Net payment systems thrive as China shops online

PUBLISHED : Monday, 24 April, 2006, 12:00am
UPDATED : Monday, 24 April, 2006, 12:00am

Online payment systems, which barely existed in China a decade ago, are sprawling across the internet to compete for once-distrustful mainland consumers suddenly hooked on instant purchases.

But a law expected to take effect later this year, along with continued lack of bank credit, will restrict the market, according to online bill collectors and internet analysts. For the short term, they see continued growth and diversification.

'Online payment is a small market,' said Zhao Guodong, founder and chief executive of Chinabank Payment, part of Ebank Online (Beijing) Technology, which opened in mid-2003 when consumers afraid of contracting Sars preferred to buy online.

Chinabank Payment now has 5,500 merchant clients and performs 600,000 transactions a month.

'I think the potential is great and there's lots of space to grow,' Mr Zhao said.

An estimated 50 to 60 online payment firms operate in China. They range from California-based PayPal, a division of eBay, and Alipay, part of, to Beijing-based 51 Qianbao, which claims to be in a 'stealth' start-up phase in a field with no clear frontrunner.

About 20 of these payment providers are banks. Others are platforms that facilitate business between sellers, buyers and banks, which normally lack the technology to connect buyers with sellers.

The market is expected to be worth 60.5 billion yuan next year, according to Shanghai-based iResearch. This is up from 7.5 billion yuan in 2004 and 900 million yuan in 2001.

Vying for the market are companies such as CloudNet Unlimited Internet Technology, which opened in Beijing in 1999 by selling password-protected telephone calling cards via e-mail to China Merchants Bank account holders and charging a fee to the card issuers. It now does at least 60,000 transactions per day.

Another company is ChinaDotMan, a Beijing firm that opened in 2000 with a mobile payment system popular with teenagers. It had grown into an online service involving 20 banks and 60 debit or credit cards, said chief operating officer Mark Atkinson. Commissions in China were 1 per cent to 1.2 per cent, or about a percentage point less than overseas.

'Why has it been so successful in China? It's because of the massive penetration,' Mr Atkinson said.

To get started, a company needed a business licence and sometimes less than 10 million yuan, said Mark Natkin, managing partner of Marbridge Consulting in Beijing. Start-ups must also persuade banks that they were reliable enough to do business with.

A good system should make money 24 hours, said Guan Guoguang, chief executive of Shanghai-based firm 99Bill, which does 200,000 to 300,000 transactions a day. 'You should be able to make money as you're sleeping,' Mr Guan said.

But while transaction volumes and service providers are proliferating, regulatory concerns could hinder growth. The Payment Liquidity Management Law, originally set for passage last October but delayed because of interest group lobbying and a dispute over which government agency would take charge of licences, would probably require a minimum level of start-up capital to weed out smaller firms, Mr Natkin said.

The law could also restrict companies that set up debit accounts to regulate them more like banks.

'It's very much an evolving market,' Mr Natkin said. 'Part of that is because there is no clear legislation covering it.'

Established online pay companies support the law if it eliminates start-ups, which they claim sometimes abscond with customers' money, giving the industry a bad name.

Mr Guan said he lobbied the People's Bank of China for the law because he believed the government wanted standardised growth in the online payment field.

Lack of credit cards also hinders growth in online payments. In late 2003, the United States government estimated that credit cards made up less than 1 million of the 469 million bank-issued cards in China. The rest were debit cards.

'The key issue of the current lack of a critical mass of electronic payment users is user habit,' said Edmund Hung, co-founder of the telecoms consultancy Maverick China Research.

'Chinese trust their cash and they will have to be blown over by a new system that is faster, easier, and more convenient and trustworthy to make the switch.'

Online security is another issue. Some services offer escrow accounts to release money only when a buyer has received a purchase. Some obtain Visa's 'VeriSign' approval to seek the co-operation of popular banks.

Chen Xiaoyu, 23, a Beijing public relations professional, shops online because the payment platform works with her bank and the bank sends her e-mail confirmations of purchases.

She likes the convenience of online payments and has not been cheated, but still would not use other payment services.

'I think this will become more common and it will be safer then,' she said.