Mobile payment providers target merchants where cash is no longer king
Offline transactions are shaping up to be the big market in China for mobile phone payment providers such as Union Mobile Pay (UMPay) and SmartPay Jieyin.
While online payment providers such as PayPal and Alipay aim to facilitate internet commerce, the mobile phone payment services firms are targeting bricks-and-mortar merchants that transact much of their business in cash.
The rationale: it is far cheaper to accept payment via a mobile phone than it is to collect paper money.
UMPay managing director Zhang Bin said the company offered payments for 50 types of services and hoped to expand its merchant relations through a partnership with Tom Online, announced last week.
'There are a number of services: phone bills and pre-paid card top-up. You can also buy lottery tickets. This is quite an interesting application - it's everybody's hobby in China. Also, some people buy travel insurance and business users buy air tickets via mobile phone,' Mr Zhang said.
SmartPay chief financial officer Derek Sulger said in an earlier interview with the South China Morning Post that collecting cash was an inconvenience for consumers and merchants.
'We tend to focus on payments that are extremely awkward to process. For example, paying your phone bill might sound very simple,' Mr Sulger said.
'But in China, there are two ways. If you pay at the end of the month, you pay in cash, which means having to go to a bank or go to the post office, waiting in line and paying in cash.'
The other option is pre-paid phone cards, which cost mobile carriers about 5 per cent to 6 per cent of the card's value to distribute. Mr Sulger said SmartPay could charge 3 per cent to 4 per cent to collect the same type of payment.
'It is cheaper for the merchants to collect money using SmartPay, so you have the merchants who are going to be heavily incentivised to help change consumer behaviour,' he said.
'We're going after an area where there is a proven willingness on the behalf of the merchants to pay commissions to help collect that money faster and easier.'
Commissions can be as high as 25 per cent for low-volume transactions, and as a low as 1 per cent for utility providers that must collect payments on a large scale.
But these companies are ideal customers for UMPay and SmartPay, which stand to earn large commissions by shaving off a tiny percentage from big transactions.
UMPay has a demonstration project with Coca-Cola in Hubei province. In the project, Coca-Cola retailers pay their distributors via mobile phone and this gets passed back up the line to the soft-drink company's head office in Hubei.
'It's a very exciting service. Coca-Cola wants to build a business case in Hubei and copy to other provinces in China. These are huge volume transactions,' Mr Zhang said.
'The same services will cover tobacco, tax collection and other types of merchandise distribution,' he said.