China is Asia’s largest payment cards market in terms of card transaction value and volume, accounting for 74.7% and 41.2% respectively. The average annual spend per card is also high in China, at $1,501.40 – compared to some of its regional peers such as Malaysia ($651.20), Indonesia ($290) and India ($88.70).
Cash, however, remains a popular payment instrument among Chinese consumers, especially in rural areas. This was primarily due to a lack of knowledge among the population about the benefits of electronic payments, and limited access to banking infrastructure. As the government and banks began to provide basic financial access to the unbanked population, by expanding banking infrastructure, launching new branches and making efforts to change consumer payment habits, payment cards gradually became more accepted, with their use consequently growing between 2011 and 2015.
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Consequently, the share of Chinese population aged 15 or above with a bank account increased from 63.8% in 2011 to 78.9% in 2014, according to the World Bank Global Findex survey.
A rise in the economically active population and per capita disposable income, the growing popularity of online shopping, the increased acceptance of cards at retail outlets and the adoption of contactless technology have supported the growth of payment cards since 2011. This trend is anticipated to continue over the next five years. The rising acceptance of payment cards was also supported by the country’s improved payment infrastructure.
China UnionPay (CUP) maintains its stranglehold in the Chinese payment cards market
In China, CUP is the sole scheme provider of payment cards. According to central bank regulations, all banks and card issuers operating in the country are required to route their Yuan-based transactions through CUP’s electronic payment network.
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By GlobalDataHowever, following a complaint filed by the US against China via the WTO with regards to discriminating against foreign companies in 2012, the WTO directed the Chinese government to open up its payment cards market to foreign operators. Consequently, in October 2014, the Chinese government announced its decision to allow foreign companies to set up their own payment card clearing businesses, effective from June 1, 2015.
This move by the Chinese government is anticipated to intensify competition in the Chinese payment cards market, and end CUP dominance as the country’s only authorised card clearing organisation. However, Visa and MasterCard have a long way to go before they can make a dent in CUP’s market share, as they need to build up infrastructure from scratch.
Contactless m-payments are expected to gain prominence in China
Contactless m-payments are expected to gain prominence in China, as retailers and mobile operators actively promote contactless technology to improve their business. Consumer preferences for secure payment services that allow them to purchase products are also gaining ground. Companies are also embracing this technology to benefit from the expansion of the m-payment market. The latest initiative was the launch of Apple Pay, Samsung Pay and Huawei Pay in 2016, in association with CUP.
Apple Pay entered the Chinese market in February 2016, in partnership with CUP. To offer secure payments, the service uses tokenisation technology. Upon adding a payment card to Apple Pay, no actual card numbers are stored on the mobile phone, and instead a unique device account number is encrypted and securely stored, with transactions authorised with a one-time dynamic security code. Following the launch of Apple Pay, Samsung also launched its m-payment service in China in March 2016, in alliance with CUP. Previously in June 2013, CUP and China Mobile launched a NFC-based mobile wallet, CUP Wallet, in 14 cities.
