22% 28% 50% Source: Merchant Machine; ResearchInChina 2.2 Regional Development 2.2.1 United States Limited by communication technologies, national policies, and users’ habits, the development of mobile payment in different countries varies. As a pioneer in mobile payment filed, the United States has led the trend in innovation in mobile technology. However, due to its powerful credit card system and users’ long-standing habits of paying by credit card, mobile payment industry has developed slowly and the penetration of mobile payment remains low. U.S. consumers aren’t lacking options when it comes to paying on their phones. There’s Apple Pay, Google Pay, Samsung Pay, PayPal, Venmo, Square Cash, Zelle and newcomers looking to disrupt that entire list. 13 Global and China Mobile Payment Industry Report, 2019-2025 The environment in the United States is not conducive to the promotion of mobile payments. People in the United States, Japan, and Europe are extremely sensitive to personal privacy and data security, so they do not prefer mobile payments. In addition, mobile payments are under the radar of the national financial regulatory system and policies, and the government must fully evaluate the challenges and impacts that new payment methods may bring. Therefore, mobile payments develop slowly in the United States, Japan, and Europe where traditional payment methods prevail. Conventional methods are still winning in the U.S. Last year, 80% of consumers used credit cards for purchases, according to Bain. PayPal was the most popular nonbank option at 40% adoption but is largely used for online payments. Apple Pay had 9% adoption. Payment methods in the U.S., 2018 Source: Bain/Research Now Retail Banking NPS Survey 2018; ResearchInChina Facebook Pay is a social network-based payment method similar to WeChat Pay. It boasts massive users, connecting WhatsApp, Instagram and Messenger with Facebook to activate the users of these high-traffic and high-DAU applications at one time. Unlike Apple and Google which are backed up by hardware and software systems or independent payment tools PayPal and Square, Facebook uses its own social network as a platform to embark on fintech services. Peer-to-peer (P2P) payments are increasing significantly in the US, driven by tremendous growth from Venmo and Zelle. Our latest estimates show that P2P mobile transactions will total $309.95 billion this year, growing 27.9% to hit $396.48 billion in 2020. 14 Global and China Mobile Payment Industry Report, 2019-2025 The number of P2P payment users will continue to grow as well: We estimate that there will be 69.2 million users in the US this year, rising to 73.8 million by 2020. Venmo, acquired by PayPal in 2013, reported strong Q2 results, with total payment volume increasing 70% year over year to 24 billion transactions in the quarter. Dan Schulman, president and CEO of PayPal, said the company expects Venmo will drive a total payment volume of nearly $100 billion by the end of 2019. Zelle, owned by seven of the biggest US banks, similarly reported strong second-quarter results this year. The company said that payment value grew 56% to $44 billion, and the number of transactions grew 71% to 171 million. P2P Mobile Payment Transaction Value in the US, 2018-2023E Source: eMarketer, ResearchInChina 15 Global and China Mobile Payment Industry Report, 2019-2025 In 2023, near-field-communications or other contactless technologies are projected to generate over 220 billion U.S. dollars in transaction value. As of 2018, about 25.3 percent of smartphone users in the United States were actively using proximity mobile payment services. Industry experts project mobile proximity payments to be amongst the most successful future mobile payment methods. Popular application areas are paying for transport and transit, as well as retail goods and services. According to a survey of digital payment users, the most common mobile in-store mobile payment method was barcode or QR code scanning and a further 12 percent had waved or tapped their mobile phone to pay at check out. Mobile wallet apps are used to facilitate mobile payments. PayPal, Google Wallet and Apple Pay are amongst the most popular digital wallet services according to users in the United States. A current example of mobile proximity payment usage is Starbucks. The coffee retailer allows customers to pay via mobile app by waving their phone at the checkout counter. Proximity Mobile Payment Transaction Value in the US, 2018-2023E Source: eMarketer, ResearchInChina Apple Pay had 30.3 million users as of Oct 2019, taking up 47.3% of all mobile payment users in the U.S., becoming the most popular method of mobile payments. 16 Global and China Mobile Payment Industry Report, 2019-2025 Increasingly, many American stores accept Apple Pay over other proximity mobile payment platforms, which can explain its dominance. Apple Pay is available already at major retailers such as Target, Walmart and Costco. Usage of proximity mobile payments depend upon both consumer adoption and retailer acceptance and since Apple has a strong brand, people are more willing to use new services within its ecosystem. However, more retailers are also starting to accept Google Pay and other platforms. Proximity mobile payment users in the US, by Platform, 2019 Source: eMarketer, ResearchInChina 2.2.2 Japan Japan is a forerunner of mobile payment. It started to develop mobile payments more than a decade ago. However, due to the rapid aging of the population, the elderly rejects the cashless policy promoted by the country, which has largely suppressed the development of mobile payments in Japan. Nevertheless, this situation is changing quietly. Under the joint efforts of the Japanese government, local enterprises, and foreign mobile payment vendors, the competition in the Japanese mobile payment market is simmering. Line introduced Line Pay worldwide on December 16, 2014. The service allows users to request and send money from users in their contact list and make mobile payments in store. The service has since expanded to allow other features such as offline wire transfers when making purchases and ATM transactions like depositing and withdrawing money. Rakuten Pay, a mobile-only payment system, was launched in 2016 by the leader of the Japanese e-commerce segment, Rakuten. Rakuten Pay is the largest QR code payment service in Japan by the number of users 17 Global and China Mobile Payment Industry Report, 2019-2025 PayPay Corp., which is a mobile payment firm jointly run by SoftBank Group Corp. and Yahoo Japan, is partnering with Ant Financial to allow Alipay users to make payments with their app at PayPay-ready stores. Alibaba is part of the SoftBank group. PayPay also announced in November 2018 that it will launch a JPY10 billion rebate campaign starting from December 2018 through March 2019 in which customers can receive a 20% rebate for every purchase through the PayPay mobile payment platform. The limit of the rebate is JPY50,000 per month and the campaign will end when PayPay gives back JPY10 billion in total. Apple and Google have entered the Japanese mobile payment market through their respective platforms, Apple Pay and Google Pay. South Korean mobile payment firm Kakao Pay is also looking to enter Japan, betting on Tokyo’s push to go cashless At the end of 2017, more than 40,000 stores in Japan introduced Alipay and WeChat Pay, 99% of whose users are Chinese who come to Japan for travel and business, and Chinese students. Tourism, especially from China, has been one of the few economic bright spots in Japan, and Chinese tourists use the mobile payment system Alipay and WeChat Pay at over 300,000 Japanese merchants. At present, local payment instruments represented by Rakuten, Line Pay and PayPay, American payment tools represented by PayPal, and Chinese payment giants Alipay and WeChat compete with each other in Japan. From the perspective of commercial competition and market dividends, mobile payments are rapidly becoming a vibrant market in Japan. Major Electronic Payment Products in Japan Source: ResearchInChina Estimates by the government using 2015 data from organizations including the World Bank and BIS show Japan’s cashless rate was only 18.4%, while that of China was 60%, South Korea’s was 89.1%, and Europe and America fetched 40-50%. In 2018 the Ministry of Economy, Trade and Industry (METI) released a document titled Cashless Vision evaluating Japan’s current standing on cashless transactions and settlements, and outlining the actions it will take to achieve its goal of increasing cashless settlements’ ratio to 40% by 2025 and outlining its intention to eventually reach 80% beyond that date. 18 Global and China Mobile Payment Industry Report, 2019-2025 According to InfoCom Research, Inc., as of March 2019, the number of people using cashless payment methods had grown significantly. Apparently, mobile payments tended to surpass electronic money to become the mainstay of Japan's future payment methods. Number of Cashless Payment Users in Japan, 2016-2021E 2500 2000 1500 1000 500 0 2016 2017 2018 2019 2020 2021 Number of users with mobile wallet payment Number of users with smartphone QR code payment (10,000 people) 2016 2017 2018 2019 2020 2021 Number of users with mobile wallet payment 640 893 1157 1435 1691 1953 Number of users with smartphone QR code payment 62 187 512 960 1422 1880 Note: the users refer to active users who use it more than once a month Source: ICT, ResearchInChina Japan's mobile payment development model relies on mobile operators to coordinate upstream and downstream companies in the mobile payment value chain. At present, Japan's mobile payment services have been applied to electronic money payment systems, prepaid phone & recharge systems, corporate registration & management, identification card systems, and train ticket purchase systems. RFID has been widely used in Japan as mobile payments at PoS terminal in a similar way as NFC. People can purchase goods through their mobile phones, there is an RFID reader and a menu that has built-in RFID chips. Customers plug the reader into their mobile phones and point them at the item on the menu that they wish to buy. The bill is charged through the mobile phone. In Japan people can also pay through the cell phone number, or through an RFID chip, using the mobile e-wallet system developed by NTT DoCoMo. The operator NTT DoCoMo enjoys more than 50% share of the Japanese mobile communications market, and it has been favored by government policies, which enables it to establish a unified mobile payment platform and guide financial institutions and third-party payment platforms to provide services around telecommunications operators. 19 Global and China Mobile Payment Industry Report, 2019-2025 2.2.3 India The Indian government has been promoting the development of the mobile payment ecosystem through favorable policies. Measures include providing incentives and subsidies to consumers and merchants, building modern payment infrastructure, implementing a digital economy literacy plan, and optimizing business processes. Plus benefiting from the popularity of smartphone as well as the development of innovation ecology, India has become one of the countries with the fastest growth in mobile payment. According to data from the Bank for International Settlements, the volume of Indian mobile payment transactions in 2018 increased by 55% year-on-year, ranking first in the world. The number of mobile payment transactions per capita in India increased from 2.4 person-times in 2014 to 22.42 person-times in 2019, and the proportion of mobile payment transactions in GDP increased from 7.14% in 2016 to 8.42% in 2018. Meanwhile, according to KPMG's India mobile payment report 2019, digital payment transactions in India will grow at a compound annual growth rate of 20.2% from 2019 to 2023, and India is shifting to a cashless country. Mobile Payment Transaction Value Growth in India, 2015-2018 Source: Bank for International Settlements; ResearchInChina At present, mobile payments involving public utilities such as donations, taxes, and tuition fees are currently India's most mature businesses, followed by financial services like wealth management, insurance and loans. In the Indian market, a considerable number of people still do not have access to the financial services of traditional banks, while popular mobile financial services will help them. 20 Global and China Mobile Payment Industry Report, 2019-2025 Currently, multiple payment gateway operators (including Paytm, Mobikwik and Bharat Bill) and payment aggregation service providers (such as BillDesk, PayU India, CCAvenue and Razorpay) have emerged in India. Paytm has become a leader in the Indian mobile payment market, with more than 250 million users. Paytm is India's largest leading payment gateway that offers comprehensive payment services for customer and merchants. Paytm offers mobile payment solutions to over 7 million merchants and allow consumers to make seamless mobile payments from Cards, Bank Accounts and Digital Credit among others. Its investors include Softbank, SAIF Partners, Alibaba Group and Ant Financial. Financing Cases of Paytm, 2015-2019 Time Event Sept 29, 2015 Ant Financial & Alibaba has invested USD680 million in Paytm, acquiring 40% stake in the venture 2017 Paytm raised USD1.4 billion from Softbank 2018 Paytm raised USD300 million from Warren Buffett's Berkshire Hathaway in September 2018 2019 Paytm raised USD1 billion to bolster its merchant and financial services play in its latest financing round led by US-based asset management firm T Rowe Price. The fresh investment round saw the participation of Discovery Capital and D1 Capital, who invested primary capital along with T Rowe Price. The three participants together poured in USD400 million in the payment firm whereas Paytm’s existing investors SoftBank (USD200 Mn) and Alibaba Group affiliate Ant Financial (USD400 Mn) put in USD600 million together. Source: ResearchInChina In addition, Google, Facebook, Alibaba, Amazon, SoftBank and other international giants have entered the Indian mobile payment market by different ways. Indian technology giants are also scrambling for a share of that pie. The online cab aggregator Ola, the e-commerce giants Flipkart and Snapdeal have launched their own mobile payment platforms. Airtel launched its first payment bank in India in 2016. 21 Global and China Mobile Payment Industry Report, 2019-2025 Events in Leading Mobile Payment Firms’ Layout in India Firms National Layout Payments Corporation of India (NPCI) NPCI launched the app Bharat Interface for Money (BHIM) in December 2016. Based on the Unified Payments Interface (UPI) which makes users transfer money between banks and mobile wallets, BHIM is a governmental mobile wallet for money transfer and transactions. It features one-stop converged services. Samsung In December 2016, Samsung began testing mobile services in India. Recently, it has launched smartphone updates, including a Samsung payment application. However, Samsung Pay is only available on high-end Samsung smartphones, which limits its coverage. WhatsApp In April 2017, WhatsApp announced the launch of its electronic payment services in India. This is the overseas debut of WhatsApp's electronic payment business. Google In September 2017, Google officially launched Tez, a mobile payment application tailored for India. Tez supports Apple and Android simultaneously. It also collaborates with local merchants widely and attracts users through subsidies. Although Tez does not support deposits, users can transfer money via UPI or "Audio QR Code". At present, Tez has been adopted by some payment gateway operators such as PayU and corporate websites such as redBus (an online bus ticketing platform) Amazon In July 2017, Amazon introduced a semi-closed e-wallet to the Indian market. It not only supports online payments, but also enables users to deposit money. Local people can use this wallet at www.amazon.in, India's largest coffee chain Cafe Coffee Day and the fast food restaurant Faasos. FreeCharge In March 2017, Snapdeal committed to investing an additional USD20 million in FreeCharge to further develop the mobile payment business. Mobikwik As of September 28, 2017, MobiKwik had ranked 15th in the iOS App Store in India and raised a total of USD162 million from investors including Sequoia Capital, Times Group (an Indian media conglomerate) and American Express Ventures. Xiaomi In December 2017, Xiaomi made a regulatory filing with the Registrar of Companies (RoC) in India, revealing the company’s plan for expansion in the country. As per report, the filing indicates that the Chinese smartphone maker wants to sell electric vehicles in India and enter the mobile payment market. On March 20, 2019, Xiaomi expanded its Mi Pay mobile payments service to India. Testing was finally completed and Indian users get full access to Mi Pay. The platform is built on the Unified Payments Interface (UPI) in collaboration with National Payments Corporation of India (NPCI) and ICICI Bank and supports more than 120 banks. WeChat Indian media Entrackr reported on March 22, 2019 that Tencent will launch UPI-powered payments app WeChat Pay in India Source: ResearchInChina 22 Global and China Mobile Payment Industry Report, 2019-2025 Comparison of Major Mobile Payment Platform in India Source: ResearchInChina India is another emerging mobile payment market. Common cash transactions have severely hindered the development of E-commerce in the country. Local and foreign E-commerce enterprises in Indian have launched a series of mobile payment systems and tried to transform consumers’ habit of cash payment into mobile payment so as to seize great business opportunities. Development Status in India Source: India Development Fund; ResearchInChina 23 Global and China Mobile Payment Industry Report, 2019-2025 Reasons for Choosing Digital Payment in India Source: Google; ResearchInChina 24 Global and China Mobile Payment Industry Report, 2019-2025 Major Policies on Mobile Payment in India Source: ResearchInChina Mobile Payment Trend in India Source: Paytm, ResearchInChina Potential Mobile Payment Users in India, 2015&2020E Source: Google, ResearchInChina 25 Global and China Mobile Payment Industry Report, 2019-2025 2.3 Competitive Landscape At present, mobile payment is primarily carried out by financial institutions of banking industry, international card companies, operators, internet tech firms and third party payment institutions. Viewed in global market, business mode of remote payment can be divided into mobile operator leading mode, App Store leading mode, third party payment institution leading mode and card organization leading mode based on different transaction and payment account types. Mobile operator leading mode: according to fund flow, the mode can be divided into two links, namely, telephone recharging and goods transaction. Profit modes of the two links are varied due to different duties untaken by different participants. In telephone recharging link (recharging via bank card account), mobile operator gains profit from payment transaction commission provided by merchant, while card issuer(commercial bank), clearing house (card organization) and acquirer (commercial bank or non-financial payment institute) gain profit based on pricing and profit sharing rule set by card organization. In goods transaction link, all goods are subjected to settlement via telephone account. Mobile operator undertakes core duties of card issuance and acceptance. Therefore, mobile operator shares profits with third party payment institution and service provider based on certain proportion and digital product revenue, and usually enjoys high deduction rate greater than payment commission deduction rate under card organization mode. For business district app owned by mobile operator, mobile operator obtains all profits. Although the mobile operator leading mode developed well from the end of 1990s to the early of 21stcentury, it is gradually replaced by novel remote payment mode with fast popularization of smart phone, development of third party payment institution and due to high deduction rate charged by mobile operator. Besides, more and more business district app providers select other payment modes to complete transaction. Major Mobile Payment Enterprises and Products Worldwide by Country Region Major Mode Leading mobile payment enterprise or product USA Multiple operation modes Visa, Stripe, Paypal, Google Wallet, Apple Pay, Isis NFC and Squar, etc Japan Mobile operator leading NTTDoCoMo, KDDI and SoftBank Korea Mobile operator leading KT, KTF and LGT India Third party payment leading Paytm China Multiple operation modes Alipay, Tenpay, Quick Pass, Mobile Banking Service, etc. Europe Bank leading European mobile payments are mainly focused on online payment, while various offline payment scenarios are barely supported Source: ResearchInChina 26 Global and China Mobile Payment Industry Report, 2019-2025 Major Mobile Payment Platform Worldwide Enterprise Introduction Apple Pay Apple Pay, an NFC-based mobile payment function released by Apple, was officially launched in the United States on October 20, 2014. On February 18, 2016, Apple Pay landed in China. An estimated 43% of iPhone users across the globe have enabled Apple Pay, which means there are approximately 383 million Apple Pay users. By the end of 2019, Apple Pay had been available in more than 50 countries and regions around the world. Mi Pay On September 1, 2016, Chinese smartphone maker Xiaomi launched its Mi Pay NFC- based mobile payments service in its domestic market, in collaboration with bankcard association China UnionPay. It supports debit and credit cards, as well as public transportation cards across the country via its phones supporting NFC. On December 20, 2018, BusinessLine reported that Xiaomi received an approval from the National Payment Corporation of India (NPCI) to launch its payment service, Mi Pay, in India. Samsung Pay On March 29, 2016, Samsung Pay was officially launched. Samsung Pay uses Near Field Communication (NFC) and Magnetic Secure Transmission (MST) technologies, meaning users can simply swipe cards with their Samsung mobile phones. As of May 2019, Samsung Pay had attracted more than 14 million users in more than 25 countries worldwide. Google Pay Google officially launched the NFC payment service Android Pay on September 11, 2015. On January 8, 2018, Google announced a rebrand of its consumer payment products and merged Android Pay and Google Wallet into a single, unified service known as Google Pay. As of 2019, Google Pay had provided services in more than 30 countries and regions around the world. Alipay In 2004, Alipay separated itself from Taobao and gradually offered payment services to more partners. In December 8, 2004, Zhejiang Alipay Network Technology Co., Ltd. was established. In February 27, 2008, Alipay launched the mobile e-commerce strategy and launched the mobile payment business. Alipay has established strategic cooperative relations with more than 180 banks at home and abroad, as well as VISA, MasterCard international organizations and other institutions. As of June 2019, Alipay and its local wallet partners had served over 1.2 billion users worldwide. WeChat Pay On August 5, 2013, Tenpay and WeChat launched WeChat Pay officially, allowing users to perform peer-to-peer transactions and mobile payments online and offline. In June 2018, WeChat Pay had more than 800 million active accounts. PayPal Founded in December 1998, PayPal is an Internet-based third-party payment service provider headquartered in San Jose, California, U.S.A., allowing transfer of funds between users who use e-mail to identify themselves without mailing a check or remittance in the traditional way. PayPal now reports a total user base of 277 million accounts — of which 255 million are consumers and 22 million are merchants Source: ResearchInChina 27 Global and China Mobile Payment Industry Report, 2019-2025 2.4 Development Trend I. Strengthening cooperation with various types of enterprises and improving APP interoperability have become the priority strategic direction of the mobile payment industry With the continuous development of mobile payment, mobile payment institutions are becoming an indispensable partner for enterprises. The data shows that each mobile payment agency that provides “business-to-person (B2P)” payment services is associated with an average of 237 companies. At the same time, interoperability and compatibility between different mobile payment institutions, mobile payment institutions and banks have been significantly enhanced. This not only enables users to use mobile payment in a wider range of scenarios, but also brings the rapid expansion of the payment industry and a significant improvement in user experience. The data shows a significant increase in interoperability between global mobile payments and bank accounts. In 2018, the transaction volume between the two parties increased by 47%, and each mobile payment institution communicating with 10 banks on average. II. Mobile payments play an increasingly important role in inclusive finance The latest World Bank report shows that 1.7 billion people worldwide still do not have access to secure and convenient financial services. The increasing popularity of mobile payment applications has driven inclusive finance in many emerging markets to achieve leapfrog development. Data shows that the growth rate of financial account ownership in 31 countries in the world over the past three years has exceeded 5%. The main driving force is the increasingly active mobile payment transactions. And countries in Asia, Africa and Latin America have experienced the fastest growth. More importantly, mobile payments enable people in rural areas, poor areas, and other areas previously excluded from the traditional financial system to enjoy more adequate financial services and online services. On the one hand, mobile payment has helped the rural market to penetrate financial services and accelerate the digitalization of the agricultural industry value chain. On the other hand, mobile payment has become an important service tool to reach refugees and the poor. According to the United Nations data, more than 135 million people worldwide still need humanitarian assistance in 2018. In order to solve this problem more efficiently, charities have gradually adopted digital financial services instead of physical help such as cash. A survey of relevant countries shows that more than 55% of mobile payment institutions are working with charitable organizations to enhance the convenience of help payments. 28 Global and China Mobile Payment Industry Report, 2019-2025 III. The market value and status of mobile payment institutions continue to improve In the process of meeting the needs of SMEs and individuals, the profitability of mobile payment institutions has continued to increase, and their market value and status have continued to strengthen. In 2018, the average growth rate of global mobile payment institutions’ operating income reached 23.9%, and about 30% of institutions’ EBITDA margins exceeded 25%. More importantly, mobile payments have evolved into a platform that connects users with services from all walks of life. The meaning of payment goes beyond the payment itself. IV. The regulatory requirements for mobile payments in various countries are gradually tightening Judging from the latest development trend, the supervision of mobile payment in various countries has become increasingly strict. For example, in June 2018, Indonesia issued new regulations to relax the transaction limits of some mobile payment users. Meanwhile, new regulations increased the requirements for mobile payment institutions, including a minimum capital of IDR 3 billion, no more than 49% shares held by foreign investors, and mandatory requirement for overseas remittance business through the national payment gateway. Specifically, the global mobile payment industry currently faces five major regulatory changes, namely taxes, knowing your customers (KYC), cross-border remittances, national inclusive financial policies, and data regulation. Among them, the impact of data supervision on mobile payment institutions is most prominent. Customer data is very important for payment institutions to enrich their service content and improve profitability, but this process also increases the risk of customer data leakage. In 2018, some countries implemented more stringent anti-money laundering and customer information protection regulations, including the introduction of data privacy regulations, focus on data localization and data security, and emphasis on the legality of data processing and data sharing. 29 Global and China Mobile Payment Industry Report, 2019-2025 3. Chinese Mobile Payment Market 3.1 Overview Mobile payment has spread rapidly in both first- and second-tier cities and third- and fourth-tier cities in China, from online to offline, supermarkets to restaurants, taxis to high-speed railways, and even snack stands as well as vegetable and night markets, being applied everywhere. In 2018, transaction size of China’s mobile payment business reached RMB445.22trillion (mobile payment of banks and third-party payment companies), skyrocketing by 44.53% from a year earlier, of which banks occupied 62.3%. In 2019, the size totaled RMB589.7 trillion. In 2019, mobile payment in China is featured as follows: (1) Regulatory policies on provisions, anti-money laundering, etc. were introduced frequently, access to payment license was tightened and requirements on renewal became more stringent; (2) Mobile payment prevails across China, with market size ever expanding; (3) Mergers and acquisitions often occur among enterprises, and it is a general trend for players to push forward joint development; (4) Mobile payment in transportation and the cross-border mobile payment have been the focuses of payment firms. (5) Wider use of biometrics comes with rapid adoption of emerging technologies like AI, big data and cloud computing. Examples include China Minsheng Bank’s face recognition system, Bank of Communications’ self-service card issuance with face recognition, and Agricultural Bank of China’s super counter service handled with face recognition technology. At present, China’s mobile payment market is in severe competition. By market participant, there are mainly five enterprise models, i.e., third party payment firm (internet), UnionPay, bank, operator, and terminal and smartphone vendor. Wherein, Alipay and Tenpay take a combined share of around 90% in China’s third-part payment company (excluding banks) market. Attracted by profit chain of mobile payment, banks and smartphone and terminal players walk into mobile payment business and make layout in succession, which intensifies competition in China’s mobile payment industry. Competition will speed up maturing of the industry. 3.2 Regulatory Policies With fast growing of mobile payment, regulators in China have successively issued policies and regulations in recent years, mainly covering industry access, security regulation and operational guidance, for the purpose of comprehensively strengthening regulation on mobile payment industry and helping it develop healthily and orderly. 30 Global and China Mobile Payment Industry Report, 2019-2025 3.2.1 Industry Access On June 14, 2010, People's Bank of China issued the "Management Rules for Payment Services of Non-financial Institutions” (hereinafter referred to as the "Rules"), officially implementing regulation on domestic third-party payment industry. Interpretations of Regulations on the Online Payment Business of Non-Banking Payment Institutions Item Content Business A non-financial institution to provide payment services should obtain a “payment business license” License to become a payment institution. A payment institution should accept the supervision and management of People's Bank of China, and without the approval of People's Bank of China, any non-financial institutions and individuals shall not engage in payment business or engage in payment business in disguised forms. 31 Global and China Mobile Payment Industry Report, 2019-2025 Application September 1, 2011 is the deadline for third-party payment institutions to obtain licenses, and Time enterprises not obtaining licenses before the deadline shall not continue their payment business. Duration of License From the date of issuance, the “payment business license” is valid for 5 years. Payment institutions shall file renewal applications with local branches of People’s Bank of China within six months before the expiration. Application The institution to provide province-wide payment services should have registered capital of at least Threshold RMB 30 million; the institution to provide nationwide payment services should have registered capital of at least RMB 100 million. Service Scope The payment services provided by non-financial institutions mainly include network payment, prepaid card issuance and acceptance, bank card acceptance and other payment services determined by People’s Bank of China. Network payment includes currency exchange, Internet payment, mobile phone payment, fixed telephone payment, digital television payment. Monetary Funds Payment institutions should operate within the business scope approved by the “payment business Management license”, and shall not operate the businesses beyond the approved scope, and shall not entrust businesses to other institutions. The transfer of monetary fund between payment institutions should be entrusted to banking financial institutions. Payment institutions shall not store monetary funds for each other, or entrust other payment institutions to do so. Payment institutions shall not transact the transfer of funds between banking financial institutions. The customer reserve accepted by a payment institution is not the property of the payment institution, and the payment institution shall only transfer the reserve according to the payment order issued by the customer. The payment institution shall not misappropriate the reserve in any form. The proportion of the payment institution’s paid-in capital to the daily average balance of customer reserve shall not be less than 10%. Business For the payment institutions with any one of the following circumstances, the regulatory authorities Termination have the right to order them to stop some or all payment business: accumulated losses exceed 50% of its paid-in capital; serious business risk; serious illegal or incompliant operation. Source: ResearchInChina 3.2.2 Main Polices Main Policies on Mobile Payment in China, 2011-2019 Policy Release Date Administrative Measures for the Payment Services Provided by Non-financial Institutions Jun 14, 2010 Administrative Measures for Anti-Money Laundering and Anti-Terrorist Financing of Payment Institutions Jun 1, 2011 Administrative Measures for Prepaid Payment Business of Payment Institutions (Draft for Comments) Oct 28, 2011 Interim Measures for the Depository of Clients' Reserve of Payment Institution (Draft for Comments) Nov 4, 2011 Administrative Measures for Internet Payment Business of Payment Institutions (Draft for Comments) Jan 5, 2012 Administrative Measures for Bank Card Acquiring Business (Draft for Comments) Jun 27, 2012 Single-purpose commercial Prepaid Card Management Measures (Trial) Aug 24, 2012 Management Measures on Prepaid Card Business of Payment Institutions Sep 17, 2012 Guidance on Pilot Cross-border E-commerce Foreign Exchange Payment Services of Payment Institutions Mar 2013 32 Global and China Mobile Payment Industry Report, 2019-2025 Policy Release Date Management Measures on Bank Card Acquiring Business Jul 10, 2013 Letter of Opinions of Payment and Settlement Department of the People’s Bank of China on Suspending Alipay’s Mar. 13, 2014 Offline Barcode (2D Barcode) Payment Business Guiding Opinions of the People’s Bank of China on the Development of Smartphone Payment Business Mar. 19, 2014 Notice of China Banking Regulatory Commission and the People’s Bank of China on Strengthening the Management Apr. 2014 of Cooperative Business of Commercial Banks and Third-party Payment Companies Notice of the General Office of the People's Bank of China on Matters Concerning Gradually Prohibiting the Fallback May 14, 2014 Transactions on Financial IC Cards Several Opinions on Promoting the Healthy Development of Domestic Trade Circulation Nov. 16, 2014 Notice of the General Office of the People's Bank of China on Key Points of Payment and Settlement Work in 2015 Feb. 2, 2015 Administrative Measures for Online Payment Business 2015 Decision of the State Council on Implementing Access Administration of Bank Card Clearing Institutions Apr. 2015 Notice of the People's Bank of China on Renewal of ‘Payment Business Permit Nov. 2015 Administrative Measures for Network Payment Business of Non-banking Payment Institutions Issued by the People's Dec. 2015 Bank of China Implementation Measures for Risk Assessment of Non-banking Payment Institutions Feb. 2016 Notice on Improving the Pricing Mechanism for the Fee Charges for the Use of Bankcards Mar. 2016 Implementation Plan for Specific Work on Risk Rectification of Non-banking Payment Institutions Apr. 2016 Rules for Barcode Payment Business (Exposure Draft) Jul. 2016 Rules for Entry in Terminal Business of Bank Card Acceptance Aug. 2016 The Circular of the General Office of the People’s Bank of China on Enforcing the Centralized Deposit of Clients’ Reserves of Payment Institutions Measures on the Administration and Due Diligence Procedures for Non-Residents’ Financial Accounts Information Relating to Tax Matters PBC’s Circular on the Follow-up Control Measures for Enhancing Management on Account Openings and Suspicious Transaction Reports PBC Payment & Settlement Department’s Circular on the Transfer of Non-banking Payment Institutions’ Online Payment Business from Direct Mode to the Unified Platform of China Nets Union Clearing Corporation The Opinions of the General Office of the State Council on Perfecting the Supervision System for Anti-Money Laundering, Anti-terrorism Financing and Anti-tax Evasion The Circular on Further Regulating Payment Business without a License (issued by General Office of the People’s Bank of China [2017] No.217 Document) Jan 2017 May 2017 May 2017 Aug 2017 Sept 2017 Nov 2017 Barcode Payment Business Criterions (Trial) De 2017 PBC’s Circular on Regulating Innovative Payment Business Dec 2017 The Circular of the General Office of the People’s Bank of China on Adjusting the Centralized Deposit Ratios of Clients’ Reserves of Payment Institutions (issued by General Office of the People’s Bank of China [2017] No.248 Dec 2017 Document) The Notice on Documents on Investigating Bank Account-related Payment Business Needs from Non-bank Payment Institutions requires access of payment institutions and banks to connected platform. The Notice on Funds Settlement Pilot through Centralized Accounts for Custody of Clients' Reserves of Payment Institutions indicates that centralized reserves custody accounts for settlement of all payment funds should be 33 Jan 2018 May 2018 Global and China Mobile Payment Industry Report, 2019-2025 Policy Release Date issued directly by authorities under the People’s Bank of China. The Notice of the General Executive Office of the People's Bank of China on Issues on Centralized Custody of Clients' Reserves of Payment Institutions requires that share of clients' reserves for centralized custody should be increased Jun 2018 month by month from July 9, 2018 to 100% on January 14, 2019. The Notice on Revocation of RMB Clients' Reserves Accounts of Payment Institutions requires that payment institutions should revoke their RMB clients' reserves accounts opened by reserves banks before January 14, 2019. The Guiding Opinions on Rural Revitalization through Financial Services requires that rural financial services should be encouraged for wide use of mobile payment in rural areas by 2020. Dec 2018 Jan 2019 The Outline of Digital Village Development Strategy requires that new rural inclusive finance services should be developed and development environment for these services such as online payment, mobile payment and online May 2019 credit should be improved, thereby providing convenient financial services for peasants. Source: The People's Bank of China; ResearchInChina 3.2.3 Payment License Till the end of 2017, the number of non-banking payment institutions in China was reduced from 271 to 247 (only 48 ones with mobile payment license) due to license cancellations, combined renewals and no grants for license renewal. In recent two years, issuance of the license was gradually tightened, shown as follows: (1) Year-by-year reduction even suspension in number of the license issued. In 2015, only one license was newly added; after July 2015, the People's Bank of China issued no new license, and revoked the license of payment institutions which failed to meet regulatory requirements. (2) Stricter requirements on renewal of license. License of 27 companies which were approved in 2011, expired in May 2016, but it was until August that the People’s Bank of China completed renewal of their licenses. Moreover, businesses of some payment institutions were adjusted, due to serious violation of regulations in business, business stagnation and shrinking or unsolicited application for termination of business. PBC reduced their business scope in the renewal. Nevertheless, part of payment institutions applied for new businesses and were approved. In the future, PBC will have a stricter control on the renewal and review of the payment license, in line with the principle of “issuance control, structure optimization, quality improvement and orderly development”. So far, the People’s Bank of China has cancelled 24 third-party payment licenses, of which 19 were withdrawn in 2017 (9 third-party payment firms were deprived of renewal because of violations, and 10 ones were cancelled due to business combination. (3) Classified regulation for payment institutions. The file PBC issued in April 2016, suggested that payment institutions should be divided into five categories(A,B,C,D,E) in 11 grades for classified regulation, according to the 6 rating indexes, namely, custody of clients’ reserves, compliance and risk control, protection of customer rights, system security, measures for anti-money laundering, and sustainability of development. 34 Global and China Mobile Payment Industry Report, 2019-2025 Classification of Third-party Payment Licenses and Regulators Source: ResearchInChina By the end of 2019, there had been 237 companies issued payment licenses and 34 institutions canceled in China. Different types (381 in total) of licenses were issued to the 237 third-party payment institutions, among which 140 companies were licensed to issue and accept prepaid cards, making such license the most issued. Number of Payment Licenses Issued to Non-Banking Institutions in China, 2015-2019 101 96 53 19 2011 2012 2013 2014 2 0 0 2015 2016 2017 Year 2015 2016 2017 2018 2019 Number 1 30 58 83 65 Source: The People’s Bank of China; ResearchInChina 35 Global and China Mobile Payment Industry Report, 2019-2025 Number of Payment Licenses Issued in China by Type by the End of 2019 Prepaid Card Issuance 1 Prepaid Card Acceptance 6 Digital TV Payment 6 Fixed Telephone Payment 8 Mobile phone Payment 48 Bankcard Acquiring Service 62 Internet Payment 110 Accepting and Issuing Prepaid Cards 140 0 20 40 60 80 100 120 140 160 Quantity Accepting and Issuing Prepaid Cards 140 Internet Payment 110 Bankcard Acquiring Service 62 Mobile phone Payment 48 Fixed Telephone Payment 8 Digital TV Payment 6 Prepaid Card Acceptance 6 Prepaid Card Issuance 1 Source: The People’s Bank of China; ResearchInChina Enterprises Having been Cancelled Payment Business License by the End of 2019 License No. Company Name Date of Payment License Cancelled 1 Z2006633000011 Zhejiang Yishi Enterprise Management Service Co., Ltd. (mpaym) Aug 24, 2015 2 Z2007044000012 Guangdong Yimin Tourism & Leisure Service Co., Ltd. Oct 8, 2015 3 Z2003731000019 Shanghai Chang-go Enterprise Service Co., Ltd. Jan 5, 2016 4 Z2016311000019 Beijing Runjing Search Investment Co., Ltd. Oct 20, 2016 5 Z2004031000014 Shanghai Fuiou Financial Network Technology Co., Ltd. May 15, 2017 6 Z2007331000014 Worthtech Co., Ltd. May 15, 2017 7 Z2007511000016 Property & Credit Network Payment Co., Ltd. May 15, 2017 8 Z2008531000010 Shanghai Fufeitong Enterprise Service Co., Ltd. May 15, 2017 9 Z2017733000017 Zhejiang SHENGJU Payment Technology Co., Ltd. May 15, 2017 10 Z2024137000015 Etone Pay Co., Ltd. May 15, 2017 11 Z2001731000013 Sand E-Commerce Service Co., Ltd.(SandPay) Jun 6, 2017 12 Z2009031000013 All In Pay Commerce Service Co., Ltd. Jun 6, 2017 36 Global and China Mobile Payment Industry Report, 2019-2025 13 Z2022333000011 Wenzhou Zhimin Information Service Co., Ltd. Jun 23, 2017 14 Z2009231000011 Shanghai Tonkpay Investment Management Co., Ltd. Dec 20, 2016 15 Z2013731000018 Potevio Yintong Payment Co., Ltd. (Polypay) Jun 26, 2017 16 Z2015261000011 010PAY.CN Jun 26, 2017 17 Z2016011000012 Beijing Jiaoguang Technology Development Co., Ltd. Jun 26, 2012 18 Z2016511000017 Beijing All Credit Payment Co., Ltd. Jun 26, 2017 19 Z2017414000013 Shanxi Lanhua Pay Co., Ltd. Jun 26, 2017 20 Z2017623000010 Harbin Jinlianxin Payment Technology Co., Ltd. Jun 26, 2017 21 Z2018634000015 Anhui Rishine Information Service Co., Ltd. (Rishine Pay) Jun 26, 2017 22 Z2018943000011 Changsha Shanglian E-commerce Co., Ltd. Jun 26, 2017 23 Z2019353000012 Lefu Pay Co., Ltd. Jun 26, 2017 24 Z2019146000014 Hainan Island Cards Payment Network Co., Ltd. Jun 26, 2017 25 Z2019943000019 Hunan Caixin Jintong Ecommerce Co., Ltd. Jan.5, 2018 26 Z2020031000010 Shanghai Qianyue Enterprise Management Co., Ltd. Jan.5, 2018 27 Z2021343000011 Changsha Starlink Business Service Co., Ltd. Jan.5, 2018 28 Z2021134000014 Hefei Xinsiwei Business Management Co., Ltd. Jan.5, 2018 29 Z2022811000012 Beijing Zhonghuijin Payment Service Co., Ltd. Jul.6, 2018 30 Z2023111000017 Beijing Guohua Huiyin Technology Co., Ltd. Jul.6, 2018 31 Z2023734000014 Anhui Changrun Payment Business Co., Ltd. Jul.6, 2018 32 Z2024311000013 Use-Pay Payment Technology Co., Ltd. Jul.6, 2018 33 Z2025042000016 Hubei Lantianxing Payment Co., Ltd. Jul.6, 2018 34 Z2025265000016 Xinjiang Card Business Service Co., Ltd. Jul.10, 2019 Source: The People’s Bank of China; ResearchInChina Enterprises Having Obtained Payment Business License by the End of 2019 License No. Company Name Date of Issue Z2000133000019 Alipay Network Technology Co., Ltd. Jan.6, 2018 Z2000231000010 China UnionPay Merchant Services Co., Ltd. Jan.6, 2018 Z2000311000013 Property & Credit Electronic Payment Co., Ltd. May 3, 2016 Z2000444000013 Tenpay Technology Limited Jun.26, 2018 Z2000531000017 Allinpay Network Service Co., Ltd. Jun.26, 2018 Z2000611000010 OpenUnion Network Technology Service Co., Ltd. Jun.13, 2019 Z2000711000019 YeePay.com Jan.6, 2018 Z2000831000014 Kuaiqian Payment and Settlement Information Co., Ltd (99Bill) May 15, 2017 Z2000931000013 PnR Data Service Co., Ltd. Aug.30, 2017 Z2001031000010 ShengPay Electronic Payment Services Co., Ltd. Jun.13, 2019 Z2001111000013 Beijing Qiandaibao Payment Technology Ltd. Jun.13, 2019 Z2001231000018 Orient Electronic Payment Co.,Ltd May 15, 2017 37 Global and China Mobile Payment Industry Report, 2019-2025 License No. Company Name Date of Issue Z2001344000012 Shenzhen LycheePay Financial Network Technology Service Co., Ltd. May 3, 2016 Z2001444000011 Guangzhou UnionPay Network Payment Co., Ltd May 15, 2017 Z2001511000019 Beijing Digital Wangfujing Technology Ltd. Jun.26, 2018 Z2001611000018 Beijing Unionpay Merchant Services Co.,Ltd Jan.6, 2018 Z2001811000016 YuFu Payment Co., Ltd. Jun..23, 2017 Z2001912000014 EASY PAY Co. Ltd. May 15, 2017 Z2002044000013 Shenzhen Yinsheng E-pay Co., Ltd. Jun.26, 2018 Z2002131000017 International Payment Solutions Limited (IPS) May 3, 2016 Z2002211000010 Chinabank Payments (BeiJing) Technology Co., Ltd. Aug.30, 2017 Z2002346000018 Hainan NewPay Information Technology Co., Ltd. Jun.13, 2019 Z2002431000014 PingAnPay Electronic Payment Co., Ltd. May 3, 2016 Z2002511000017 Lakala Payment Co., Ltd. Jun.13, 2019 Z2002631000012 Shanghai FFT Information Service Co., Ltd. May 15, 2017 Z2002744000016 PingAnPay Technology Service Co., Ltd. Jan.6, 2018 Z2002831000010 Shanghai ChinaPay e-Payment Service Co., Ltd. Aug.29, 2016 Z2002933000017 Lianlian Yintong Electronic Payment Co., Ltd.(LianLianPay) Jul.10, 2019 Z2003011000010 Union Mobile Pay Co. Ltd. ("UMP") Jan.6, 2018 Z2003151000010 Chengdu MOBO Network Technology Co., Ltd. Jan.6, 2018 Z2003215000014 JieFuRuiTong Co., Ltd. Dec.27, 2019 Z2003352000017 Zhenglian Payment Co., Ltd. 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Jul.10, 2019 Z2027044000010 Guangdong Guangwu E-Commerce Co., Ltd. Mar.26, 2015 Z2027133000012 Transfer Pay Co., Ltd. Jul.10, 2019 Source: The People’s Bank of China; ResearchInChina 3.3 Market Size In China, mobile payment market growth has fallen and leveled out since its peak in 2015. In 2018, a total of 532.814 billion mobile payment deals were done in China and transaction amount hit RMB445.22 trillion, soaring by 92.48% and 44.53% on the previous year, separately. It is predicted that China’s mobile payment transaction amount will sustain growth between 2019 and 2025, expectedly at a CAGR of 20.1%. 43 Global and China Mobile Payment Industry Report, 2019-2025 Chinese Mobile Payment Market Size, 2015-2025E 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E Transaction Size (RMB trillion) 130.18 208.56 308.04 445.22 589.7 747.5 926.8 1140.2 1374.0 1580.2 1769.1 YOY Growth 322.3% 60.2% 47.7% 44.5% 32.5% 26.8% 24.0% 23.0% 20.5% 15.0% 12.0% Source: Payment & Clearing Association of China; ResearchInChina 3.4 Market Structure The rising share of third-party payment, a result of third-party payment industry boom, was squeezing that of mobile banking and reached up to 37.7% in 2018. On one estimate, third-party payment will account for more of the market than mobile banking in 2022, with share hopefully up to 54.8% in 2025. Chinese Mobile Payment Market Structure, 2015-2025E 44 Global and China Mobile Payment Industry Report, 2019-2025 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E Mobile Banking 83.1% 75.5% 65.9% 62.3% 57.7% 55.4% 52.2% 48.9% 46.2% 45.4% 45.2% Third-party Mobile Payment 16.9% 24.5% 34.1% 37.7% 42.3% 44.6% 47.8% 51.1% 53.8% 54.6% 54.8% Source: ResearchInChina 3.5 Enterprise Pattern At present, Chinese mobile payment market is still in the stage of crowded competition. By market participants, there are five operating modes dominated by third-party payment, China UnionPay, banks and other financial institutions, operators and terminal mobile phone vendors respectively. The huge interest chain of the mobile payment industry has attracted banks, intelligent terminal companies and other enterprises to make layout. Apple, Samsung and ZTE have launched Apple Pay, Samsung Pay, ZTE Pay and other mobile payment services, and all of them signed cooperation agreements with China UnionPay. As for third-party mobile payment (payment institutions except banks), the Chinese market sees an obvious oligopoly effect. In recent years, Alipay and TenPay have monopolized the mobile payment market, with nearly 90% market share. As China UnionPay, banks and mobile phone vendors step up the layout, the competition pricks up, the market share of Alipay and TenPay declines, but no one can challenge the status of the two giants now. In addition, traditional enterprises also expect to get a slice of the cake. Some of the well-funded enterprises conduct layout through the acquisition of payment licenses and other means. PayPal, a NASDAQ listed company, plays a leading role in global third-party payment market, with presences in more than 200 countries and regions and over 286 million active payment accounts, allowing for trade of more than 100 currencies. Major Operating Models and Participants of Mobile Payment in China, 2019 Leader Main Products Status Quo Quick Pass; On December 12, 2015, Quick Pass was officially China opened. Users need use NFC-enabled mobile UnionPay bank APPs to generate virtual China UnionPay Wallet; cards Wearable Pass"-tagged POS. payment UnionPay Wallet mainly provides discounts, products integral business, mobile payment and other Participants China UnionPay China UnionPay for the payment via offline "Quick services for cardholders; QR code payment business officially commenced on December 12, 2016; it joined hands with over 40 banks to issue QR code payment product in May 2017 and JD.com 45 Global and China Mobile Payment Industry Report, 2019-2025 Leader Main Products Status Quo Participants became the first third-payment institutions joining; an epoch-making innovative product appeared on the Chinese NFC market in Jul 2017- JD QuickPay, a product co-launched by JD Finance and China UnionPay; it, together with commercial banks and payment institutions, jointly launched unified “Cloud QuickPass” APP with unified interface standard, unified user ID and unified user experience on Dec 11, 2017. Banks Industrial and Commercial Internet other and Mobile The layout of mobile banks began in 2012. The Banks year 2017 witnessed a boom in mobile payment Bank of China, in banking system. Banks, represented by ICBC, China launched own QR code payment products and Construction heavily subsidized offline payment; cooperation Bank, China between banks and Internet institutions became Merchants Bank, increasingly popular in the second half of 2017, China Minsheng covering mainly fintech, Internet finance, cloud Bank, etc. computing and payment. Alibaba, Tencent Alipay; Alipay and WeChat mainly master the market and others TenPay quickly by QR code payment, red envelopes and third-party other means. At present, Alipay and TenPay companies account for about 90% of China's third-party mobile payment market Operators China Mobile, China Telecom, China Unicom SMS China Mobile, China Telecom and China Unicom Payment; use NFC to carry out offline near-field payment. NFC Mobile “Hebao”, China Mobile’a cellphone wallet, now Payment; has Wo Pay; transactions of at least RMB1,000 billion in 2016. Best Pay It promotes top15 vendors each to launch at over 200 million subscribers with least two NFC terminals among RMB1,000-above phone models. The products supporting NFC adopt NFC-SWP solution based on GSMA unified standard; China Telecom also recorded 40 million active users and more than 400,000 merchants with transactions of over RMB1.2 trillion via mobile Bestpay APP; China Unicom achieved online mobile payment via WoPay which will become a large carrier-featured Internet financial company with annual transactions exceeding RMB500 billion in 2018. In 2016, operators developed mobile payment stably according to their positioning. China 46 Global and China Mobile Payment Industry Report, 2019-2025 Leader Main Products Status Quo Participants Mobile tried the field of public transportation. China Unicom integrated campus cards of some universities into Wo Pay. China Telecom focused on building differentiated end products based on NFC, encryption, intercom, video, shopping, games and other three features for terminal mobile phones Terminal mobile phone vendors Apple NFC Mobile In 2016, mobile phone vendors embarked on Samsung Payment; layout in China. For example, Huawei Pay, MI Xiaomi Huawei Pay, ZTE Pay and other products realized mobile Huawei Pay; payment layout through cooperation with China Lenovo Apple Pay; UnionPay and the like. Besides binding bank ZTE and so on MI Pay; cards with Quick Pass, Huawei and Xiaomi also Samsung introduced Pay; applications to shopping, travel, work, payment ZTE Pay, etc. "bus cards" and extended the and so on. MI Pay can be used in the bus payment systems of Shenzhen and Shanghai. Huawei Pay not only suits "buses", but also acts as membership cards, access cards, etc. Source: ResearchInChina Major Payment License Acquisitions in China, 2014-2019 Time Acquirer Acquiree Dec 2014 Wanda Group 68.7% equities of 99bill Feb 2015 Ant Financial Services Group 25% equities of one97 communications Jun 2015 Tibet 7.69% equities of Shanghai Yunbai Investment Consideration Handpay Information Over USD500 million & RMB50 million Management Technology Co., Ltd. Feb 2016 Xiaomi Technology 65% equities of Jiefu Ruitong Co., Ltd. RMB600 million May 2016 Newland Computer Fujian Guotong Xingyi Network Technology RMB680 million Jun 2016 Haili Mental One 100% equities of Union Mobile Financial Technology RMB3 billion Aug 2016 Midea Group 50% equities of Shenzhou Tongfu Technology Around RMB300 million Aug 2016 Evergrande Group Jifutong Payment RMB570 million Sept 2016 VIP Shop Zhejiang Ebatong Technology Around RMB400 million Sept 2016 XinliFinance 100% equities of Beijing Haike Rongtong Payment Service RMB2,378 million Sept 2016 Meituan.com 100% equities of qiandai.com About RMB1 billion Sept 2016 Meson Fintech 90% equities of Heli Finance RMB1.4 billion 45% equities of Shanghai JF RMB945 million Oct 2016 Shenzhen Keybridge Communications 47 Global and China Mobile Payment Industry Report, 2019-2025 Mar 2017 China Innovationpay 51% equities of Youzan HKD3.034 billion Apr 2017 IELPM 60.4% equities of Guangdong Xinhui E-payment RMB130 million Apr 2017 51 Credit Card 100% equities of YACOL RMB1.1 billion Jun 2017 Gome 100% equities of Yinyingtong RMB720 million Shenzhen Asia Link Technology 45% equities of Shanghai Jifu Information Technology RMB945 million Development Services Oct 2017 eKing Technology 100% equities of GoPay RMB1,057 million Dec 2017 Didi 100% equities of 19Pay RMB300 million Dec 2017 Nexgo 100% equities of JLPay RMB710 million AnHui XinLi Finance 100% equities of Beijing Haike Rongtong Payment Services RMB2,379 Sep 2017 Dec 2017 May 2018 May 2018 Sept 2018 Mar 2019 million (proposed) Heilan Home 64.16% equities of Shanghai Handpay Information RMB500+ million Technology iBOXCHAIN Nanjing Mingpeng Information 22.5% equities of IPS Information Technology RMB247.5 million 100% equities of Kayou Payment Services RMB738 Technology Pan Asia Data Holdings (formerly million (proposed) 51% equities of Day's Enterprise Manfield Chemical Holdings) HKD7.9 billion (proposed) Jun 2019 Seven Cent Payment 100% equities of Yinxinlian (Beijing) Payment - Sept 2019 PayPal 70% equities of GoPay - Nov 2019 Beijing Cuiwei Tower 100% equities of Beijing Haike Rongtong Payment Services (proposed) Source: ResearchInChina Mobile Payment Transactions in China by Operating Model Source: China Mobile; China Telecom; Alipay; China Banking Association; ResearchInChina 48 Global and China Mobile Payment Industry Report, 2019-2025 3.6 Mobile Payment Overseas Layout In 2017, the start year of a new era that Chinese mobile payment went abroad, both third-party mobile payment intuitions and UnionPay geared up overseas layout of mobile payment. Third-party payment institutions, typically Alipay, WeChat, Baidu Wallet, Suning Pay and JD Finance, race to make deployments in overseas payment markets. Cross-border payment is an irresistible trend. As people live a better life, more and more of them travel abroad, among which those having developed a mobile payment habit create a huge market for cross-border payment. For policy, the People's Bank of China (PBOC) would inspire market entities’ global layout of payment for their broader expansion outside China and also encourage them to output payment services, technologies and standards to take high ground during the development of global payment industry, which were favorable policies for them to make overseas mobile payment strategies, said Fan Yifei, the deputy governor of PBOC, in June 2017. At the two sessions in 2019, 11 members of the National Committee of the Chinese People's Political Consultative Conference including He Qiang, a professor at the School of Finance of Central University of Finance and Economics submitted a joint proposal that mobile payment should be a part of China’s digital strategy and help China’s payment companies output new technologies and mature experience to the countries joining in the Belt and Road Initiative in aspects of intergovernmental cooperation, foreign exchange management and credit policy. The Enterprises with Cross-border Payment License in China Source: ResearchInChina Overseas Layout of Mobile Payment Firms, 2019 Company Overseas Layout Alipay Alipay started overseas layout in 2007. By the end of 2019, Alipay had entered more than 50 countries and regions such as Russia, the US, Spain, France and Brazil, allowing for settlement in more than 20 currencies (e.g., USD, HKD, GBP, EUR and JPY). Alipay has partnered with more than 250 financial institutions worldwide: on one hand, providing overseas merchants and users with online collection and payment services; on the other hand, providing 49 Global and China Mobile Payment Industry Report, 2019-2025 Chinese consumers with outbound offline payment services when they are in the 54 countries and regions available. Meanwhile, “Alipay local versions” are launched in 9 countries and regions, serving local users. In Oceania, Alipay and its parent company Alibaba co-funded a subsidiary to tap payment market through RoyalPay. Also, Alipay buys in Paytm (India’s equivalent of Alipay), K-Bank (South Korea’s internet bank) and Mynt (Philippines’ digital finance firm) and seeks cooperation with foreign large companies, for example, establishing a joint venture with Indonesia’s Emtek for developing online mobile payment products together. On March 14, 2019, Alipay and Barclays Bank, a large financial institution in the world, reached an agreement according to which Barclaycard, a unit of Barclays Bank, will assist more than 110,000 British merchants to accept Alipay payments made by Chinese visitors to the UK. WeChat Pay WeChat Pay started overseas layout in 2012, and now has operations in more than 49 countries and regions. It allows settlement with over 16 foreign currencies. In January 2019, WeChat Pay and LE BHV MARAIS, a French famous department store, joined forces to launch a smart department store which will introduce WeChat Pay smart ecological solution. At present, WeChat Pay's cross-border payment service has become legally available in 49 countries and regions, supporting 16 currencies. UnionPay On December 11, 2017, UnionPay together with other institutions (commercial banks, payment institutions, etc.) launched a unified mobile payment APP—Yunshanfu (literally flash cloud payment). At present, the APP users can use UnionPay mobile payment service in 48 countries and regions. Outside China, UnionPay QR code payment service has become available in 32 countries and regions, e.g., Asia Pacific, Central Asia, South Pacific, Middle East, Africa and North America; more than 2.8 million POS terminals in 37 countries and regions including Japan, Singapore, Australia, New Zealand, Canada and Russia accept payment via the APP. Baidu In April 2017, Baidu selected Thailand as the first station as it found inroad into overseas market; Baidu also forged Wallet a strategic partnership with PayPal, an international payment giant. In the future, the partnership will allow Baidu Wallet users to make online purchases outside China by linking their Baidu Wallets to PayPal, and foreign merchants that accept PayPal will automatically accept Baidu Wallet as a result; multiple merchants in four major tourism cities of Thailand can accept barcode payment; Baidu will also have presence in South Korea and Japan. JD Finance In September 2017, JD Finance and Central Group, a well-known Southeastern company, founded a joint venture for providing financial technologies and services for consumers. BestPay BestPay users can enjoy the same mobile payment services in designated department stores, restaurants, convenience stores and pharmacies in Sydney, Melbourne and Canberra, as they do in China. BestPay supports 9 currencies, i.e., RMB, USD, AUD, GBP, JPY, HKD, KRW, EUR and CAD. Suning Pay In 2017, Suning started payment layout in China Hong Kong and Japan. Suning already makes payment deployments in 18 countries and regions like South Korea and Japan, supporting over 15 currencies. Its payment service has made its way into fields such as commodity trade, overseas education, air ticket and hotel. Source: ResearchInChina 3.7 Development Trend 3.7.1 Tougher Regulation of and Tighter Access to Payment Market Regulation for third-party payment is under way and increasingly strict: Firstly, PBOC further tightens issuance and renewal of payment license. By the end of 2019, 237 firms were approved the extension of validity and 34 lost their licenses. 50 Global and China Mobile Payment Industry Report, 2019-2025 Secondly, in addition to tighter release of licenses, tougher regulation makes tickets from illegal operation the normal. The incomplete statistics shows that as of June 30, 2019, the central bank had issued 54 bills to payment institutions, with total penalties reaching roughly RMB45.18 million. Well-known payment institutions like Suning Pay and Chinabank Payments were on the fine list. According to the bills released by Operations Office (Beijing) of PBOC on February 26, 2019, YeePay was confiscated illegal income of around RMB4.4643 million and fined virtually RMB4.96 million, totaling RMB9.4243 million, the biggest bill the PBOC issued in the first half of 2019. Thirdly, requirements on deposit of provisions get stricter and unified depository is being carried out in phases: the first phase of provisions occupying 20% (12%-24%) with no interests paid went into effect from January 1, 2017 and the first deposit occurred on April 17, which will cut profits of payment firms after 100% deposit. Fourthly, a network union platform is built. Powered by regulators, construction of “Online Settlement Platform for Non-banking Payment Institutions”, also called “Nets Union Platform”, precedes faster than the expected. According to the PBOC, online payment accepted by payment institutions through bank accounts shall be handled on the platform from June 30, 2018; moreover, banks and payment firms shall finish connection to the platform and business transfer before October 15, 2017. China Nets Union Clearing Corporation as a Regulator on Payment Institutions Source: ResearchInChina Finally, regulators will take more efforts on rectification of unlicensed payment. According to the incomplete statistics, PBOC has issued more than one hundred tickets over the year to December 20, 2017, tripling last year when 34 were written out, and 67 payment companies were fined for total RMB24.68 million on the aspects of provisions, anti-money laundering, customer benefits and operation compliance. Key Regulatory Policies & Contents on Chinese Payment Institutions Regulatory Areas Core Contents Implications License Compliance License application: complete market access system and strict The strict market access system regulatory mechanism have been built; requires approved companies to License renewal: renewal application shall be submitted within six meet months before expiration, and those unqualified for the approval requirements. 51 specific regulatory Global and China Mobile Payment Industry Report, 2019-2025 requirements of the PBOC shall not gain extension. Provisions Unified management system for customers’ provisions of payment Payment firms’ embezzlement and firms shall be built and “Nets Union”, an online settlement platform for occupation third-party payment institutions, shall come into trial operation; provisions shall be corrected and payment firms shall put provisions in designated accounts as required prevented, with no interests paid. payment firms shall be urged to of customers’ and third-party return to their original business, that is, payment. Real-name System User identity verification system shall be set up for administrating The baseline of real-name system customers in their real names and effective measures shall be taken to is for account security and normal verify identity economic order and plays a big verification methods constantly applied during the existence of customers’ basic information when registering; part in preventing anti-money and business relationship with customers shall ensure effective verification terrorist financing. of customer’s identity and their real willingness. Anti-Money Laundering Concrete administrative measures launched shall specify the Refining responsibilities responsibilities of payment institutions, from customer identity obligations verification, identity information and retention, suspicious activity economy in normal order. reporting and investigation into anti-money laundering is a way to and counter-terrorist financing, to supervision and management. Source: ResearchInChina Trends of Policies on Mobile Payment in China Renewal of licenses of the first batch of third-party payment firms is delayed Extension Operations of multiple institutions shrink Shrinkage PBOC stops to issue new third-party payment licenses No Longer Isuusing new ones Source: ResearchInChina 3.7.2 Security Issue Is Taken Seriously With rapid development of mobile payment, security problems in the industry gradually come out, as a result of richer mobile payment scenes and inflation of user scale. At present, there are chiefly three risks in mobile payment: disclosure of user’s privacy, payment application fraud and malicious virus attack. 52 and keep Global and China Mobile Payment Industry Report, 2019-2025 Vulnerabilities of Mobile Payment Privacy Leakage Payment APP Fraud Malicious Virus Attack Users’ personal information Mobile APPs vary in quality Some malicious APPs users is easy to steal and tamper and users’ financial accounts download for imperceptible cache of a and passwords are easy to phones page steal after they download advantage of vulnerabilities at mobile phone, and automatic copycat moreover, customer end and then lead to screen capture at backend transmitted information on poor performance of mobile cause information security mobile phone is likely to be phone problems like crank call and stolen as long as users apply through virus Trojan, secrete junk message. WiFi designed by hackers, so texting, advertisement push that fraud risks appear. or other unwanted ways. with passwords on APPs; on by or their mobile accident economic take loss Source: ResearchInChina In 2019, XIANPEI.360.CN (mobile phone) received 3,924 mobile phone fraud reports, 1,930 of which were application frauds, a total of RMB15.465 million involved in these cases, namely RMB8,013 per person. Of all application frauds, financial wealth management cases accounted for most, or 25.3% of the total, followed by gambling and lottery (18.4%), deceptive part-time job (13.7%), identify theft (12.8%) and online game trading (5.1%). In terms of fraud amount, financial wealth management was till the highest, reaching RMB4.992 million, or 32.3% of the total; gambling and lottery followed with RMB4.862 million or 31.4% of the total; fraud amount of identify theft was totally RMB2.715 million, or 17.6% of the total, ranking third. By loss per person, gambling and lottery stayed at the top spot with RMB13,658, followed by identify theft (RMB10,947) and financial wealth management (RMB10,208). Ways for Chinese Payment Users to Contact Defrauds, 2019 By Fraud Reports By Fraud Amount 53 Global and China Mobile Payment Industry Report, 2019-2025 Malware 3.1% Stolen Virtual account products 3.8% 3.7% Others 9.8% Deceptive shopping 4.2% Online game trading 5.1% Identify theft 12.8% Financial wealth manageme nt 25.3% Deceptive part-time job 13.7% Others Deceptive Deceptive Stolen Pal 1.3% 2.1% account prize shopping 1.5% winning 1.5% 1.1% Online game Financial Deceptive trading wealth part-time 1.6% managem job 9.5% ent 32.3% Identify theft 17.6% Gambling and lottery 18.4% Gambling and lottery 31.4% Source: 360, ResearchInChina 3.7.3 Industry Trend At present, mobile payment market is in the situation of high concentration and rapid expansion and comes to mature simultaneously with third-party payment. Regulation is moving on as payment habits take changes. Mobile payment grows far more rapidly than the PC end payment by transaction scale. 54 Global and China Mobile Payment Industry Report, 2019-2025 Development Trends of Mobile Payment Business ● Layout of mobile payment gradually orients to industry-wide application solution from single application scene. ● Mobile payment platform will lean to consumer in development, specialization and differential applications and services are the key. ● Mobile payment heads towards socialization. ●Mobile payment companies show a greatly centralized trend, and operators and financial institutions speed up integration. ●Research and development and innovation of mobile payment products play a crucial role, and efficiency decides the future of products. Source: ResearchInChina Industry-wide payment field needs to form a complete closed-loop, included in three links, i.e., online port (mobile application or wallet), offline scene (connection to merchants) and real-time payment (remote or NCF). Intelligent business models with functions of data, payment, client and after-sales, need to be built, so that users are more willing to use mobile payment. Trends of Presence in Mobile Payment Business Conventional mobile payment is limited to Mobile payment heads to solutions for all designated areas and applications industry scenes Source: ResearchInChina 55 Global and China Mobile Payment Industry Report, 2019-2025 Development Trends of Mobile Payment Platform Conventional Focus: Partner Orientation Future Focus: Customer Orientation Source: ResearchInChina Trends of Cooperation between Mobile Payment Enterprises Source: ResearchInChina In terms of enterprise pattern, online mobile payment companies show a greatly centralized trend, while the offline are scattered, leading a fiercer competition. Moreover, operators and financial institutions will present an integrated trend in the future. As for technology, the development of mobile payment has higher requirements on payment security. Besides identification technologies like password authentication and fingerprint recognition, payment token, trusted execution environment (TEE) and other technologies are also maturing. 56 Global and China Mobile Payment Industry Report, 2019-2025 Mobile Payment Transactions in China, 2019-2025E (RMB Trillion) 2019E 2020E 2021E 2022E 2023E 2024E 2025E Transaction Size 589.7 747.5 926.8 1,140.2 1,374 1,580.2 1,769.1 YOY Growth 32.5% 26.8% 24.0% 23.0% 20.5% 15.0% 12.0% Source: ResearchInChina Chinese Mobile Payment Market Structure, 2025E Third-party Mobile Payment 2021E Mobile Banking 54.8% 45.2% Source: ResearchInChina 57 Global and China Mobile Payment Industry Report, 2019-2025 4. Mobile Payment Market Segments By dominant players, mobile payment is mainly divided into UnionPay, bank, third party, operator and phone terminal manufacturer oriented. In 2018, China totally processed 532.814 billion mobile payment transactions, up 92.48%. Among them, banking financial institutions and third-party payment institutions handled 60.531 billion transactions and 472.283 billion transactions, sharing 11.4% and 88.6%, respectively. Mobile payment finance hit 445.22 trillion yuan, up 44.53% yr-on-yr; among them, banking financial institutions and third-party payment institutions amounted 277.39 trillion yuan and 167.83 trillion yuan, sharing 62.3% and 37.7%, respectively. By technology, mobile payment in China is remote payment based, and NPC payment just shares 0.1%. QR code payment is the main layout technology for third-party mobile payment enterprises; banks and UnionPay are dominated by NFC (near field communication) technology-oriented near-field payment layout e.g. Cloud QuickPass. Since 2017, driven by UnionPay, such intelligent terminal players as Apple pay and Huawei pay cooperated with some third-party payment organizations such as JD.com Flash Pay and Meituan flash pay to further strengthen NFC payment promotion. In future market segments, the competition between third-party mobile payment and banks will be fiercer; enterprises have successively provided more convenient, safe and fast payment services to attract customers. As regulatory policies take effect and aggregated payment emerges, QR code payment will still prevail. Considering security, the technologies such as NFC, fingerprint and biometric recognition will grow mature. 4.1 Third-party Mobile Payment 4.1.1 Overview Third-party mobile payment is in rapid growth. In 2018, China’s third-party mobile payment market transaction scale totaled RMB167.83 trillion, up 59.7% year on year. With respect to the current market share, Alipay ranked first with a 54.3% share and Tenpay 39.2%, altogether accounting for over 90% and immensely carving up the market. Main Characteristics of Third-party Mobile Payment Characteristics of Third-party Mobile Payment (in the case of non-banking payment institution) 58 Global and China Mobile Payment Industry Report, 2019-2025 1 Emerging payment methods, QR code included, sped up the transfer from PC end to the mobile end. Transaction amount: Internet payment: mobile payment =51.6: 48.4 Share of mobile payment was up 1.4 percentage points versus 2014. 3 2 Remote payment took the overwhelming majority and NFC increased a little. Transaction amount: Small amount and convenience were highlighted, and mobile payment of payment institutions and internet payment of payment accounts were well-matched in amount per deal. Remote payment: NFC=99.66: 0.34 Commercial banks varied a lot in amount per deal. Number of special NFC merchants rocketed by 118.45% on an annual basis. Mobile payment: RMB6,127.97 Internet payment: RMB45,200 Amount per deal in mobile payment of payment institutions: RMB525.59 Source: Payment & Clearing Association of China; ResearchInChina Third-party mobile payment industry chain connects users and merchants. Users are connected with payment platform via intelligent terminals (phone/watch/bracelet) with chips and NFC payment function. A third-party payment institution is a channel as well as a platform that connects merchants and users to form a benign circulation. NFC payment relies on biometric identification technologies like QR code, sound wave and fingerprint; hardware/software developers and system integrators support and provide SIM card, chip, mobile terminal, intelligent POS machine, etc., banks/UnionPay and clearance center provide bank account, payment and settlement and other functions. 59 Global and China Mobile Payment Industry Report, 2019-2025 Third-party Mobile Payment Industry Chain in China Source: ResearchInChina 4.1.2 Market Size In 2015-2018, China third-party payment presented explosive growth with market scale CAGR of 97.0%. It was estimated the market size in 2019 would rise 48.6% to RMB249.5 trillion, and will keep growth rate over 10% in future and hit RMB969.1 trillion in 2025. Chinese Third-party Mobile Payment Market Size, 2015-2025E 1200 180.0% 160.0% 1000 140.0% 800 120.0% 100.0% 600 80.0% 400 60.0% 40.0% 200 0 20.0% 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Market size (RMB trillion) 0.0% Growth(%) 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Market size (RMB trillion) 21.96 51.01 105.11 167.83 249.5 333.3 443.1 582.5 738.6 862.9 969.1 Growth (%) 166.5% 132.3% 106.1% 59.7% 48.6% 33.6% 33.0% 31.5% 26.8% 16.8% 12.3% Source: ResearchInChina 60 Global and China Mobile Payment Industry Report, 2019-2025 4.1.3 Market Structure In recent quarters, the offline scanning payment market has continued to grow at a faster rate than the overall market, driving the proportion of mobile consumer segments to increase continually. At the same time, mobile finance sector takes up more and more share, up from 16.3% to 18.2%. Structure of Third-party Mobile Payment Transactions in China by Type of Business, 2018-2019 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Personal Application 66.9% 63.3% 61.7% 60.0% 61.3% 57.9% 57.5% 57.3% Mobile Finance 16.3% 17.2% 17.1% 16.9% 17.4% 17.8% 18.1% 18.2% Mobile Consumption 13.7% 17.0% 18.6% 20.8% 19.2% 21.4% 22.2% 22.2% Others 3.1% 2.6% 2.6% 2.3% 2.1% 2.9% 2.2% 2.3% Source: ResearchInChina 4.1.4 Competitive Landscape Alipay and Tenpay, as two third-party payment giants, occupied over 90% of the third-party payment market. In 2019, Alipay continued to rank first by 54.3% share; Tenpay’s share rose 0.4 percentage points to 39.6%. 61 Global and China Mobile Payment Industry Report, 2019-2025 Market Share of Third-party Mobile Payment in China, 2018-2019 2018 Alipay Tenpay YiWallet UMPay 39.20% JDPay 54.30% 99Bill Yeepay China UMS Suning Pay 2019 Alipay Tenpay YiWallet UMPay 39.60% JDPay 54.30% 99Bill Yeepay China UMS Suning Pay 2018 2019 Alipay 54.3% 54.3% Tenpay 39.2% 39.6% YiWallet 1.8% 1.7% UMPay 0.8% 0.7% JDPay 0.7% 0.8% 99Bill 0.7% 0.6% Yeepay 0.6% 0.6% China UMS 0.4% 0.4% Suning Pay 0.2% 0.2% Others 1.3% 1.1% Source: ResearchInChina 62 Global and China Mobile Payment Industry Report, 2019-2025 4.2 Mobile Banking 4.2.1 Overview Mobile banking refers to a sort of electronic banking service handled by the users by relying on mobile communication network. In the well-developed international market, the mature mobile banking can offer a variety of business like account service, brokerage and information service, and in the future all kinds of bank business can be almost covered. Because of huge mobile users in Chinese market, the prominent application prospects has allured wide participation of banks, operators, third-party service providers and different business modes have been developed in practice. Along with the upgrading of telecommunication technologies and terminal equipment, the improvement of telecom infrastructure as well as the consummation of mobile banking technologies, mobile banking will play a more important role in the business structure of Chinese banks. In a chronological order, mobile banking is implemented currently by five means including SMS, USSD, STK, Client and WAP. Implementations and Merits & Demerits of Mobile Banking Implementation Merits Demerits SMS mobile banking Easy implementation of technologies; Poor strong adaption of mobile terminal, and complicated operations; low level of safety interactivity; unfavorable to promotion of easily accessible for users USSD mobile banking Good interaction; no card change, Full easily accessible for users network stability Perfection and high security of identity STK cards of banks are incompatible; it costs much to banking authentication system change a STK card WAP mobile banking Excellent STK card mobile compatibility; good network interconnection is impossible; poor A user is required to manually input the domain name of WAP site; restricted by network conditions, the user interactivity, high security experience remains unstable Client mobile banking Friendly interface, strong interaction, High development costs; the development is carried out high security for different platforms and operating systems; with high requirements on terminal performance Source: ResearchInChina Classification of Mobile Banking Mode Classification Mobile banking in broad sense SMS Banking Mobile Internet Banking Others Mobile banking in narrow sense Mobile Internet Banking: APP, WAP Source: ResearchInChina 63 Global and China Mobile Payment Industry Report, 2019-2025 The development of mobile banking is still led by banks at present and based on bank accounts opened in banks to provide the users with related banking services. The industrial chain involves players consisting of banks, providers of solutions, telecom operators, terminal suppliers, and users. Mobile Banking Industry Chain Source: ResearchInChina 4.2.2 Market Size Over the years, commercial banks saw mobile payment business grow rapidly. In 2018, China banking financial institutions handled 175.192 billion electronic payment transactions with amount of 2539.7 trillion yuan. Among them, mobile payment processed 60.531 billion transactions and 277.39 trillion yuan, up 61.19% and 36.69% yr-on-yr, respectively. By remote payment, commercial banks used mobile banking to provide account management, payment by remittance, investment and wealth management and other mobile financial services, and their more efforts on barcode payment layout and operation of QR code-based aggregated payment gave a certain boost to integration of mobile financial channels. As for NFC, commercial banks not only struck cooperative agreements with operators related to the industry chain for supplying backend settlement services for them but quickened the pace of promoting their own NFC payment. In particular, when Apple Pay went online in China in 2016, banks made a quick respond, and then commercial banks began to enrich their NFC payment products following the release of Samsung Pay, Huawei Pay and MI Pay. As smart phone has been prevalent in recent years, mobile banking transactions have swelled. As commercial banks expedite layout in mobile end, technologies such as Cloud-based Quick Pass and QR payment are promoted, and preferential policies have been released successively, mobile banking transactions keep climbing and is expected to reach RMB800.00 trillion in 2025. 64 Global and China Mobile Payment Industry Report, 2019-2025 Mobile Banking Transactions in China, 2015-2025E 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E Transactions (RMB Trillion) 108.22 157.55 202.93 277.39 340.23 414.21 483.67 557.70 635.40 717.30 800.00 YOY Growth 379.1% 45.6% 28.8% 36.7% 22.7% 21.7% 16.8% 15.3% 13.9% 12.9% 11.5% Source: The People’s Bank of China; ResearchInChina 4.2.3 Competitive Landscape Mobile Phone Bank Users Scales of Major Banks in China, as of the end of 2018 User scale (mln) Bank of Communications 74 China Merchants Bank 78 China Construction Bank 311 Bank of China 145 Agricultural Bank of China 258 Industrial & Commercial Bank of China 313 0 Industrial Commercial & Bank 50 100 150 313 250 300 350 Agricultural Bank of China China Bank Bank of China China Construction Merchants Communications Bank Bank 311 78 of China User scale (mln) 200 258 145 Source: ResearchInChina 65 74 of Global and China Mobile Payment Industry Report, 2019-2025 In the past two years, the mobile banking business of Industrial and Commercial Bank of China, Construction Bank and Agricultural Bank developed rapidly, successfully occupied most of the market share. In 2017, the mobile banking business revenue of above three banks registered 57.32 trillion yuan, 39 trillion yuan and 31.8 trillion yuan, totally sharing 63.1%. In 2018, their market shares declined as other banks caught up. In 2018, the transaction amount of mobile banking users of Construction Bank of China hit 58.24 trillion yuan with 21.915 billion transactions, market share dropped to 21%, but it was still the No.1 mobile banking. Market Share of Mobile Banking in China, 2017-2018 66 Global and China Mobile Payment Industry Report, 2019-2025 2017 2018 China Construction Bank 28.2% 21.0% Industrial & Commercial Bank of China 19.2% 18.7% Agricultural Bank of China 15.7% 17.0% China Merchants Bank 8.8% 9.9% Bank of China 5.4% 7.2% Bank of Communications 3.8% 4.0% Others 18.9% 22.2% Note: Since ICBC, Agricultural Bank and China Merchants Bank did not disclose 2018 mobile banking revenues, thus above data were estimated. Source: ResearchInChina 4.2.4 Development Trend Development Trends of Mobile Banking 1. Based on basic functions, mobile banking orients to differentiation of functions. 2. Mobile banking makes layout by use of its social attributes. 3. Scene + mobile payment will be the key layout area and battlefield of mobile banking. Source: ResearchInChina 4.3 Operators’ Mobile Payment In recent years, three major operators have founded mobile payment companies and obtained third-party payment license, with mobile payment as one of the key businesses. However, mobile payment differs from traditional services of operators; coupled with increasingly fierce market competition, it is hard for operators to continue existing advantages. Three major bottlenecks are restricting the potential of operators for mobile payment development. On the overall strategic level, three major operators have launched mobile payment (online) and mobile wallet (offline), China Mobile centered on creating Internet portal and integrating product line integrates its past mobile wallet and mobile payment to market “Hebao”; China Telecom adopts the Internet finance operation mode of “communication + pay + financing”, aiming at becoming modern financial enterprise cluster with characteristics of Internet and operators; China Unicom lays more emphasis on the trans-boundary innovation with Internet giants and financial sector for channel sharing and complementary advantages. 67 Global and China Mobile Payment Industry Report, 2019-2025 Operators’ Operating Models of Mobile Payment Source: ResearchInChina In terms of connection with banks, there are two mobile payment modes of operators. First, indirect connection to banks i.e. operators are firstly connected to centralized exchange platform of UnionPay, which then sees cooperation with banks. Such linking way can collect banks on the same platform and speed up the promotion of operators. Second, “one-to-one” direct connection which can shortens flow path, but due to lack of UnionPay’s exchange platform, the integration needs to be completed independently by operators and banks. The two modes can coexist for having both advantages and disadvantages. In the link of payment transaction, operators mainly depend on UnionPay’s acceptance network, which rapidly popularizes mobile payment, but also economizes overlapping investment and construction consumed capital. Laying POS terminal is not the strength of operators, thus requiring dependency on UnionPay system. Mobile Operators Dominate Mobile Payment Value Chain Source: ResearchInChina 68 Global and China Mobile Payment Industry Report, 2019-2025 4.4 Barcode Payment 4.4.1 Technology At present, barcode payment is led by 2D barcode payment. 2D Barcode, taking QR code as carrier, stores account and bargain price information, which can be recognized by reading terminal. It can realize remote payment via Internet after obtaining payment data. 2D barcode payment is advantaged in convenient use, short industrial chain and clear interest relationship, without exchanging communication equipment and capable of being applied to small payment scenario (such as vending machine and vegetable market) and satisfying small payment demand. Its hardware terminal includes reading equipment and mobile communication terminal, while software terminal includes solution provider, added value service and merchant platform. Although once limited by policy, 2D barcode payment continues to occupy China’s mobile payment market share due to its built-in and acquired advantages. Framework of QR Code Payment System Source: ResearchInChina Major Devices/Facilities for and Functions of 2D Barcode Payment Major Devices Functions 2D barcode Ensure access link or pay order of payment access system Smart phone and operation system Install payment client-side app Payment client-side app Bind bank card; recognize 2D barcode; complete payment Wireless network Transmit payment data Payment access system Process user payment request Source: ResearchInChina 69 Global and China Mobile Payment Industry Report, 2019-2025 2D Barcode Payment Industry Chain Source: ResearchInChina 4.4.2 Status Quo As 2D barcode has no unified safety identification standard, it has risks in terms of customer real-name verification, payment instrument confirmation, payment safety and transaction information. In Mar. 2014, the Central Bank demanded to suspend 2D barcode payment service. In the first two year of promoting 2D barcode payment, 2D barcode payment was under grey zone of supervision until officially approved by the government in Aug. 2016. On Aug. 3, 2016, Payment & Clearing Association of China published Standards for Barcode Payment Business (Exposure Draft) to payment institutions, and clarified safety standards obeyed by payment institutions when conducting barcode business. The Standards for Barcode Payment Business (tentative) (hereinafter referred to as the Regulations) released by the People’s Bank of China on December 27, 2017, specifies business qualification requirements and barcode generation rules, and also puts a cap on the amount of money in barcode payment; moreover, it warns players of their unfair competition activities such as “money burning” and “subsidiary”. The Regulations will formally come into effect from April 1, 2018. According to the Regulations, barcode payment consists of payer scanning payment and payee scanning payment. Thereof, the former refers to users scanning barcode for payment, also called “active scanning”, that is, an activity that a payer uses mobile terminals like mobile phone and pad to read payer’s barcode to complete payment; the latter refers to users being scanned barcode for payment, also called “passive scanning”, that is, an activity that a payee uses a device to read payer’s barcode on a mobile terminal to complete collection. 70 Global and China Mobile Payment Industry Report, 2019-2025 In this regard, the Regulations splits prevention capability of QR code payment risks into four levels, A, B, C and D, in descending order, which means the higher prevention level is, the larger amount of payment limit per day is. For example, static barcode is at the lowest level D for being easy to tamper and carry Trojans or viruses pushes up payment risks to the highest level, and a customer’s total transaction amount per day on a single bank account or all payment accounts as well as fast payment is no more than RMB500, regardless of verification model. Currently, in mobile payment field, 2D barcode payment is the most mature and fast developed method, surpassing NFC payment. Development History of Barcode Payment Time Event Mar 2014 The PBOC released notice to suspend QR code payment services of related payment institutions. Jul 2016 China Construction Bank, China Minsheng Bank, China CITIC Bank and China Merchants Bank followed the trail of Industrial and Commercial Bank of China to launch their own QR code payment products. Aug 2016 According to the Standards for Barcode Payment Business (exposure draft) released by Payment & Clearing Association of China, QR code payment was approved by regulators. Nov 2016 UnionPay released the Letter Concerning Application for Cooperation on Promoting UnionPay Card-based QR Code Payment Products and Related Standards and Regulations. Dec 2016 QR code payment standards unveiled by UnionPay included Unionpay 2D Barcode Payment Application Standard and Unionpay 2D Barcode Payment Safety Regulation. May 2017 UnionPay partnered with more than 40 banks to launch QR code payment products. 2017 Banks rolled out their own QR code payment products. Dec 2017 The Standards for Barcode Payment Business (tentative) issued by the PBOC specified barcode payment cap. Apr.1,2018 From Apr.1, 2018, the one-day limits of all static scanning code payment is set to 500 yuan Sep.2019 Central Bank of China issued 2019-2021 FinTech Development Planning, which mentioned by the end of 2021 at the latest, two-dimensional code payment will be interconnected and one-code-fits-all will be realized. Source: ResearchInChina Taking WeChat payment as example, from 2017-2019, small and medium-sized businesses transaction of WeChat payment increased 10-fold in three years. As of 2019, over 50 million individual merchants and merchants are active in WeChat payment platform, accounting for 79.4% of total individual merchants with industry covering fruit and vegetable, fresh food, taxi, fast food, snack and convenience store, etc. Long-tailed merchants account for 40% of Wechat payment small and medium-sized merchants, post-80s account for 39% as the backbone, 19% merchants are over 50 years old. At the same time, WeChat has penetrated into business life of merchants, and the face-to-face collection codes of small and medium-sized businesses cover 70%. Businessmen are accustomed to using mobile phones to manage business and provide services through WeChat accounts. 71 Global and China Mobile Payment Industry Report, 2019-2025 In the retail sector, the number of transactions per capita concluded through WeChat payment reached 5.8; the average number of transactions of code-sweeping for meal ordering and for trip per month increased 619% and 2.05 times respectively compared with 2018. In addition, WeChat App brush code payment service helps subway entering efficiency increase 300 times. Since 2017, The scale of China's offline code sweeping payment transactions had increased rapidly quarter by quarter. Entering 2019, China's offline code sweeping payment has been relatively perfect in scenario coverage, users’ habit of sweeping codes has been gradually formed, offline code sweeping payment market has also entered a stable growth stage, the quarter-on-quarter growth rate is greatly affected by seasonal fluctuations in the consumer market. Quarterly Transactions Scale of China's Off-Line Scan Payment, 2017-2019 9 8 8 8.5 8.2 7.4 7.2 7 5.9 6 4.8 5 4 3.5 2.6 3 1.9 2 1 0 1.2 0.6 104.1% 57.6% 32.4% 35.0% 36.9% 24.9% 20.5% 8.1% 3.7% 3.2% 2.5% 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Transaction scale (RMB trillion) Transaction scale QoQ (%) 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 0.6 1.2 1.9 2.6 3.5 4.8 5.9 7.2 7.4 8.0 8.2 8.5 104.1% 57.6% 32.4% 35.0% 36.9% 24.9% 20.5% 3.2% 8.1% 2.5% 3.7% (RMB trillion) QoQ (%) Source: ResearchInChina In Sep.2019, Central Bank of China issued 2019-2021 FinTech Development Planning, which mentioned by the end of 2021 at the latest, two-dimensional code payment will be interconnected and one-code-fits-all will be realized. From the user's point of view, they can randomly select the payment codes of payment institutions such as APPs of various banks, WeChat and Alipay, and show it to merchants, thus payment can be made. 72 Global and China Mobile Payment Industry Report, 2019-2025 Future, integration payment will be the development goal of two-dimensional barcode payment. It is estimated the transaction scale of integration payment in China will hit 50 trillion. Transaction Scale of China Integration Payment Market, 2016-2025E 60 400.0% 372.0% 50 50 44.1 300.0% 37.4 272.0% 40 250.0% 30.5 30 200.0% 21.7 20 10 0 150.0% 13.2 0.3 1.5 2016 2017 8.4 5.5 2018 52.7% 2019E 64.4% 57.1% 2020E 2021E 100.0% 40.6% 2022E Transaction Scale (RMB trillion) Transaction Scale (RMB trillion) 350.0% 22.6% 2023E 17.9% 2024E 50.0% 13.4% 0.0% 2025E YoY growth (%) 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 0.3 1.5 5.5 8.4 13.2 21.7 30.5 37.4 44.1 50.0 372.0% 272.0% 52.7% 57.1% 64.4% 40.6% 22.6% 17.9% 13.4% YoY growth (%) Source: ResearchInChina 4.4.3 Presence of Enterprises In 2014, since Central Bank halted 2D barcode payment, banks suffered standstill in this field. In the past two years, third party payment enterprises actively distributed 2D barcode payment field. At present, Alipay and TenPay occupy over 90% of 2D barcode payment market share in China. Since Central bank officially accept 2D barcode payment in 2016, banks including ICBC, CCB and China Minsheng Bank, started to focus on 2D barcode payment, which intensified market competition for some extent. On Dec. 12, 2016, China Unionpay officially launched 2D barcode payment standard. Third party organizations first to support the standard include 99Bill, ChinaUMS, All in Pay, Lakala, Sandpay and ChinaPnR. Besides, ICBC independely developing 2D barcode products also supports the technical standard. In May 2017, UnionPay’s partnership with more than 40 commercial banks for launching QR code payment products made market competition fiercer. 73 Global and China Mobile Payment Industry Report, 2019-2025 Modes of Unionpay 2D Barcode Payment Source: ResearchInChina On Dec. 12, 2016, Unionpay announced to implement Unionpay 2D barcode payment standard, which includes two regulations, namely, Unionpay 2D Barcode Payment Safety Regulation and Unionpay 2D Barcode Payment Application Standard, emphasizing fourth party mode of bank card payment. The fourth party mode refers to that fourth party (card issuer, acquiring bank, merchant and card organization) can enjoy profit share after consumers pay via bank card in stores when there is no third party payment. The fourth party mode adopts Token technology, effectively guaranteeing payment safety. Besides, with payment tokenization technology, Unionpay 2D barcode is capable of protecting account sensitive information, effectively guaranteeing account information safety during storage, processing and transmission, and preventing account information leakage. Unionpay 2D Barcode payment solution includes two parts, one is online and show widow (goods position for attracting customer or propagandized in network shop) code scanning payment, while another is offline code scanning payment. The solution replaces card swiping link with code scanning based on original offline card acquiring distribution system. 4.5 NFC Payment 4.5.1 Technology NFC integrates three main data development routes. RFID technology roadmap, i.e., radio frequency identification technology Magnetic stripe card technology roadmap Mobile terminal roadmap, evolution of terminal devices with NFC function 74 Global and China Mobile Payment Industry Report, 2019-2025 Development Course of NFC Technology Source: ResearchInChina Technical Framework of NFC Source: ResearchInChina From the user’s point of view (i.e., above Application layer), NFC has three operation modes: Reader/write: it is short for R/W and related to NFC Tag/NFC Reader; Peer-to-Peer: it is short for P2P and supports interaction between two NFC devices; 75 Global and China Mobile Payment Industry Report, 2019-2025 NFC Card Emulation: it is short for CE that can simulate the device with NFC function into a Smart Card, which enables functions like mobile payment and door access card. Operating Models and Components of NFC Reader/Writer Source: ResearchInChina NFC phone’s chip falls into three basic modules: NFC controller, SE security module, and RF antenna, among which SE security module has functions of safe storage of apps and data, dynamic download of multiple apps as well as updates and safety algorithm services, etc. SE security chip matters the division of benefits among vendors. China UnionPay, operators and mobile phone brands without exception wish to control SE and subsequently control capital circulation tache and the acquiring settlement rights as well as get consumer data. SE has four implementation schemes: (1) Full Card Scheme: NFC chip and SE are integrated into a SIM card. SIM card suppliers and mobile operators are the beneficiaries, and the SIM cards are issued by the operators; (2) Full Terminal Scheme: NFC chip and SE are embedded in a mobile phone, and mobile phone vendors are the beneficiaries; (3) Smart SD Card Scheme: SE is placed in a SD card. China UnionPay and banks are the beneficiaries, and they issue SD cards by themselves; (4) SWP-SIM Scheme: NFC chip and SE are separate, among which SE is integrated in SIM card, while NFC chip is built in mobile phone. Generally speaking, full card scheme and SD card scheme are the offspring of operators and financial institutions at early stage wishing to monopolize the NFC market, and both have been nearly eliminated so far. SWP-SIM scheme is the result of both sides’ compromises and now becomes the mainstream for the moment. 76 Global and China Mobile Payment Industry Report, 2019-2025 Main Implementations of SE in NFC Source: China UnionPay; ResearchInChina 4.5.2 Market Size NFC technology has found trial application in so many fields worldwide. Since China is the world’s largest mobile phone market and now has more than 1.2 billion mobile phone users, the Chinese NFC market with greatest potentials keeps expanding in scale. NFC has already divided into two groups: one is represented by HCE, without SE storage and led by banks; and the other is represented by Apple Pay, with SE and dominated by mobile phone vendors. Other NFC applications such as the top-up check of cards are all strengthening the ecosystem of NFC and raising the user viscosity of consumers. NFC phone has three main modes including NFC-SD card, NFC-SIM mode and NFC full-phone mode. The three differ a little in terms of implementation effect, safety, user experience and technological level, and the difference of the three lies in the different areas in which security chip is embedded. Currently, the Pay NFC involves Apple Pay, Samsung Pay, Huawei Pay and MI Pay. It uses the card simulation mode of NFC and forms special Token number instead of bonding bank card’s complete information inside mobile phone. In the process of payment, Token is passed via NFC communication to POS terminal when then transmits Token and transaction value to China UnionPay and banks in a bid for verification and completion of the deal. In such process, mobile phone is not required to be connected with the network. In 2016, China UnionPay launched payment products -- Apple Pay, Samsung Pay, Huawei Pay and Mi Pay jointly with commercial banks, Apple, Samsung, Huawei and Xiaomi. As of the end of 2016, Apple Pay had issued 15.949 million cards across the country with 152.478 million transactions 77 Global and China Mobile Payment Industry Report, 2019-2025 worth RMB20.43 billion; Samsung Pay had issued 1.148 million cards nationwide with a total of 5.955 transactions valued RMB860 million; Huawei Pay had issued 139,000 cards nationwide, with 1.704 million transactions and a transaction value of RMB40 million; Mi Pay had issued 289,000 cards across the country with 1.968 million transactions and a transaction value of RMB70 million. In July 2017, Jingdong Flash Pay, an epoch-making innovative payment product for China's NFC market, was launched by JD Finance and China UnionPay. This eye-catching new mobile payment product meets the requirements of the quad mode, and technically adopts NFC payment which is more convenient and safe than QR code payment. As an e-commerce company, Jingdong has a huge traffic advantage and plays a key role in the promotion of NFC payment. In addition, the launch of Jingdong Flash Pay also has a great enlightenment on the mobile payment industry -how banks, China UnionPay, payment agencies and e-commerce companies (scenarios) work together. At present, Jingdong Flash Pay has occupied the first place in the NFC market in China. To ensure safety, such kind of Pay still needs to be embedded with SE (Secure Element) safety module for storing Token information. Apple Pay applies TouchID fingerprint identification to read Token and confirm the deal, while Samsung Pay, Huawei Pay and MI Pay use the electron SE module, with the principle of realization almost the same. Apart from Pay type, NFC payment is also done via HCE mode. There is no Android Pay in China, and such payment is represented by NFC-SIM card and China UnionPay Cloud-based Quick Pass. NFC-SIM card needs operators to provide special SIM card and collaborate with operators’ wallet APP for use. China UnionPay Cloud-based Quick Pass is simple in a relative sense, and it can be used as long as Cloud-based Quick Pass App or a bank’s App is stalled in a mobile phone with NFC function. 78 Global and China Mobile Payment Industry Report, 2019-2025 In aspect of NFC-SIM card, the three leading telecom operators (China Mobile, China Unicom and China Telecom) have given tacit consent to 4G/5G mobile phone card bonding NFC function. In 2019, 4G and 5G mobile phone shipment in China hit 359 million units and 13.769 million units, respectively, accounting for 95.8% of the total shipment. As 4G/5G phone market balloons and mobile phones are accelerating to be replaced, the bottlenecks of NFC-SIM card will be ultimately smashed. In a word, the hindrances to the development of NFC payment environment will be gradually eliminated. With the bettering of payment environment, the focus of mobile payment solutions is geared from industrial end towards consumer end and to provide the user with higher value. NFC-enabled Cellphone Models Officially Released in China, 2019 Pay Model Apple Mate Xs, Mate X Mate 30 RS Porsche Design, Mate 30 Pro 5G, Mate 30 5G, Mate 30 Pro, Mate 30, Mate Pay 20 RS Porsche Design, Mate 20 X 5G, Mate 20 X, Mate 20 Pro, Mate 20, Mate 10 Porsche, Mate 10 Pro, Mate 10, Mate 9 Porsche, Mate 9 Pro, Mate 9, Mate 8, Mate 7, Mate S P30 Pro, P30, P20 Pro, P20, P10 Plus, P10, P10 Youth version, P8 Youth version ( Telecom 4G version) nova 5 Pro, nova 2s, Maimang 6, Honor Magic2, Honor Magic, Honor Note 10, Honor V30 Pro, Honor V30, Honor V20 (Full Netcom version), Honor V10 (Full Netcom version), Honor V9 (Full Netcom version), Honor V8 (Full Netcom version), Honor 20 Pro, Honor 20, Honor 10, Honor 9 Honor 8, Honor 7 (Full Netcom version), Honor 6 (Advanced Configuration version), Honor 6 Plus (double 4G version) Samsung Mate Xs, Mate X Mate 30 RS Porsche Design, Mate 30 Pro 5G, Mate 30 5G, Mate 30 Pro, Mate 30, Mate Pay 20 RS Porsche Design, Mate 20 X 5G, Mate 20 X, Mate 20 Pro, Mate 20, Mate 10 Porsche, Mate 10 Pro, Mate 10, Mate 9 Porsche, Mate 9 Pro, Mate 9, Mate 8, Mate 7, Mate S P30 Pro, P30, P20 Pro, P20, P10 Plus, P10, P10 Youth version, P8 Youth version (Telecom 4G version) nova 5 Pro, nova 2s, Maimang 6, Honor Magic2, Honor Magic, Honor Note 10, Honor V30 Pro, Honor V30, Honor V20 (Full Netcom version), Honor V10 (Full Netcom version), Honor V9 (Full Netcom version), Honor V8 (Full Netcom version), Honor 20 Pro, Honor 20, Honor 10, Honor 9 Honor 8, Honor 7 (Full Netcom version), Honor 6 (Advanced Configuration version), Honor 6 Plus (double 4G version) Huawei Mate Xs, Mate X Mate 30 RS Porsche Design, Mate 30 Pro 5G, Mate 30 5G, Mate 30 Pro, Mate 30, Mate Pay 20 RS Porsche Design, Mate 20 X 5G, Mate 20 X, Mate 20 Pro, Mate 20, Mate 10 Porsche, Mate 10 Pro, Mate 10, Mate 9 Porsche, Mate 9 Pro, Mate 9, Mate 8, Mate 7, Mate S P30 Pro, P30, P20 Pro, P20, P10 Plus, P10, P10 Youth version, P8 Youth version (Telecom 4G version) nova 5 Pro, nova 2s, Maimang 6, Honor Magic2, Honor Magic, Honor Note 10, Honor V30 Pro, Honor V30, Honor V20 (Full Netcom version), Honor V10 (Full Netcom version), Honor V9 (Full Netcom version), Honor V8 (Full Netcom version), Honor 20 Pro, Honor 20, Honor 10, Honor 9 Honor 8, Honor 7 (Full Netcom version), Honor 6 (Advanced Configuration version), Honor 6 Plus (double 4G version) MI Pay Mate Xs, Mate X Mate 30 RS Porsche Design, Mate 30 Pro 5G, Mate 30 5G, Mate 30 Pro, Mate 30, Mate 20 RS Porsche Design, Mate 20 X 5G, Mate 20 X, Mate 20 Pro, Mate 20, Mate 10 Porsche, Mate 10 Pro, Mate 10, Mate 9 Porsche, Mate 9 Pro, Mate 9, Mate 8, Mate 7, Mate S P30 Pro, P30, P20 Pro, P20, P10 Plus, P10, P10 Youth version, P8 Youth version (Telecom 4G version) nova 5 Pro, nova 2s, Maimang 6, Honor Magic2, Honor Magic, Honor Note 10, Honor V30 Pro, Honor V30, Honor V20 (Full Netcom version), Honor V10 (Full Netcom version), Honor V9 (Full Netcom version), Honor V8 (Full Netcom 79 Global and China Mobile Payment Industry Report, 2019-2025 version), Honor 20 Pro, Honor 20, Honor 10, Honor 9 Honor 8, Honor 7 (Full Netcom version), Honor 6 (Advanced Configuration version), Honor 6 Plus (double 4G version) Source: ResearchInChina NFC applied in bus card falls into top-up bus card and mobile phone simulated as a bus card. The top-up bus card renders the reader mode of NFC. For instance, in Guangzhou city, the NFC phone can read LingNanTong Bus/Metro card and check the balance via WeChat, Alipay and QQ and recharge the card. In recent two years, China Mobile's smart terminal NFC payment accounts for a small proportion of the total mobile payment transaction scale, but takes relatively high growth. In 2019, the transaction scale of NFC payment approximated 34.08 billion, taking up less than 1% of mobile payment. Since 2017, driven by UnionPay, such intelligent terminal players as Apple pay and Huawei pay cooperated with some third-party payment organizations such as JD.com Flash Pay and Meituan flash pay to further strengthen NFC payment promotion. JD.com Flash Pay has become a leading enterprise in mobile intelligent terminal NFC payment market relying on the advantages of security, convenience and large discount, and its transaction scale ranked first , exceeding other third-party payment institutions. China Mobile NFC Payment Transaction Scale, 2017-2019 70.0% 120 100 55.5% 58.9% 83.6 47.3% 80 59 60 60.0% 95.8 90.2 50.0% 71.2 65.3 40.0% 36.2% 30.0% 43.3 40 20 0 8.5 29.4 17.6% 19.0% 18.5 11.9 10 10.7% 9.0% 7.9% 10.0% 6.2% 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 Transaction Scale (RMB 100 mln) Transaction Scale 20.0% 17.4% 0.0% QoQ growth(%) 2017Q1 2017Q2 2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 8.5 10 11.9 18.5 29.4 43.3 59 65.3 71.2 83.6 90.2 95.8 17.6% 19.0% 55.5% 58.9% 47.3% 36.2% 10.7% 9.0% 17.4% 7.9% 6.2% (RMB 100 mln) QoQ growth(%) Source: ResearchInChina 80 Global and China Mobile Payment Industry Report, 2019-2025 4.5.3 Presence of Enterprises Global NFC market trade involves the players like Broadcom, Infineon, MasterCard, NXP, Paypal, Softcard, and VISA. Besides, there are important participants in the NFC market, including American Express, Gemalto, Google, Inside Secure, Nokia, Qualcomm, Renesas Electronics, Samsung Electronics and ST. Chinese NFC industry chain contains chip vendors, card issuers, TSM platform operators, NFC antenna and magnetic disk plants. NFC hardware suppliers consist of Shenzhen Xinguodu Technology and Newland Group; the NFC-SIM card suppliers include Wuhan Tianyu Information Industry Co., Ltd., Hengbao Co., Ltd and Eastcompeace Technology Co., Ltd; and NFC antenna suppliers comprise Huizhou Speed Wireless Technology Co., Ltd and Shenzhen Sunway Communication Co., Ltd. NFC Payment Industry Chain Source: ResearchInChina 81 Global and China Mobile Payment Industry Report, 2019-2025 Process of NFC Payment Source: NFC; ResearchInChina 4.5.4 HCE Cloud-based QuickPass Cloud-based Quick Pass is a kind of payment means on the basis of smart phone and NFC HCE and Token technologies. Adopting HCE technology and without the need to add hardware device to mobile phone, the Cloud-based Quick Pass can help you quickly finish payment only NFC function of mobile phone is opened whilst waving by the acceptance terminal. HCE Cloud-based Quick Pass also has the function of online payment and only supports Android platform. The “Cloud QuickPass”, jointly launched by China UnionPay, mobile phone vendors and commercial banks in 2015, has developed 20 million users and 10.5 million terminals supporting Quick Pass in its first year. As of the end of 2016, Cloud QuickPass HCE products had successfully issued 668.2 cards, with 29.188 million transactions and a transaction value of RMB430 million; a total of 93 banks including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank and China Merchants Bank had officially opened the "Cloud QuickPass" business and issued a total of 220,000 cards. 82 Global and China Mobile Payment Industry Report, 2019-2025 The explosive growth was expected in 2017, mainly reflected in: (1) The active participation of mobile phone vendors. HCE, Apple Pay, Huawei Pay, Mi Pay, etc. emerged; (2) The quick joining of commercial banks; (3) The enthusiasm of customers. Customers can integrate and change their payment methods through Cloud QuickPass safely and quickly, which is a trend of the new era and a means to improve their quality of life. Installation of Cloud QuickPass Source: China UnionPay; ResearchInChina Development History of Cloud-based QuickPass in China, 2015-2019 Date Event Dec 12, 2015 China UnionPay associated over twenty commercial banks to roll out “Cloud-based Quick Pass” jointly in Beijing, ushering in an era of safer and more convenient mobile payment. Dec 15, 2015 UnionPay International is pacing up to expand the coverage of Quick Pass overseas, and it has opened 100,000 POS terminals (reception of Quick Pass) in Hong Kong, Macao and Taiwan, South Korea, Australia, Singapore, etc.; and all these POS terminals support the “Cloud-based Quick Pass” latest released by UnionPay. Feb 18, 2016 UnionPay Cloud-based Quick Pass officially opened service to support Apple Pay. The card holders in domestic China can easily add their UnionPay card to iPhone, Apple Watch and iPad, and they can pay more easily and safely. Mar 29, 2016 China UnionPay associated with several commercial banks and Samsung Electronics and jointly announced Samsung Pay loaded with UnionPay Cloud-based Quick Pass had been officially available online. Jun 27, 2016 UnionPay International, Korean KT Group and its subsidiary BC Card Company jointly announced that UnionPay Int’l would roll out UnionPay HCE Cloud-based Quick Pass product first in South Korea, and the local UnionPay card holder can pay via “Cloud-based Quick Pass”. Aug 16, 2016 UnionPay International announced it that a group of Canadian merchants in daily necessities opened the UnionPay Cloud-based Quick Pass acquiring service. Such innovative service first extended to North America. 83 Global and China Mobile Payment Industry Report, 2019-2025 Aug 17, 2016 UnionPay International and Industrial and Commercial Bank of China (ICBC) jointly announced to issue UnionPay HCE Cloud-based Quick Pass product in Macao, China. Aug 31, 2016 China UnionPay joined hands with Huawei and more than 20 commercial banks to hold a press conference and announce that UnionPay Cloud-based Quick Pass would fully support Huawei Pay. Sep 1, 2016 China UnionPay associated with nearly 20 commercial banks and Xiaomi to jointly announce UnionPay Cloud-based Quick Pass officially opened service to support MI Pay. Feb 21, 2017 China UnionPay International announced to launch "Cloud QuickPass" in Hong Kong for the first time in collaboration with Bank of China (Hong Kong) May 4, 2017 The largest supermarket chain in Australia, Woolworths, enabled all of its supermarkets in Australia to accept "Cloud QuickPass" Jul 2017 The epoch-making innovative payment product in Chinese NFC market - Jingdong Flash Pay debuted Sep 7, 2017 China UnionPay Cloud QuickPass announced to support Didi Oct 26, 2017 China UnionPay, together with other companies, realized a full range of payment methods including UnionPay mobile QuickPass, UnionPay QR codes and UnionPay IC card flash payment in high-speed rail trains for the first time. Nov 10, 2017 Hong Kong taxis started to accept China UnionPay cards issued worldwide. When taking taxis with the UnionPay logo, cardholders can pay for the taxi fares by using UnionPay cards or via UnionPay mobile QuickPass. Dec 5, 2017 The mobile App “China UnionPay Wallet” was changed into "Cloud QuickPass". The original related businesses and functions of "China UnionPay Wallet" were merged into Cloud QuickPass. Nov.2018 China UnionPay announced that the users of Cloud Flash Pay APP exceeded 100 million Sept.5, 2019 China UnionPay announced that the users of Cloud Flash Pay APP exceeded 200 million Source: China UnionPay; ResearchInChina At present, the seven mainstream mobile phone brands including Huawei, Xiaomi, OPPO, vivo, MEIZU, Apple and Samsung support UnionPay mobile phone flash payment. Mobile Phone Flash Payment Products Supporting UnionPay Mobile Phone Flash Payment Source: China UnionPay; ResearchInChina 4.6 Biometric Identification Payment Currently, the most common biometric identification technologies on the market include fingerprint scanning, facial recognition, voice recognition and iris scanning. In 2017, face scan payment emerged and developed. In May 2017, Baidu launched a face scan payment product at its own canteen. At the end of August, JD Home (the experience store under 84 Global and China Mobile Payment Industry Report, 2019-2025 Jingdong) began to test the "face scan payment" function internally. On September 1, Alipay announced the commercial release of "face scan payment" in KFC’s KPRO Restaurant officially. In November, Apple's latest iPhone X completely abandoned the fingerprinting technology, while it introduced the more mature face recognition technology. In addition, the head office of Agricultural Bank of China has issued a circular calling for nationwide promotion to face recognition systems, covering 24,064 branches, 30,089 teller machines and 100,000 ATMs across the country. As of the end of 2019, the users of face scan payment in China estimated at 110 million, the major application scenarios include supermarket, convenience store, shopping mall, AVM, and food and beverage consumption in shops, etc. Along with the popularization of face scan payment, the corresponding equipment market also develops. However, China's face scan payment equipment has been upgraded to enter red sea in recent two years, price competition makes the market enter a more brutal stage of competition. Development of Chinese Face Payment Equipment Time Event Aug. 2018 Alipay announced that in the next year it will popularize the solution of self-service cash register and face scan payment to various business scenarios. The price of each self-service cash register device added with face scan payment is about 30,000 to 40,000 yuan, suitable for large-scale retail, but the price is difficult to accept for medium and long-tail merchants. Dec. 2018 Alipay launched lightweight face scan payment device-Dragonfly, which decreased face scan payment access cost by 80%. Since then, face scan payment popularization is possible, but the price 2599 yuan is still relatively high. Mar. 2019 WeChat launched lightweight face scan payment device-Frog, which priced at 2,000 yuan. Apr. 2019 Alipay launched the second face scan payment device Dragonfly based on offline consumption scenario, which priced at 1,999 yuan, 30% less than the first generation. Aug. 2019 WeChat payment released double-sided screen intelligent commercial equipment with code sweeper WeChat Frog Pro, which priced at 1999 yuan. Except subsidy, the prices of the two major Internet giants' face scan payment equipment are at the same starting line, but this did not last long. Sep.24, 2019 Alipay launched Dragonfly Plus all-in-one and Dragonfly Extension separate type, and reduced the price of ordinary Dragonfly to 1,699 yuan. In addition, if the service provider takes the goods in bulk, the price can be reduced to 1499 yuan. Source: ResearchInChina 85 Global and China Mobile Payment Industry Report, 2019-2025 Development Trend of No-cash Society in China Source: iResearch; ResearchInChina 86 Global and China Mobile Payment Industry Report, 2019-2025 5. Mobile Payment Users in China 5.1 Overview The research on mobile payment users can reflect the application status of mobile payment business to some extent. According to the survey of Payment & Clearing Association of China in 2018, concrete research is conducted in terms of user essential attributes, preferences and satisfaction. Main characteristics are as follows: In terms of user essential attributes, male users are more than female users, and there is a significant increase in the proportion of male users. In 2018, male users accounted for 60.6%, up from 78.4% in 2017. Young and middle-aged users played a main role, the users aged 31-40 accounted for 28% in 2018, up from 14.4% in 2017. The regional distribution of users in 2018 was uneven. Compared with 2017, the proportion of users in municipalities directly under the central government and provincial capitals declined, while the proportion of users in prefecture-level cities, county regions, towns and villages increased, which showed that China mobile payment was gradually permeating from developed cities to prefecture-level cities and towns. With respect to user behaviors, mobile payment users preferred small-amount and high-frequency payment in 2018. 72.6% of them spent less than RMB500 on a single charge, and 80.1% of users used mobile payment every day. Easy operation constitutes the main reason for users choosing mobile payment, but potential safety hazard and slow mobile phone network access speed are the most primary concerns for users. About the survey on new technologies of mobile payment, users have relatively high recognition for new technologies of mobile payment, which is advantageous to the promotion and development of mobile payment. 85.0% of users can accept the use of biometric technology for mobile payment identification and transaction verification, which indicated users have high acceptance of new mobile payment technologies. 5.2 Characteristics of Mobile Payment Users * Male users are more than female users, but the proportion of female users jumps greatly With the increasingly diversified application scenarios and the continuous improvement of safety, some prudent female users begin accepting and using mobile payments. In 2018, male and female users accounted for 60.6% and 39.4% of total mobile payment users, while the number in 2017 was 52.3% and 47.7% respectively. The results of the two-year survey were similar, male users outnumber female users, proportion of female users declined slightly in 2018, which showed male users were more willing to try innovative payment products than female users. 87 Global and China Mobile Payment Industry Report, 2019-2025 Mobile Payment Users Structure in China by Gender, 2017-2018 Source: Payment & Clearing Association of China, ResearchInChina In 2018, the number of mobile payment users aged under 30 was the largest, accounting for 54.22%. Users aged 31-40 followed with proportion of 27.6%. The proportion of users aged 41-50 and over 51 was 13.3% and 5% respectively. Compared with 2017, the proportion of mobile payment users aged under 30 dropped significantly. Mobile Payment Users Structure in China by Age, 2017-2018 Source: Payment & Clearing Association of China, ResearchInChina In 2018, mobile payment users with bachelor's degree or below ranked first, accounting for 94.1%. The number of users with master's degree ranked second, accounting for 52%. The proportion of users with doctor's degree or above was 0.7%. Compare with 2017, the proportion of undergraduate and below users increased slightly, while the proportion of postgraduate users decreased slightly, doctor and above users remained basically unchanged. 88 Global and China Mobile Payment Industry Report, 2019-2025 Educational Background of Mobile Payment Users in China, 2017-2018 Source: Payment & Clearing Association of China, ResearchInChina In 2018, the mobile payment users in prefecture-level cities accounted for 311%, being the most; provincial capitals followed with share of 28.2%; the proportion of users in prefecture-level cities, county regions, townships and countryside was 15.7%, 16.6%, 5.5% and 3.0%, respectively. Compared with the proportion of mobile payment users in 2017, the gap between urban and rural areas in 2018 slightly decreased. With the increasingly rich application scenarios of mobile payment, continuously improved security, rural payment environment continuously optimized. Along with the promotion of inclusive finance coverage, other prudent groups have begun to accept and use mobile payments, also with the gradual improvement of income level and the internal demand for convenient payment methods, the proportion of users in county regions and townships rises. Distribution of Mobile Payment Users in China by Region, 2017-2018 Source: Payment & Clearing Association of China, ResearchInChina 89 Global and China Mobile Payment Industry Report, 2019-2025 In 2018, mobile payment users in East China and North China took up 27.3% and 25.7% respectively; South China followed with 20.1%; Southwest, Central China, Northwest and Northeast accounted for 9.5%, 7.1%, 5.5% and 4.5%. Hong Kong, Macao and Taiwan and other regions ranked last with less than 1% of users. This indicated most domestic mobile payment users are located in developed regions such as Beijing, Tianjin, Hebei, Yangtze River Delta, Pearl River Delta and other populated areas, which was closely related to developed economy, high per capita income, large resident population and relatively perfect environment for accepting mobile payment in these regions. Distribution of Mobile Payment Users in China by Region, 2017-2018 4.5% 0.3% 5.5% 9.5% 27.3% 7.1% 20.1% 25.7% East China North China South China Central China Southwest Northeast Northwest HK, Macao, Taiwan and other regions Source: Payment & Clearing Association of China, ResearchInChina 5.3 Using Behaviors of Mobile Payment Users In 2018, user frequency continued to increase, with 80.1% of users using mobile payments every day, 1.4 percentage points higher than 2017. Users who used mobile payment 2-3 times a week accounted for 14.4%. Users using mobile payment 1 time a week took up 2.0%, once half a month and once a month shared 1.4% and 1.2%. 1.0% of users did not often use mobile payment. This indicated the application scenario and business environment of mobile payment were becoming more and more mature, and mobile payment methods were more and more popular with users. 90 Global and China Mobile Payment Industry Report, 2019-2025 Frequency of Mobile Payment by Users in China, 2017-2018 Longer 1.0% 0.8% Once a month 1.2% 0.8% Once half a month 1.4% 1.0% Once a week 2.0% 1.8% 2-3 times a week 14.4% 17.0% 80.1% 78.7% Use everyday 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 2018 2017 Source: Payment & Clearing Association of China, ResearchInChina In 2018, the amount per payment of 43.16% uses were below 100 yuan; 29.48% users RMB100-500, basically the same as 2017 and changed not much. 13.4% users paid per payment 500-1000yuan, down 1.4% yr-on-yr. 13.96% users paid over 1000yuan, up 1.36% over 2017. It can be seen that on the whole, mobile payment was still dominated by small amount and convenient in 2018, the proportion of all interval data was almost the same as that in 2017. Amount Per Payment of Mobile Payment Users in China, 2017-2018 50.0% 45.0% 43.0%43.2% 40.0% 35.0% 29.5%29.5% 30.0% 25.0% 20.0% 15.0% 14.8%13.4% 12.6%14.0% 50-1000 yuan Above 1000 yuan 10.0% 5.0% 0.0% Below 100 yuan 100-500 yuan 2017 2018 Source: Payment & Clearing Association of China, ResearchInChina 91 Global and China Mobile Payment Industry Report, 2019-2025 In 2018, users commonly used debit card and third-party payment accounts for mobile payments, sharing 70.6% and 66.4%, respectively. Users who use credit payment products such as Ant Credit Pay and Jingdong White Stripes to make payments followed with share of 49.9%. User who chose credit card for mobile payment took up 42.6%. 39.9% of users adopted monetary market funds to make mobile payments, such as Yu 'e Bao WeChat Coin Pass, etc; proportion of users who chose class II and class III bank accounts for mobile payment was 12.9%; there was 3.4% users taking other accounts for mobile payment. Account Type Structure Used by Mobile Payment Users, 2018 80.0% 70.6% 70.0% 66.4% 60.0% 50.0% 49.9% 42.6% 39.9% 40.0% 30.0% 20.0% 12.9% 10.0% 0.0% 3.4% Credit card Debit card Class II and Third-party Credit class III payment payment bank account products accounts Money Market Fund Others Source: Payment & Clearing Association of China, ResearchInChina In 2018, the primary reason why users were willing to use mobile payment was that the operation was simple and convenient, accounting for 95.6%, on a par with that in 2017; the reason that no need to bring cash and bank cards ranked second with proportion of 80.8%, down over 2017; the reason of many preferential promotion activities took the third place with users share of 47.3%. The reason of being supported by merchants and high security had basically the same influence, with share of 34.5% and 33.0%, down obviously over 2017. In addition, 3.2% users chose mobile payment for other reasons. This indicated users paid more attention to the convenience of operation when choosing mobile payment, the process was simple without change or bank card presentation, which reduced the time cost of users. 92 Global and China Mobile Payment Industry Report, 2019-2025 Main Reasons for Using Mobile Payment in China, 2018 Others 3.2% 4.8% 33.0% 40.5% High security 80.8% No need to bring cash and bankcard 34.5% Supported by merchants 56.3% 47.3% Many preferential promotion activities 91.2% 64.5% 95.6% 97.8% Easy and convenient operation 0.0% 20.0% 2018 40.0% 60.0% 80.0% 100.0% 120.0% 2017 Source: Payment & Clearing Association of China, ResearchInChina Most users considered that mobile payment will coexist with cash. Proportion of Users Expecting Mobile Payment Development, 2018 23.93% 49.78% 4.32% 21.97% Yes No Be replaced gradually Coexist Source: Payment & Clearing Association of China, ResearchInChina In 2018, security risks and slow speed of mobile phone network access were the most worrying problems for mobile payment users, accounting for 64.7% and 53.4% respectively. The third problem was merchants did not support it, sharing 49.8%, down nearly 20 percentage points. The problem that payment process was complicate to operate ranked fourth, accounting for 27.1%; low limit and failed payment took up 19.7% and 17.5%, respectively; users that worried about the opening was tedious shared 13.7%; problem that users are less worried about was that the high cost of Internet traffic accounted for 10.0%. 93 Global and China Mobile Payment Industry Report, 2019-2025 This indicated through the publicity and education of market subjects and the active learning of users, users paid more attention to the security of mobile payment and their awareness of account funds security was obviously improved. Through the continuous efforts of market players, the mobile payment application scenario and acceptance environment have been further improved, can better support users to use mobile payment. Problems with Usage of Mobile Payment by Users in China, 2017-2018 Others Internet traffic costs high Low limit 4.2% 0.0% 10.0% 4.5% 19.7% 3.5% 49.8% Not supported by merchants 69.6% 27.1% 22.4% The payment process is complicated to operate. 53.4% 54.1% Mobile phone network speed is slow 17.5% 15.7% 13.7% 8.2% Failed payment The opening is tedious 64.7% 59.0% Existing security risks 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 2018 2017 Source: Payment & Clearing Association of China, ResearchInChina In 2018, users believed that the first security problem encountered in the payment process was the disclosure of personal information, sharing 81.0%; the second was mobile phone scanned false barcode, sharing 70.1%; the third was accounts fund embezzled, accounting for 67.5%. The last was payment code was sent to others, occupying 41.2%. This showed in addition to paying attention to the safety of their own account funds, users also increased awareness of protecting personal privacy information. It was necessary for the majority of market players to strengthen the protection of user sensitive information while providing mobile payment services, establish a sound management mechanism in line with regulatory safety in the information collection, processing, storage, use and other links. 94 Global and China Mobile Payment Industry Report, 2019-2025 Proportion of Security Problems Encountered by Mobile Payment Users, 2018 90.0% 80.0% 70.0% 81.0% 70.1% 67.5% 60.0% 50.0% 41.2% 40.0% 30.0% 20.0% 10.0% 0.0% Mobile phone scans The payment code is false barcodes sent to others Merchant funds embezzled Personal information is leaked Source: Payment & Clearing Association of China, ResearchInChina In 2018, difficult operation & poor experience and few supported merchants were the most common problems when users use mobile banking and other methods to make payments, sharing 52.2% and 50.2%; Less publicity, little knowledge of bank payment products, less marketing activities accounted for 39.4% and 37.5%. Less function, donot know which bank’s app (client terminal) friends are using shared 34.3% and 29.2%. Therefore, banks needed to optimize operation process of mobile payment business and actively expand payment application scenarios, increase the publicity of their own products and services, add business function modules to enhance their attractiveness and influence to users. Proportion of Problems Mobile Payment Users Think to Solve in Client Terminals, 2018 10.3% 34.3% 29.2% 39.4% Less function 52.2% 37.5% 50.2% Difficult operation and poor experience Less merchants are supported Less marketing activities Less publicity, little knowledge of bank mobile payment products Don't know which bank's app (client) friends are using. Others Source: Payment & Clearing Association of China, ResearchInChina 95 Global and China Mobile Payment Industry Report, 2019-2025 In 2018, in terms of mobile payment security and customer rights protection measures, users mostly expected market players to conduct payment risks reminder in time and unblock customer complaint channels, sharing 79.2% and 59.6%; the second was to carry out necessary safety education for customers and add transaction verification links(e.g. enter SMS verification code received by mobile phone during payment), sharing 55.3% and 52.3%; the last was transaction limit management, accounting for 38.7%. It indicated market players should protect users' right to know so that they can fully understand the potential risks in the payment process when providing mobile payment service; should improve customer service quality by improving customer complaint channels such as telephone, online customer service and emails, etc; continuously strengthen safety education for customers to improve customer risk prevention ability and level; provide multi-level security authentication tools to help customers reduce risk probability and capital loss. Proportion of Customer Rights Protection Measures Expected by Mobile Payment Users, 2018 8.0% 38.7% 55.3% 52.3% 79.2% Carry out necessary safety education for customers 59.6% Prompt reminder of payment risks Clear up customer complaint channels Add transaction verification links (e.g. enter SMS verification code received by mobile phone during payment) Source: Payment & Clearing Association of China, ResearchInChina In 2018, users believed that security ranked first in the areas where mobile payment needed to be improved most in the future, sharing 77.8%; application scenario scope ranked second with share of 65.2%, down over 2017; service quality and convenience followed with share of 46.7% and 43.4%; payment limits and others accounted for 33.4% and 5.7%.This showed users paid more attention to the security of mobile payment and also the continuous improvement of service quality and payment experience. 96 Global and China Mobile Payment Industry Report, 2019-2025 Proportion of Problems Mobile Payment Users Concerned, 2018 5.7% 6.1% Others 33.4% 29.7% Payment limit 65.2% 70.7% Application scope Service quality 46.7% 36.0% Convenience 32.0% 43.4% Security 67.5% 0.0% 10.0% 20.0% 30.0% 2018 40.0% 50.0% 60.0% 70.0% 77.8% 80.0% 2017 Source: Payment & Clearing Association of China, ResearchInChina Analysis of Network Consumption Period, 2018 Source: China Telecom, ResearchInChina 97 90.0% Global and China Mobile Payment Industry Report, 2019-2025 5.4 Attributes and Behavior Preferences of Mobile Payment Users In 2018, 99.1% of users said that they used mobile payment most often in financial situations such as purchase of financial products, stock and securities, an increase of nearly 60% compared with 2017; followed by lifestyle, such as buying daily necessities for food and clothing etc., accounting for 97.2%, which was basically the same as in 2017; public utilities expenditure ranked third, accounting for 68.2%, an increase of 6.7% from 2017; ticketing payment ranked fourth, accounting for 67.0%; the users who used mobile payment in business travel and entertainment downloading scenarios account for 64.1% and 46.7% respectively. Finally, users using other mobile payment scenarios accounted for 16.7%. The above data shows that mobile payment has been widely used in all aspects of daily life, and has played an increasingly important role, fully satisfying the basic living needs of users such as clothing, food, housing, and transportation, as well as value-added services such as financial management, tourism and entertainment consumption. Major Industries to Which Mobile Payments Are Applied, 2018 Source: Payment & Clearing Association of China, ResearchInChina In 2018, 89.5% of users indicated that they most often used client-side code scanning or QR codes for payments; paying users used quick pass on terminal devices (such as bank cards, Apple Pay, Huawei Pay, Mi Pay and other mobile quick pass) ranked second, accounting for 27.2%; 23.7% of users chose to jump from the merchant client to a third-party client for payment, ranking third; and 8.4% of users used other payment methods, such as mobile phones web payment, reply SMS payment, call hotline payment etc. 98 Global and China Mobile Payment Industry Report, 2019-2025 Payment Methods of Mobile Payment in China, 2018 100.0% 89.5% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 27.2% 30.0% 23.7% 20.0% 8.4% 10.0% 0.0% Barcode payment Quick pass Jump to third party client terminal for payment Others Source: ResearchInChina In 2018, 89.1% of users were able to accept barcode payment, while 10.9% of users chose not to accept it, which was the same as the acceptance in 2017. This shows that through the active layout and cultivation of market subjects for many years, usage and acceptability of barcode payment methods has reached a high level. Proportion of Users Aaccepting Barcode Payment, 2018 Source: ResearchInChina The most commonly used barcode payment scenarios by users are supermarkets, accounting for 89.5%; followed by convenience stores or chain stores, accounting for 71.7%; restaurants ranked third, accounting for 68.1%; cinema and vending machine scenarios accounted for 35.6% and 38.4% respectively; users who used barcodes for other occasions accounted for 16.2%; users who did not use barcodes accounted for 5.7%. It indicates that the barcode payment is mainly used in the daily consumption scenarios of residents, which better meets the basic consumer needs such as shopping and eating. 99 Global and China Mobile Payment Industry Report, 2019-2025 Barcode Pay Scenarios of Chinese Mobile Payment Users, 2017-2018 Not use Others 5.7% 3.9% 16.2% 19.4% 38.4% 48.0% AVM 35.6% Cinema 49.9% 31.2% Public bus 71.7% 80.3% Convenience Store or Chain Store 68.1% 77.7% Restaurant 89.5% 92.0% Supermarket 0.0% 20.0% 2018 40.0% 60.0% 80.0% 100.0% 2017 Source: Payment & Clearing Association of China, ResearchInChina In 2018, scanning QR codes was the most common method used by mobile payment users when taking the subway, accounting for 39.47%; followed by mobile phone (NFC) payment, accounting for 33.37%; the proportion of users using public transportation or bank cards was 23.05%, ranking third; another 4.1% of users chose other methods of payment. Proportion of Payment Methods Used by China Mobile Payment Users to Take Public Transportation, 2018 Source: Payment & Clearing Association of China, ResearchInChina 100 Global and China Mobile Payment Industry Report, 2019-2025 In 2018, ETC payment was the most preferred payment method for mobile payment users in high-speed payment scenarios, accounting for 50.9%; followed by license plate recognition payment, accounting for 31.9%; parking scan payment and cash payment were equally popular, accounting for 9.7% and 7.5% respectively. The data shows that in high-speed traffic scenarios, users are more inclined to use an automated payment model with simple, high efficiency, and time saving process. Proportion of Payment Methods Used by China Mobile Payment Users for High Speed Payment, 2018 Cash payment Parking scan payment 7.5% 9.7% License plate recognition payment 31.9% ETC payment 0.0% 50.9% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Source: Payment & Clearing Association of China, ResearchInChina In 2018, 61.7% of users expressed their understanding of the bar code payment limit according to the risk prevention ability of the implementation of the policy of tiered management. For use of static bar code, the cumulative transaction amount of a single customer’s single bank account or all payment accounts should not exceed RMB 500 per day; the proportion of users who understood the policy of “T+0 redemption withdrawal business” of a single money market fund held by a single investor in a single sales channel with the withdrawal amount set no higher than RMB 10,000 was the same as that of non-bank payment institutions with the network payment disconnection accounted for 40.4% and 39.7% respectively; 27.7% of users expressed their understanding of the policy of gradually increasing the proportion of the central deposit of payment institutions’ customer reserves and achieving 100% centralized deposit by January 14, 2019. 101 Global and China Mobile Payment Industry Report, 2019-2025 Proportion of China Mobile Payment Users Knowing about Mobile Payment Policies, 2018 70.0% 61.7% 60.0% 50.0% 40.4% 40.0% 39.7% 27.7% 30.0% 20.0% 10.0% 0.0% Break direct connection Barcode payment The daily T+0 Centralized custody limit hierarchical redemption amount of reserve funds management is not more than 10,000 yuan Source: Payment & Clearing Association of China, ResearchInChina In 2018, users ranked first in understanding of fingerprint recognition technology, accounting for 93.0%, and second was facial recognition technology, accounting for 80.7%; understanding of acoustic wave and iris recognition technology ranked third and fourth, accounting for 24.7% and 24.1% respectively; the lowest level of understanding was vein recognition technology, accounting for 4.2%; in addition, 3.5% of users said they did not understand any biometric technologies. Compared with 2017, the application scope of face recognition technology has been further expanded, and it has become the mainstream verification method for scenarios such as mobile phone unlocking, user identity verification, and PAY payment. And user’s understanding towards it has also further increased. Fingerprint recognition still ranks first in user’s understanding. The application of sound wave and iris recognition needs to be further promoted. Mobile Payment Users’ Awareness of New Mobile Payment Technologies in China, 2017-2018 Not know 3.5% 3.5% 24.1% 27.1% Iris Vein 4.2% 5.4% 24.7% 24.8% Sound wave Face 70.1% 80.7% 93.0% 94.3% Fingerprint 0.0% 20.0% 40.0% 2018 60.0% 80.0% 100.0% 2017 Source: Payment & Clearing Association of China, ResearchInChina 102 Global and China Mobile Payment Industry Report, 2019-2025 In 2018, 85.0% of users were able to accept the use of biometric recognition technology for mobile payment identification and transaction verification, a slight improvement from 2017, while 15.0% of users chose not to accept. This shows that biometric recognition technology has been used as a means of mobile payment identification and transaction verification for many years. It has experienced enough observation period and has been recognized by market players and users to a certain extent. Mobile Payment Users’ Acceptance of Biometric Recognition Technology in China, 2017-2018 Source: Payment & Clearing Association of China, ResearchInChina In 2018, when users used biometrics for mobile payment identification and transaction verification, the primary concerns were still personal privacy leakage and potential security risks, accounting for 73.8% and 67.3% respectively, in consistent with the data of 2017; in addition, the proportion of problems such as payment failures and complex payment link operations had decreased, accounting for 30.6% and 27.3%, respectively; but the proportion of users who believed that merchants did not support and activation process was cumbersome had increased slightly, accounting for respectively 34.6 and 22.9%. It shows that mobile payment users pay more attention to the security of personal biometric information. While using the relevant services of market subjects, they also eagerly hope that relevant parties strengthen the protection of their sensitive information to prevent information leakage or other illegal purposes. 103 Global and China Mobile Payment Industry Report, 2019-2025 Comparison of Users' Concerns in Mobile Payment Using Biometrics in China, 2018 Others 5.6% Not supported by merchants 34.6% 21.1% 30.6% 32.6% The payment process is complicated to operate. 27.3% 30.7% Payment failure 22.9% 19.4% The opening is tedious 67.3% 70.2% Security threat 73.8% 77.1% Personal privacy disclosure 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 2018 2017 Source: Payment & Clearing Association of China, ResearchInChina 104 Global and China Mobile Payment Industry Report, 2019-2025 6. Mobile Payment-related Industry Chain 6.1 Mobile Netizens As of June 2017, the number of netizens in China reached 7510 million, an increase of 19.92 million or 2.7% within half a year. The Internet penetration rate was 54.3%, up 1.1 percentage points from the end of 2016. As of June 2017, the number of mobile netizens in China reached 724 million, an increase of 28.3 million from the end of 2016. 96.3% of netizens use mobile Internet, in contrast to 95.1% at the end of 2016, mobile phone holds dominant position among Internet devices. In H1 2017, the number of users of all types of mobile Apps was on the rise with more diversified scenarios. Particularly, the number of take-away App users grew the most rapidly to 274 million, an increase of 41.4% over the end of 2016; there were 502 million mobile payment users, of whom 463 million ones applied mobile payment to offline scenarios. As of December 2018, there had been 829 million netizens in China, a 59.6% of its population and an increase of 3.8 percentage points or 56.53 million netizens from the end of 2017. Moreover, there were 817 million mobile netizens in China, sharing 98.6% of total netizens in the country. Netizen Scale in China, 2015-2025E million 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E The Number of Internet Users 688.3 731.3 772.0 828.5 876.4 921.3 971.4 1025.7 1082.0 1143.1 1200.0 50.3% 53.2% 55.8% 59.6% 62.8% 66.0% 69.6% 73.5% 77.5% 81.9% 86.0% Internet Penetration Source: CNNIC, ResearchInChina 105 Global and China Mobile Payment Industry Report, 2019-2025 Mobile Netizens in China, 2015-2025E million 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E Number of Mobile Netizens (million) 619.8 695.7 752.7 816.98 865.1 909.5 961.2 1014.7 1070.5 1131.4 1189.6 Proportion of Mobile Netizens in Total Netizens 90.1% 95.1% 97.5% 98.6% 98.7% 98.7% 98.9% 98.9% 98.9% 99.0% 99.1% Source: CNNIC, ResearchInChina As of December 2018, the number of mobile payment users registered 583 million in China with an annual growth rate of 10.7%; the use ratio of mobile-terminal online payment was up to 71.4%. When purchasing products and services offline, the proportion of netizens who use online payment rose from 65.5% at the end of 2017 to 67.2%. As concerns cross-border payment, Alipay and WeChat Pay had services available in at least forty countries and regions, and Chinese companies operated the local digital wallet products in nine Asian countries. % of Mobile-terminal Online Payment Transactions in China, 2017-2018 Source: CNNIC, ResearchInChina 106 Global and China Mobile Payment Industry Report, 2019-2025 6.2 Consumer Terminal Devices Nowadays, the global smartphone industry is quite mature and the users’ desire to replace their phones is not so strong under the gloomy economies worldwide, causing a 1.3% year-on-year drop in smart phone shipments to about 1,413 million units in 2019. With the roll-out of 5G phones, the global smartphone shipment is expected to edge up in the upcoming several years and reach 1,473 million units in 2025. Global Smartphone Shipment, 2015-2025E 15.2 4.0% 15.07 15 3.0% 14.88 14.8 14.6 14.4 14.4 14.35 14.31 14.6 14.52 14.46 14.67 2.0% 14.73 1.0% 0.0% -1.0% -2.0% 14.13 14.2 -3.0% 14 -4.0% 13.8 13.6 -5.0% 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Shipment (100 mln units) Shipment (100 mln units) YoY (%) -6.0% YoY(%) 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 14.4 14.88 15.07 14.31 14.13 14.35 14.46 14.52 14.6 14.67 14.73 3.3% 1.3% -5.0% -1.3% 1.6% 0.8% 0.4% 0.6% 0.5% 0.4% Source: Strategy Analytics, ResearchInChina Global NFC-enabled Mobile Phone Shipments, 2015-2018 Source: ResearchInChina 107 Global and China Mobile Payment Industry Report, 2019-2025 6.3 Intelligent POS Machine 6.3.1 Overview of Products By the means of communication between POS terminals and banks & UnionPay, POS terminals fall into fixed and mobile POS terminals. Through the communication with banks, UnionPay and other trading systems via mobile network, mobile POS terminals are not restricted by cable lines and space, and can be portable for bank card transactions in real time at any place where wireless communication signals are available, which reduces the risk of cash carrying and cash transactions as well as makes transactions faster. With the penetration of POS terminals to small and micro merchants, tobacco, express delivery and utilities, the market demand for mobile POS will grow faster than fixed POS. As for application, mobile payment has become a convenient and fast payment model penetrating to the offline payment field with the popularity of smartphones in recent years. A variety of combination between POS payment and mobile payment has mushroomed. In the field of POS terminals, mobile payment technologies include Bluetooth, USB, NFC payment, 2D bar code payment and so on. For payment, users only need to make mobile terminals (mobile phones, Tablet PCs, etc.) featured with NFC modules or 2D bar code generation be close to the POS machine involved with relevant technical identification modules, then the funds will be automatically deducted from the users' financial accounts. In addition, sound wave payment, finger print identification and other technologies are expected to penetrate the POS field. Comparison of Offline Mobile Payments Payment Method NFC Mobile Payment Billing by Operator 2D Bar Payment Codes Technology NFC Technology Mobile Network 2d Bar Technology Code Dominant Party UnionPay, Operators, Terminal Operators and others Nearby interaction between mobile phones and other devices Operators UnionPay, Third-party Payment Platforms SMS Authorization and Confirmation 2D Bar Scanning, Confirmation Advantages Convenient near-field payment, mobile phones become wallets Convenience, Threshold Low Fast, Low-cost, User-friendly Interface Disadvanta ges Hardware should be popular, NFC chip costs exist, profits of terminal vendors are diluted, payment habits need to be changes slowly Access control, Public Transportation, Small-Amount Mobile Payment Operators profits large Dependence on the financial account interfaces; sellers need to have accounts on the cloud for collecting money Shops, Face-to-face Payment Transaction Mode Main Applications earn Network game cards, prop purchase, people with lower educational level 108 Code Sound Wave Payment Card Reader Payment Acoustic Identification External card readers read the card information UnionPay Third-party Payment Platforms Acoustic Identification, Account Confirmation, Amount Input Interesting, Convenient, Face-to-face Payment, Offline Payment Sound wave payment, slightly high equipment costs Vending Machine, Face-to-face Payment Card Reader, Cards and Passwords No need to develop new habits, easy to accept Complex payment, easy to lose card readers Cafes, Shops Global and China Mobile Payment Industry Report, 2019-2025 Representat ives Companies or Applications Google Wallet, Docomo, UnionPay Quick Pass China Mobile, Telecom China Alipay Wallet, WeChat payment Alipay Wallet US Square Source: Minsheng Securities; ResearchInChina 6.3.1.1 Fixed POS Terminal Fixed POS machine is the terminal used most widely, also known as desktop or wired POS machine, divided into fixed (desktop) dot matrix POS machine and fixed (desktop) thermosensitive POS machine. Fixed POS machine is installed in fixed places, such as hotels, restaurants, supermarkets, shopping malls, boutiques, tourist attractions, prepaid service providers, specialty stores, chain stores and beauty shops. 6.3.1.2 Mobile POS Terminal Mobile POS terminal is also called handheld POS machine or wireless POS machine. On the basis of original POS terminals, it communicates with bank and UnionPay’s payment transaction systems by using GPRS, 2G, 3G, 4G and other wireless communication platforms. 109 Global and China Mobile Payment Industry Report, 2019-2025 The wireless data communication function of mobile POS payment system can realize payment and settlement needs anytime and anywhere, thus it can be promoted and applied in places with dynamic charging and settlement requirements. Applicable Industries 1 Catering: Waiters bring mobile POS machine to customers for paying bills. 2 Booking: Customers pay for the booked tickets with mobile POS machine provided by couriers. 3 Insurance: Insurance agents use mobile POS machine to collect premiums, and send policyholders’ personal data, insurance policy number, payment amount, etc. to the insurance company's data acquisition system instantly. 4 Utilities: Mobile POS can complete on-site meter reading of water, electricity and gas, data transmission and charging. 5 Others: Business halls of China Mobile and China Unicom, gas stations, express delivery companies, takeout business, entertainment venues, tobacco distribution and other industries. Prospects By the size of merchants, mobile POS is mainly suitable for small and micro merchants. With the escalating consumption structure of urban and rural residents, cash settlement and other traditional means of payment have been unable to meet the demand of small and micro merchants on financial management. But the vast majority of small and micro merchants have not attracted the attention of banks because of their small trading volume, and they feel difficult to apply for POS machine. Since People's Bank of China issued third-party payment licenses in 2011, third-party payment companies have launched acquiring services for small and micro merchants. With the standardization and escalation of acquiring services offered by third-party payment companies, small and micro merchants have enhanced their awareness of financial security. In future, the demand of small and micro merchants for POS terminals will jump quickly. By the end of 2015, the number of Chinese small and micro merchants had hit about 70 million, so the mobile POS terminal market capacity might be 70 million if each of them installed a mobile POS terminal. By application sectors, E-commerce, express delivery, tobacco, taxis and utilities will trigger more demand for mobile POS terminals swiftly. 110 Global and China Mobile Payment Industry Report, 2019-2025 6.3.1.3 Imagpay Like external card readers, mobile card readers read magnetic stripe information and transmit data via 3.5mm audio sockets. Mobile card readers cannot attain payment, but can pay or receive funds under the support of software. Imagpay Breakdown Products and Characteristics Product Appearance Features Simple Mobile Software encryption and decoding. The second main track Card Reader of the magnetic stripe is read. 100,000 swipes. Poor compatibility with smart phones and tablet PCs; low recognition rate. Encryption Its hardware and software are involved with encryption Mobile technology, much safer than Simple Mobile Card Reader. Card Reader Built-in battery can support 20,000 swipes. It basically identifies all smart phones and tablet PCs; its recognition rate hits 95% or above. PIN Mobile Pad The derivative of Encryption Mobile Card Reader has Card additional button set, suitable for a variety of smart phones Reader EMV and tablet PCs. + Magnetic Be designed for chip bank cards. Accomplish mobile client functionality by reading the information on chip bank cards. Stripe Mobile Card Reader NFC + It completes transactions through induction (RF) of chip Magnetic card memory more conveniently and efficiently. Combined Stripe Mobile with NFC functions, it supports NFC financial cards with Card Reader flash memory. Source: ResearchInChina In China, mainstream mobile card readers embrace Yeahka, iboxpay, Lakala, 99bill, Coolpos, Suixinfu, Shouzhangbao, GunionPay, Shengpay, Youshua, QPOS, Mobile Payment, Sunyard, and Three-dimensional Depth. 111 Global and China Mobile Payment Industry Report, 2019-2025 Product Characteristics of Major Imagpay Manufacturers in China Manufacturer Product Features Yeahka Support Tencent’s payment services. iboxpay, Lakala, Mainly Coolpos, including: credit card payment, bank Shengpay, transfer, prepaid recharge and others. support convenient services, Youshua, Mobile Payment and GunionPay 99bill Mainly suitable for and remote payment on-site mobile payment. For on-site mobile payment, users can pay after cashiers link mobile phones with 99bill. For remote payment, users can pay directly after connecting their mobile phones with 99bill. Source: ResearchInChina 6.3.1.4 NFC POS Terminal NFC-enabled POS terminals have embedded NFC modules. NFC-enabled mobile terminals (including mobile phones, Tablet PCs, etc.) can complete the payment as long as closing with NFC-enabled POS terminals. NFC mobile phones have three main modes: NFC-SD cards, NFC-SIM mode and NFC phone mode. NFC phones are the NFC-enabled mobile phones preinstalled with smart security chips by vendors, they can directly apply for and download bank cards without replacing SIM cards or other hardware to attain near-field non-contact payment, remote payment, electronic cash top-up and fast small-amount site transactions. Relying on TSM (Trusted Services Management) system, NFC phones can help commercial banks shift from the traditional "counter issuing" to "electronic issuing" and support near-field and remote payment, which is the future trend. 112 Global and China Mobile Payment Industry Report, 2019-2025 NFC payment is involved with mobile phone vendors, telecom operators, commercial banks, acquirers, UnionPay and so on. Mobile Phone Vendors: NFC-enabled Smartphones NFC has been widely used in mobile phones since 2011. Major mobile phone vendors have launched NFC-enabled smartphones. Telecom Operators: NFC-SIM Cards Telecom operators have purchased more NFC-SIM cards. In March 2016, China Mobile started centralized purchasing of NFC USIM cards, with an estimated quantity of 28.79 million pieces including four forms i.e. 2FF, 3FF/2FF, 4FF/2FFdouble-cut, and 4FF/3FF/2FF tri-cut. In 2015, China issued 20 million NFC-SIM cards, with NFC users numbering 6 million. The target for China Mobile in 2016 includes 10 million NFC users, coverage of 100 city buses and 100 campus enterprises, and establishment of NFC payment ecosystem. Financial Institutions: MTPS and TSM Promoted by People's Bank of China as well as participated by commercial banks, China UnionPay and mobile telecom operators vigorously, Mobile Trustable Public Service (MTPS) was completed and recognized by review at the end of 2013. A number of agencies have joined MTPS with their Trustable Service Management (TSM) platform systems. NFC-enabled POS Terminals 22.82 million POS terminals had joined UnionPay cumulatively by the end of 2015, of which 6.8 million ones or 30% could support UnionPay "Quick Pass" (NFC). The existing POS terminals can obtain NFC functions through transformation, at the unit renovation cost of RMB300-500. Newly produced POS terminals can conduct NFC payment after the implant of NFC modules derived from electronic component vendors with the unit cost of about RMB70-80. In March 2014, Guidance of People's Bank of China on Development of Mobile Payment encouraged commercial banks to expand NFC mobile payment applications. In future, NFC-enabled POS terminals will account for an increasingly high proportion of the total POS terminal shipment; by 2020, about 70% of Chinese POS terminals will support NFC. 6.3.1.5 QR Code POS Terminal 2D bar code payment is a new-generation mobile payment scheme based on the account system. 2D bar code payment is dominated by third-party payment companies. Currently 2D bar code payment includes active and passive code scanning. "Active code scanning": Merchants can create 2D bar codes after inputting accounts, commodity prices, special offers and other transaction information into 2D bar code terminals; then, customers complete payment by scanning 2D bar codes with mobile payment APP. "Passive code scanning": Merchants scan individual 2D bar codes on customers’ mobile APP with scanners and other tools. 113 Global and China Mobile Payment Industry Report, 2019-2025 2D bar code payment software comprises payment APP bound with personal bank cards and 2D bar code generation functions, and corporate payment system. The generated 2D bar codes link to personal bank card information. Hardware consists of 2D bar code scanners or POS terminals installed with 2D bar code scanners which decode 2D bar codes. Internationally, only a small number of enterprises, including Symbol Technologies, Honeywell, Intermec, Datalogic, Denso and Newland, master core 2D bar code technologies. Currently, financial institutions and third-party payment companies (mainly Alipay, WeChat, UnionPay Merchant) are boosting their own 2D bar code payment system. As 2D bar code payment standards and relevant certification system are promulgated, the 2D bar code payment industry has been gradually standardized, and customers have been cultivating the habit of 2D bar code payment. In future, the demand for POS terminals installed with 2D bar code scanners will rapidly increase. 6.3.1.6 CMPOS (Commercial Management Point of Sale) CMPOS (Commercial Management Point of Sale) is a smart POS combining online and offline as well as integrating data management with marketing. It is also a business management and payment solution based on smart payment terminals, the Internet and big data analysis techniques. CMPOS system consists of three parts: cash register POS system, data ERP system, product information reading & code scanning system. Taking mobile payment as the basic function, CMPOS terminals make use of supporting business management cloud platform to manage receivables, membership, stores and the like; besides, they can realize business information management and statistical analysis to implement precision marketing for customers so as to improve customer viscosity. CMPOS is generally compatible with NFC, 1D / 2D bar codes, light and sound wave payment. The emergence and development of CMPOS has greatly stimulated the O2O process and equipment upgrading of all industries. Via open software platform, CMPOS can support a variety of interfaces for connection, such as dianping.com, group purchase platforms or corporate dedicated consumer platforms. Merchants can login on online stores, WeChat, QQ, group purchase websites and the like through CMPOS to post any business information. Consumers can submit orders by themselves through CMPOS for 114 Global and China Mobile Payment Industry Report, 2019-2025 consumption. CMPOS allows users to customize sales strategies, discounts and special offer time, manage orders and bills in batches. By virtue of CMPOS, merchants can check their operation, timely detect and adjust their business strategies freely. A traditional cash register system typically consists of a barcode scanner, a cash register and a POS machine, with a total cost of about RMB6,000. CMPOS only requires the hardware cost of around RMB2,000, and can achieve real-time remote update through servers. 6.3.2 Market Size Number of Merchants Joining the UnionPay Network in China and YoY Growth, 2007-2025E Number of Merchants Joining YoY Growth the UnionPay Network(1,000) 2007 739 2008 1,182 59.9% 2009 1,567 32.6% 2010 2,183 39.4% 2011 3,180 45.7% 2012 4,833 52.0% 2013 7,635 58.0% 2014 12,034 57.6% 2015 16,700 38.8% 2016 20,672 23.8% 2017 25,926 25.4% 2018 27,330 5.4% 2019E 30,881 13.0% 2025E 45,503 Source: People's Bank of China, ResearchInChina 115 Global and China Mobile Payment Industry Report, 2019-2025 Number of New Merchants Joining the UnionPay Network in China and YoY Growth, 2007-2025E Number of Added Merchants Joining YoY Growth the Unionpay Network (1,000) 2007 218 2008 443 102.8% 2009 385 -13.0% 2010 617 60.2% 2011 997 61.7% 2012 1,653 65.7% 2013 2,802 69.6% 2014 4,399 57.0% 2015 4,666 6.1% 2016 3,972 -14.9% 2017 5,254 32.3% 2018 1,404 -73.3% 2019E 3,551 152.9% 2020-2025E 14,622 Source: People's Bank of China, ResearchInChina 116 Global and China Mobile Payment Industry Report, 2019-2025 Number of POS Terminals Joined the UnionPay Network in China and YoY Growth, 2007-2025E Number of POS YoY Growth Joined the UnionPay Network (mln) 2007 1.18 2008 1.85 56.8% 2009 2.41 30.3% 2010 3.33 38.2% 2011 4.83 45.0% 2012 7.12 47.4% 2013 10.63 49.3% 2014 15.94 50.0% 2015 22.82 43.2% 2016 24.535 7.5% 2017 31.189 27.1% 2018 34.148 9.5% 2019E 36.72 7.5% 2025E 50.76 Source: People's Bank of China, ResearchInChina 117 Global and China Mobile Payment Industry Report, 2019-2025 Number of New POS Terminals Joined the UnionPay Network in China and YoY Growth, 2007-2025E Number of Added POS Joined the YoY Growth UnionPay Network (mln) 2007 0.36 2008 0.66 83.30% 2009 0.56 -15.20% 2010 0.93 66.10% 2011 1.49 60.20% 2012 2.29 53.70% 2013 3.51 53.30% 2014 5.30 51.00% 2015 6.89 30.00% 2016 1.72 -75.10% 2017 6.65 286.84% 2018 2.96 -55.52% 2019E 2.57 -13.10% 2020-2025E 14.04 Source: People's Bank of China, ResearchInChina 118 Global and China Mobile Payment Industry Report, 2019-2025 Number of Bankcards for Every POS Terminal in China, 2007-2025E 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2025E 1,270 976 858 725 611 497 396 310 240 250 215 222 213 205 Source: People's Bank of China, ResearchInChina POS Terminal Ownership per Thousand People in China, 2007-2025E 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2025E 0.89 1.39 1.8 2.49 3.58 5.26 7.81 11.65 16.66 14.95 22.56 24.57 25.81 30.66 Source: People's Bank of China, National Bureau of Statistics, ResearchInChina Based on the above data combined with the low penetration rate (about 27%) of POS terminals in micro, small and medium-sized merchants, the Chinese POS terminal industry still has great development space. With the advancement of urbanization, formation of resident’s card-swiping habit, as well as new and replacement demand for POS terminals stimulated by NFC payment, QR code payment and EMV migration, POS terminal industry will continue to maintain rapid development in China. 119 Global and China Mobile Payment Industry Report, 2019-2025 In 2018, Newland Digital Technology Co., Ltd become the enterprise with the most POS terminal shipments in the world or 13,657,985 units with a 13.2% share of the global total, followed by Shenzhen Xinguodu Technology Co., Ltd. (NEXGO) 6,981,958 ones, sharing 6.7%. China's POS Terminal Shipments, 2015-2025E Source: ResearchInChina 6.3.3 Trend of Products In the future, China’s financial POS terminal industry will present the following trend: 1. Miniaturization (for certain customers) With small, portable products and technical services for personal applications as the orientation of development, e.g. POS, suitable for carrying and using by personnel engaged in logistics, insurance, etc.; electronic payment application software development services with mobile phone as the main carrier. 2. Maximization (for large industry merchants) The large industry merchants-oriented POS develops towards multimedia, self-service payment terminal equipment multi-application, and large self-service, payment large business integrated system equipment software suitable services, for such as communication, transportation, public utility departments, tobacco and other large industrial applications and with the function of payment. With the extensive use in smart phones and other electronic equipment, based on its intrinsic freedom and openness, powerful software compatibility and other features, Android OS has increasingly become the important direction of electronic payment acceptance software and hardware development. 3. Diversification A variety of payments will co-exist in the future. POS only identifying a magnetic strip card, chip card and other physical cards will be phased out, while the demand for POS terminals supportive of various information literacies will keep growing. POS terminals will probably read cards and 120 Global and China Mobile Payment Industry Report, 2019-2025 personal information in electronic format, such as two-dimension code (QR code), NFC, sound wave, fingerprint, Facebook payment, arsenal of electronic lottery and other new modes of payment. 4. Intellectualization (CMPOS) More and more POS terminal will integrate a variety of software and hardware. In terms of software, there are cashier system, ERP system, CRM system, member management system, etc., so as to realize financial statistics, business management, marketing services, and other functions; hardware includes NFC module, QR code read module, fingerprint recognition module, acoustic recognition module, face recognition module, etc. thus achieving the co-existence of multiple payment methods. On October 12, 2015, ChinaUMS released “open mobile pan-non-acceptance” network and product plan. Products include mobile digital wallet plug-in terminal“POS Pay”, with POS acceptance network as basis and non-terminal as acceptance machines and tools, aimed at payment under O2Oscenario, providing customers with functions covering disbursement account and discount coupon. Functional Evolution of Intelligent POS Terminal Source: ResearchInChina 121 Global and China Mobile Payment Industry Report, 2019-2025 → Related Reports China Automotive Human-Machine Interaction (HMI) Research Report, 2020 http://www.researchinchina.com/Htmls/Report/2020/11644.html Global and China Intelligent cockpit platform for automobiles Industry Report, 2020 http://www.researchinchina.com/Htmls/Report/2020/11643.html Global and China Low-speed Droid Industry Report, 2019-2030 http://www.researchinchina.com/Htmls/Report/2020/11639.html China End-of-Life Vehicle (ELV) and Dismantling Industry Report, 2019-2025 http://www.researchinchina.com/Htmls/Report/2019/11638.html Global and China Automotive Seating Industry Report, 2019-2025 http://www.researchinchina.com/Htmls/Report/2019/11637.html Global and China Cluster and Center Console Industry Report, 2019-2020 http://www.researchinchina.com/Htmls/Report/2019/11636.html For more, please visit our website www.researchinchina.com 122 Global and China Mobile Payment Industry Report, 2019-2025 How to Buy You can place your order in the following alternative ways: 1. 2. 3. 4. 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