Xiaomi partners with UnionPay in online payments service targeting China

PUBLISHED : Friday, 22 April, 2016, 7:42pm
UPDATED : Friday, 22 April, 2016, 7:52pm

Chinese smartphone giant Xiaomi is rolling out its own mobile payment service on the Chinese mainland in collaboration with China UnionPay, which had earlier partnered with Apple and Samsung Electronics on the launch of their payment platforms in the country.

The new service is expected to become a major business that would allow Xiaomi to operate more as an internet services company with a vast smartphone customer base, analysts said.

Xiaomi, the mainland’s largest smartphone supplier last year, known for selling its handsets on razor-thin margins, is now facing the challenge of growing amid a lingering economic slowdown in its home market.

“We will make sure Xiaomi payment has a smooth user experience and we are working closely with UnionPay and several major banks,” said founder and chief executive Lei Jun on Thursday.

UnionPay and Xiaomi plan to co-design the “mobile payment product” based on Xiaomi smartphones for holders of UnionPay bank cards, according to a statement. No product details or time of availability were disclosed.

In January Xiaomi acquired 65 per cent of Jiefu Ruitong, a Chinese internet payment company which has the required license for the online payment business. Lei Jun became the sole legal representative of the company in the same month.

The new service will only work on Xiaomi’s latest flagship Mi 5, which is equipped with the Near Field Communication (NFC) technology needed for mobile payment.

NFC enables users to pay by placing the phone near the sensor of a point of sale machine.

Xiaomi will be able to earn service fees from online transactions through the payment service, said Alex Ng, an analyst from China Merchant Securities (HK).

Xiaomi’s own online marketplace, mi.com, which has attracted a loyal group of shoppers, would be a natural first stop for the roll out of the new service, he said.

“Xiaomi’s advantage is its large number of existing users and the payment service could grow very fast in the beginning, but its long-term growth may not be promising,” Ng added.

Chinese online payments are dominated by Alipay from Alibaba group, which controls more than 47 per cent of the total online transactions last year, according to data from Chinese consulting company iResearch. Tenpay, from internet conglomerate Tencent, has 20 per cent share.

“Most retailers already offer payment services by Alipay and Tencent, and users may not see the need for mobile payment services by the other vendors,” said Tay Xiaohan, an analyst from technology research firm IDC.

Tay said Xiaomi will need to provide some kind of discount to new attract users. “Consumers in China are very willing to try out new services as long as it offers them the biggest discount,” she said.

But the rewards for payment platforms that reach a critical mass are huge.

“The mobile payment service is becoming increasingly important as vendors seek out ways to lock users into their ecosystem, or to increase users’ brand loyalty with the different vendors,” said Tay.

Apple Pay entered China in February while Samsung followed a month later. Communication equipment supplier Huawei also formed a partnership with UnionPay in online payments last month.

Xiaomi was the largest smartphone vendor in China in terms of shipments last year, according to IDC. The company shipped nearly 65 million smartphones, taking a 15 per cent share of the market. Huawei and Apple trailed narrowly, with both handset makers only a few million shipments short.