China’s e-Payments Market Continues Strong Growth

by Terry X Xie 0

A recent report from Analysis International suggests thatChina’s e-payment market hit 725.5 billion yuan ($109 billion) intotal transactions over the past three quarters of this year, withannual transactions expected to hit 1 trillion yuan.

Compared to the same period a year earlier, the overallmarket grew by 91.4%, continuing the strong growth even when manyother e-payment markets around the world were still struggling withcautious consumer spending.

The so-called third-party payment services refer to thoseonline, mobile, and phone-based payment services offered bynon-bank providers. Online payments account for the lion share ofthe market. Though Analysis International doesn’t provide databreakdowns, it is estimated that roughly 95% of 685 billion yuan($104 billion) comprising the overall market is from onlinepayments.

Even with the continuing strong growth, the industry isclosely watching the central bank’s move to tighten up theregulations governing the third-party payment services. ThePeople’s Bank of China announced a regulatory framework coveringall non-bank payment services providers last year, and is expectedto announce the detailed rules by the end of 2010. The newregulation sets rules regarding licensing requirements, businesspractices, and consumer protection, among other issues. It iswidely expected that many existing payment service providers willnot receive a license due to the relatively high bars set for thelicensing. For example, all third-party payment service providerswill need to have at least 30 million yuan ($4.5 million) inregistered capital if they want to operate in just one localmarket. The capital requirement increases to 100 million yuan($15.2milion) for a nation-wide license.

The capital requirement is somewhat controversial,however. The central bank said the intention is to ensure betterconsumer protection by excluding those without sufficient funds tooperate. But the high bar set by the central bank might actuallyserve as a high entry barrier for emerging players with ambitionand innovation but not enough capital. How the new rule affects theinnovation in the third-part payment industry remains to be seen.For now, all attention is on who would be among the first to getthe license this year. It is widely expected that market leaders-especially the big three- Alipay, ChinaPay (an online-paymentgateway owned by China UnionPay), and 99Bill will receive the firstbatch of licenses this year. Mercator will closely monitor thedevelopments.