Slowly, China Catches a Cashless Payment Wave

12.25.2013 18:11

Slowly, China Catches a Cashless Payment Wave

Telecoms and financial institutions have overcome their biggest obstacles to set the stage for nationwide use of ‘mobile wallets’

By staff reporter Qin Min

(Beijing) — Fewer Chinese consumers will be digging for change at checkout counters in 2014 now that the country’s largest telecoms and financial institutions have cleared a path for instant payments via mobile phones.The dust is settling following debates that raged in 2012 and 2013 over which bandwidth frequency, smartphone technologies and transaction control systems should be adopted to standardize a nationwide, near-field communication (NFC) network aimed at simplifying and speeding consumer transactions.

Those debates pitted major companies at the heart of the push for so-called mobile wallet services that allow no-cash, no-bank card payments at retail, entertainment and travel ticket counters, to name just a few applications. Waving a smartphone is all that’s needed to complete a transaction.

The country’s largest mobile operator, China Mobile, and the sole provider of point-of-sale payment systems, China UnionPay, had clashed over whether a smartphone’s SIM card or an SD card should hold a consumer’s banking data. The first option would let telecoms deal directly with banks, in effect bypassing UnionPay.

“Many in the industry expected a business boom for NFC payments in 2013,” said Sun Yixiao, a mobile payments expert at the China Communications Industry Association. “In the end though, NFC didn’t take off in 2013.”

Nevertheless, the stage has been set for growth in the coming year. China Mobile, for example, in 2013 released several models of NFC-ready smartphones, said China Mobile’s e-commerce division President Fan Jinqiao.

By the end of 2014, China Mobile says every smartphone it sells will be equipped with NFC capacity as a default function. And within three years, according to Fan, all new smartphones sold in China will be equipped with NFC capabilities. Owners of existing smartphones will be able to switch to NFC-enabled SIM cards.

On the financial side of the mobile wallet movement, UnionPay in 2013 accelerated NFC technology retrofits of existing point-of-sale terminals at cash register counters in selected cities. As of December, some 1.47 million of the nation’s point-of-sale machines had been upgraded.

And all three participating telecoms – China Mobile, China Unicom and China Telecom – have been working with UnionPay to open more consumer markets to NFC by, for example, stepping up cooperative deals with theaters, supermarkets and public transportation service providers.

Telecoms expect widespread use of the technology to boost company profits and offer customers more conveniences. China Mobile officials speak of NFC as a new wave of revenue growth that enhances its existing voice and value-added services.

Tapping Technology

NFC is a high-frequency, wireless system for transmitting data over short distances. Consumers can finalize a payment using NFC in about one-tenth of a second by using a smartphone that’s waved within 15 centimeters of a point-of-sale terminal.

Among the various wireless technologies available to consumers, NFC is most mature for mobile phone payments, beating infrared, QR and sound wave-based systems.

But technical details and debates over technological options have slowed widespread adoption of NSF systems in China. Telecoms and financial institutions have also disagreed over which radio wave frequency would best serve payments.

For technical reasons, UnionPay initially wanted to use a radio frequency of 13.56 megahertz for payment data transmissions, while China Mobile favored 2.4 gigahertz. Government regulators with the Ministry of Industry and Information Technology settled the tiff in late 2012 by siding with UnionPay.

How to equip smartphones with NSF capabilities was the focus of another dispute. Three possibilities were on the table: a model based on using a phone’s SIM card that was pushed by the telecoms; an SD card model backed by UnionPay and the banks; and a plan favored by the makers of smartphones that would rely on the use of phones.

System architects had the option of embedding a system’s transaction security chip – a tiny electronic piece at the heart of the mobile payment system – on a SIM card or an SD card. The choice determined who would control the transaction – the telecom company in the case of the SIM card, or the financial institution if the SD card was used.

UnionPay and the mobile operators eventually reached a compromise, choosing a model that uses a SIM card that does not have any pre-installed bank apps. A customer can thus download a personal bank app for use in NFC payments and let his or her bank control transactions without a giving mobile phone operator access to personal financial information.