All Eyes East: Will China Dominate Payments Innovation?
The development of the Chinese payments industry in recent years has been break-taking. Here are a few proof points:
- China’s mobile payments sector dwarfs the US. In 2017, China saw US$12.8 trillion in mobile payments – compared to just US$49.3 billion in the US.
- China is the fastest fintech adopter in the world – nearly 70% of Chinese citizens have used a fintech product more than once every six months. The UK is the most developed Western market, with 42% using fintech.
- Digital payments service AliPay has 600 million users in China (roughly 50% of the Chinese population) and 270 million users outside the country. For comparison, PayPal has 254 million users world-wide.
- UnionPay, China’s largest card issuer, has begun issuing cards in Europe. The company recently inked a deal with Portuguese bank Millennium bcp to issue consumer and corporate cards in Europe, and has 3.3 million acceptance locations in 40 markets.
These facts show China is willing to develop and implement new payments technologies successfully, and export them. Plus there is broad support for innovation in China, both from government and investors. However, other factors might be viewed as potential drags on payments innovation in China.
The first is China’s requirement for compulsory digital ID, which makes growth in digital payments innovations easier inside the country, since ID for transacting parties is mandatory. China may find exporting these payments systems tough, because mandatory ID is illegal in the EU and Canada under GDPR (data protection) legislation – and this legislation is coming in Australia, Brazil, Sweden and other countries, including parts of the US.
Another sticking point is the Chinese government’s refusal to allow non-statal crypto-currencies. While everyone has their views about crypto, there’s no doubting the importance of blockchain and distributed ledger, the technology on which crypto is based. China’s refusal to engage with crypto could hamper its innovative capacities in this area – at a time when investment in blockchain for payments is growing by 85% per year in developed markets.
Lastly, innovators have a history of intellectual property (IP) challenges in China. Young start-ups are often concerned that their creation will be copied by a competitor able to move faster than them. In the West, IP legislation protects the rights (and profits) of innovators.
All of that said, China is one of the most dynamic, creative and capital-rich markets – and it’s not hampered by decades-old payments infrastructure, unlike some Western countries. Given the head of steam China has built up, we should expect to see more innovative approaches coming out of the country in the next five years. Payments players should take note – it’s time to make sure your systems are up-to-date, secure and efficient.
To find out more about innovative payments for your business, get in touch with me on email@example.com
– Alfredo S. Vitangcol Jr., President, RS2 Software APAC