Daily Management Review

China’s Banks Lost Business Wroth an Estimated $22 Billion to Alibaba and Tencent in 2015


03/07/2016




China’s Banks Lost Business Wroth an Estimated $22 Billion to Alibaba and Tencent in 2015
China’s banks and UnionPay have largely been left out of China’s mobile payment revolution despite years of trying with pilot mobile payment programs and roll-outs in major cities.
 
Through its China Mobile Pay JV and its Merchant Services arm, UnionPay controlled about 1.8% of the mobile payment market by transaction volume in Q3-2015 according to Analysis China. This market share is basically, very little.
 
China’s mobile and internet payment markets, at the same time, were dominated by digital payment providers Alipay and Tenpay and grew more than 40% from 2014-2015.
 
As overall consumer spend continued to shift from traditional card payments where banks are strong, to online payments, where they are weak, this led to a RMB 150 billion ($23 billion) ‘loss’ in potential transaction fees for China’s banks and UnionPay in 2015. By 2020, this number is projected to increase to RMB 400 billion ($61 billion). $23 billion is still a significant even as on the overall card transaction fees only represent about 5-8% of banks’ revenues in China.
 
The bigger worry is the transaction data even as the financial loss certainly hurts. Tens of billions of transactions went across digital channels in 2015
 
One of the reasons for this tremendous shift is that Alipay and WeChat Pay transactions do not go through banks or across the UnionPay card network and they use their own payment network or ‘rails’. The money paid by a user reaches the merchant’s account on Alipay and then eventually to the merchants bank after it moves from the user’s bank to the user’s account on the Alipay platform.
 
The only thing that a bank would see is a debit from a user’s account going to Alipay in an Alipay transaction. And after some more time, a credit in the merchant’s account from Alipay would be seen by the bank.
 
As e-commerce in China is getting increasingly mobile and moving towards O2O (online-to-offline) services, this phenomena has become a huge problem for China’s banks.
 
$51 billion was spent on O2O in 2015, a 38% YoY growth and about 2% of overall e-commerce in 2015 according to toiResearch. Being able to analyze customer habits, location, spending patterns, etc. is a critical part of being able to provide O2O services.
 
One can control the market is one has control over the data. All of that data is with the third-party providers and nothing much lies with the banks of China.
 
It would seem UnionPay would have the upper-hand in merchant acquisition since it has control of over 23 million UnionPay enabled point-of-sale terminals across China. However the fact that consumers are just as happy swiping a QR code as they are their phone has been proven by Alipay and WeChat Pay.
 
Analysts in favor of banks are now pinning their hopes on the emergence of Apple Pay which could be the answer that China’s banks are looking for. They hope that the China’s traditional players would be helped by the Cupertino giant’s payment platform. However that is something that still remains to be proven.  
 
(Source:www.forbes.com) 






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