Contributor: Zennon Kapron
Despite years of trying with pilot mobile payment programs and roll-outs in major cities, China’s banks and UnionPay have largely been left out of China’s mobile payment revolution. According to Analysys China, in Q3-2015 UnionPay controlled about 1.8% of the mobile payment market by transaction volume through its China Mobile Pay JV and its Merchant Services arm. Basically, very very little. At the same time, China’s mobile and internet payment markets grew more than 40% from 2014-2015 and were dominated by digital payment providers Alipay and Tenpay.
This led to a RMB 150 billion (~$23 billion) ‘loss’ in potential transaction fees for China’s banks and UnionPay in 2015 as overall consumer spend continued to shift from traditional card payments where banks are strong, to online payments, where they are weak. This number is projected to increase to RMB 400 billion (~$61 billion)* by 2020. Although overall, card transaction fees only represent about 5-8% of banks’ revenues in China, $23 billion is still a significant.
The financial loss certainly hurts, the bigger worry is the transaction data. Lots of it: tens of billions of transactions went across digital channels in 2015. Certainly big data in any sense of the phrase.
The challenge is that Alipay and WeChat Pay transactions do not go through banks or across the UnionPay card network. Basically Alipay and Tenpay (the platform behind WeChat Pay) have their own payment network or ‘rails’. As a user pays, money moves from the user’s bank to the user’s account on the Alipay platform, then to the merchant’s account on Alipay and then eventually to the merchants bank.
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