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Xinhua Insight: After QR-code, what are the barriers for NFC?

English.news.cn   2014-06-17 18:55:04

SHANGHAI, June 17 (Xinhua) -- Of the many sectors where Internet firms have brought about disruptive changes, the mobile payment market seems to be one place where traditional players now hold greater sway than their Internet rivals.

Until recently, China's mobile payment market was a sector led by Internet firms, but the tables started to turn in March when the People's Bank of China, the country's central bank, suspended QR code-based mobile payment - paying by scanning a matrix code using a smartphone - because of security concerns.

This popular, but short-lived form of payment was pioneered by Chinese Internet firms like Tencent and Alibaba and for a while left the national banking card association China UnionPay (CUP) and telecom operators almost irrelevant in the mobile payment market.

For the past year, Internet firms have waded into sectors ranging from finance to retail, but since earlier this year, traditional players like CUP and banks have managed to take the wind out of them in the mobile payment market by suggesting Near Field Communication (NFC) payment as a safer alternative to QR-code based payment.

At the Mobile Asia Expo (MAE) held in Shanghai that ended over the weekend, three state-owned operators showcased gadgets that allow people to tap and pay using NFC technology.

"There's money involved, people's identity involved, and certain information of value is at stake," Hsin Hau Hanna, vice president of marketing communications of Gemalto told Xinhua at the expo. The company is cooperating with China's three largest mobile operators in NFC-based service solutions.

CUP and telecom operators have long discovered the potential of NFC in mobile payment. The three telecom operators all obtained third-party payment licenses after the central bank opened the country's payment market in 2011.

The growing penetration of smartphones and tablets, and the booming online retail sector have fueled online and mobile payment activities. Data from the country's central bank shows that mobile payments reached 9.64 trillion yuan in 2013, up a whopping 300 percent from the previous year. The robust growth shows no sign of abating, as almost 4 trillion yuan of transactions were made over mobile Internet during the first quarter.

After years of sparring over technical standards of NFC payment that causes confusion among hardware manufacturers and merchants, both telecom operators and CUP agreed on standards in 2012 and launched a coordinated effort to promote NFC in mobile payment.

"Fragmentation comes from everybody doing things their own way," Hanna said. "In China, NFC starts with an agreement among market players and technology favoring consumer protection."

However, last year NFC payment only accounted for a meager 1.6 percent of China's ever-growing volume of mobile payment.

According to technology and market research company Forrester, the mobile proximity payment market, which includes NFC payment, is still far from the point of breakthrough.

This could be attributed to the popularity of QR-based payment that took the mobile payment market by storm last year. Yet the fact that QR-based payment fell out of the regulator's favor did not clear all the barriers for NFC to take off.

And for Internet firms that used to thrive on QR-code based payment, the future of the mobile payment market does not seem to be reserved exclusively for NFC.

"No single payment solution can prevail over others, because offline payment scenarios vary dramatically," said Zhang Daosheng, a spokesman for Alibaba's payment subsidiary Alipay.

"There's payment made through fingerprint, voice and even iris, and NFC is just one of those that will coexist in the market going forward," he said.

Analysts say NFC's slow uptake in China is mainly due to the work it takes to have offline infrastructure in place as well as consumer and merchant education.

"It's a business that requires consideration for consumer experience, and the level of coordination required among all players in the NFC ecosystem is the highest of all the viable solutions we have on the market," Alipay's Zhang said.

In practice, consumers need to have an NFC-enabled smartphone to pay, and merchants need Point-of-Sale (POS) terminals that accept such payments.

"For every service provider, it's a balance between easy uptake versus a very complex ecosystem," said Pierre Lelievre, who runs Gemalto's Asia Pacific marketing communications.

To promote NFC payments, mobile operators and CUP started putting terminals in place from last year.

CUP said as of the first quarter this year it had modified more than 3 million POS terminals to make them compatible with NFC payment. It has also been expanding scenarios where consumers are tempted to pay by NFC.

It is also working on an over-the-air system called Trusted Services Management (TSM), through which a virtual bank account could be created on an NFC-SIM card by securely downloading confidential account information. So far 19 banks have joined the TSM and CUP expects participating banks to hit 100 by the end of this year.

China Mobile, the country's largest mobile operator by subscribers, is also subsidizing smartphone manufacturers 30 yuan for each NFC-enabled handset they produce.

It has also cooperated with Shanghai Pudong Development Bank to allow subscribers to pay subway fares in Shanghai using NFC enabled phones. The fare is deducted from an SPDB account hosted in a smartphone's SIM card.

The other two mobile operators have also made similar moves. Both China Unicom and China Telecom teamed up with a dozen of domestic banks for their own NFC payment scheme that complies with CUP's standards and allows phone users to pay in convenience stores, restaurants and subways.

"Tap and pay is a very intuitive action, and let's temper our expectation since all the deployments were made several months ago," said Hsin Hau Hanna, adding that the high penetration rate of NFC-compatible terminals and coordination between market players mean China is ready for scalable and interoperable services.

After all, he said, the starting point here is better than any other market.

Editor: Yang Yi
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