Mobile Payment in China Concepts Current Situation and

Mobile Payment in China —— Concepts, Current Situation and the Future Fang Senior Strategy Analyst Shanghai Pudong Development Bank fangf 01@spdb. com. cn

Mobile financing is getting popular nowadays in China as wireless network promoted to 3 G Mobile Banking: The services offered to customers to allow them to access a bank account from mobile phones, i. e. , the on-line banking from mobile phones. Major functions: account management, fund transfer and etc. Mobile Payment: The services offered to customers to allow them to make the payment by mobile phones, either linked to a bank account or not. utilities payment online shopping online remote payment supermarket shopping mall metro onsite contactless payment

While many Best Practices in the World …… Japan：NTT Do. Co. Mo Osaifu-Keitai – ‘e-wallet’ Korea: SK Telecom i. D mobile payment platform MONETA – mobile credit card DCMX – consumer loans Kenya: Safaricom M-PESA – money transfer Philippines: SMART Smart money – online payment & money transfer

Mobile Payment in China is only at the beginning Mobile Payment Solutions Advantages Disadvantages Intelligent SD card i. SIMPASS NFC mobile phones A financial IC card is embedded, compatible with PBOC 2. 0 standard, can leverage current POS machines with update Need to install an antenna or change a mobile phone for onsite contactless payment RF-SIM card: ‘e-wallet’ with no bank accounts linked Just need to change a SIM card, easy to promote Not compatible with PBOC 2. 0 standard, need to put new POS machines Strategic Alliance: China Mobile & SPD Bank, China Unicom & China Industrial Bank

Several Issues need to be addressed …… 1 st Issue: Technical Standards 13. 56 M frequency 13. 56 M standard is quite mature internationally. l In China, PBOC 2. 0(the standard for 2 nd generation of financial IC card) is 13. 56 M. l If apply 13. 56 M standard to mobile onsite payment, the signal is not quite strong, hence an antenna is required. l China Union Pay prefers 13. 56 M standard since it is compatible with PBOC 2. 0. l 2. 4 G frequency The ‘e-wallet’ developed by China Mobile applies 2. 4 G standard. l 2. 4 G standard is not compatible with the current standards applied in financial and metro areas. The technology maturity needs to be further tested. l If apply 2. 4 G standard to mobile onsite payment, the signal is quite strong and customer just needs to change a SIM card. l Need to put new POS machines other than update the current POS machines for bank cards. l Neither party takes leading role so far

2 nd Issue: Business Model bank-lead customer->bank->merchants wireless service Low bank involvement High cooperative model bank customer-> ->merchants operator wireless operator involvement 3 rd party-lead operator-lead customer->3 rd party->merchants accounts & wireless service customer->operator->merchants bank accounts service Low There is no answer for the best model High

3 rd Issue: Customer experience & Consumption environment u 89. 1% internet users ever heard of mobile banking, but only 33. 2% used it. u Customers are getting used to swipe bank cards for onsite payment. u Signed merchants & compatible POS machines are far from enough. u Need to promote to more business & applications. u Different mobile phones make customer experience different. u Security & Regulatory issues.

We are optimistic about the prospects for mobile payment in China Huge potential customer base: Mobile phone is more popular than computer in China. Almost 0. 8 billion mobile subscribers, 0. 23 billion of them are using mobile internet. Number of 3 G subscribers doubles each 5 month. Convenience of mobile financing: Anywhere、anytime services: reach financial services with less restrictions Accelerating financial inclusion: provide low-cost financial services in rural areas Banks and operators are realizing the importance of cooperation: Banks control the customer accounts、clearance/settlement channel、POS machines; Wireless operators control the SIM card、mobile phones、wireless network. Both parties are irreplaceable.

End of branch? Branches are everywhere! market campaigns, loyalty programs, e-coupons remote payment, e-wallet, e-debit card, e-credit card bill payment onsite small amount contactless payment onsite large amount contactless payment transaction and payment among users, e-business What matters is not the physical shape of the branches but who controls the customer accounts

Thank you!