Cracking the mobile payment maze

Demand for secure, quick and easy payment is high. Mobile payment is subverting the structure of traditional payment.  According to the 2014 payment system general operation status released by China's central bank in early 2015, there were 452.4 billion mobile payment transactions, amounting to 22.59 trillion at growth rate of 170% and 134% respectively. In Deloitte China Mobile Consumer Survey 2014, over 60% of respondents had shopped online, making payment or transfer online. Nearly 70% of respondents are willing to use mobile phones for micro payments in store, indicating that consumers’ demand of mobile payment cannot be ignore.

The viewpoints / key findings

There are three major types of participants in the mobile payment industry in China: financial institutions, telecom operators and Internet-based third-party payment companies. The financial institution and operators started relatively early but is lagging behind Internet-based third-party payment companies. Internet-based third-party's payment solution had been wildly recognized in the marketplace and achieved rapid growth. Not only has it taken away revenue and customers from financial institutions, but also changed the traditional consumption model.

The current environment for online payment has matured. Thus it is expected that market players will start focusing on offline mobile payment. Offline mobile payment has developed relatively slowly due to lengthy industry value chain and fierce competition. It faces multiple challenges including development of user payment habits, merchants’ incentives, billing subversion, capital account competition, technology integration, reliable service platform, regulation risk and MNC impact. 

From the perspective of the telecom operators, online payment has been dominated by Internet giants like Alipay and Tenpay already, therefore the window of the opportunity for large-scale development is limited. Three key bottlenecks are constraining operator's potential:

1. Varied mobile payment strategy but similar business model 
2. Gap between business solution and consumer demand 
3. Early entrant disadvantage

In the field of offline mobile payment, the market is more manageable for telecom operators.  Five future trends will act as a guide:

1. Offline mobile payment industry chain will be highly integrated; the industry's focus will shift to consumer with the improvement of the mobile payment environment.
2. Single industry deployment can no longer satisfy users; all-in-one intelligent market solution is required to maintain user and merchant loyalty.
3. The development of mobile payment platform will focus on the consumer side instead of business partners. Diverse applications and differentiated services will be key. 
4. Online mobile payment will continue to be highly concentrated while see-sawing battle is expected in offline mobile payment. At the same time, cross-field competition will be more intense. 
5. Cooperation between operators and financial institutions may become tighter.

In order to cope with the competition, operators need to devote in various ways and to establish continuous core competence. In the process, operators will face four challenges, including one-stop service capability, marketing budget limitation, price discrimination restriction and cost of ecosystem construction.