CHANGING CHINA

An update presented by UnionPay International

AGENDA

• China Today

• The Chinese Consumer

• About UnionPay ▫ Business Overview

▫ E-Commerce Products Overview

• Questions

Population

Over the past three decades, since the introduction of reforms, China has been an economic powerhouse charging ahead. Here are some interesting facts

Approximately 1.4 billion people live in China That’s about 20% of the world population and 4.5 X size of US

Youth

Second to only India, China has a youth population (10-24 years) of 269 million

At 269 mm the Chinese youth form about 22% of its population. (that’s more than the combined populations of the UK, France, Germany and Italy)

Economy

China’s economy has been growing at 9 to 10% on average over the last 30 years

China is now the 2nd largest economy, having overtaken Japan in 2011

Despite a slowdown, China still is

the fastest growing major economy in the world

Economy

30 years ago, all businesses were controlled by the state to a certain degree. Today, non-state owned companies account for 70% of the GDP

China is now the worlds largest manufacturing country by output. Fortune magazine’s latest rankings of the worlds largest companies includes 2 US firms in the top 10

China has three

Luxury

By 2020 China will account for 19% of global demand for luxury items

China is already LV’s largest market accounting for 15% of global sales The average Chinese millionaire is only 39. The

country already has 2.9 million of them

The Chinese Consumer

Different regions have developed at different rates

Distinctly different spending habits

Rising consumption of luxury goods

Evolving Landscape

Chinese consumers’ shopping habits have changed dramatically as incomes have risen and new products and concepts have entered the China market.

Source: CBR, McKinsey, Bain, etc.

The luxury market is undergoing a fundamental shift, brought on by evolving customer

dynamics, an influx of new, emerging luxury labels, and an economic slow-down. As a

result, luxury brands in China must step up their game in 2015 by adapting to new market

conditions and customer expectations – Bain & Co

Customer Segments

Customer segments are not clear cut, with common behaviors no longer observed across demographic groups

Value Seekers

•Search hard for the best deal

•Spend a lot of time researching products and comparing prices

•Applies to high and low income groups, but more apparent in lower income group

Sophisticated High Earners

•Generally in larger cities

•Shop to satisfy emotional needs and show individuality

•Willing to pay a premium for quality products and services

Pragmatic Masses

•Almost 400mm emerging middle class consumers

•Reside in smaller cities in inland areas

•Price sensitive and focused on basic functional products

Self-indulging Youth

•More self-indulgent in their purchasing

•More individualistic in their wants

•More loyal to their favorite brands

•More internet-savvy

Source: Forbes, Bain

Travel Trends

As the travel market matures, self guided and overseas trips have experienced rapid growth

•Mainland China became the world’s biggest source of

foreign tourists. Approximately 110 million Chinese traveled abroad in 2014

•These newly affluent travelers spent $164 billion overseas while they traveled, making them the biggest-spending tourists.

•Top 5 destinations in 2012 : HK, Macau, South Korea, Thailand and Taiwan

•Group travel is still popular for convenience and price as well as a history of restriction on individual travel, however it is slowing down

•FIT has seen a dramatic increase and is growing even faster than foreign travel in general

Source: Euromonitor, Skift,, Bloomberg etc.

Going Online: China’s e-Commerce market

With the number of internet users growing rapidly, eCommerce volume has followed suit

• In 2011, China’s online retail purchases surpassed Japan’s. The following year, its online retail

penetration hit 16 percent, cruising past that of the United States

• More than 600 million potential consumers have access to the Internet in the country today and 80% access it through smartphones and other wireless devices

• The popularity of e-commerce has quickly increased in China due to the economic development, the growing Chinese middle-class, rising disposable incomes and above all due to Internet and mobile penetration in the Chinese daily life

Source: Alizila

China Online Travel Market

A large and growing market, with consumption habits rapidly evolving to keep pace with other developed markets

Increasingly, travel bookings are made through mobile devices, with 77% survey respondents opting to search for online travel service on mobile devices.

In 2014, China online travel was aUS$50 billion market with an increase of 38.9% YoY. It is expected to grow to US$130 by 2018

Ctrip, at 23%, has the largest share of the online travel booking market, followed by Tuniu and eLong

Profile of the Online

Shopper

Source: Alizila

Profile of the online shopper (contd.)

For cross-border purchases, Chinese online consumers purchase goods from the US (84%), Hong Kong (58%), Japan (52%) and UK (43%).

About UnionPay

China UnionPay & UnionPay International

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Established in 2002 and headquartered in Shanghai, China UnionPay is the largest bankcard

association in the world

UnionPay International (UPI) is a wholly-owned subsidiary of China UnionPay and it:

Oversees the international business of UnionPay, accelerating entrance

and growth in global markets by collaborating with members and

merchants

Manages operating platform that connects UnionPay international

acquirers and issuers -- in line with global rules and standards

Creates product standards and manages the UnionPay brand in global

markets

Promotes usage of UnionPay cards globally through merchants and

direct to consumers

100% of domestic Chinese familiar with UnionPay brand (AC Nielsen)

CUP is a member of EMV Co.

UnionPay in Numbers

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Over 300 issuing and acquiring members around the world

More than 150 markets accept UnionPay card

No. 1 in Card Volume with over 4.7 Bn UnionPay cards issued worldwide

No. 1 in Purchase Volume by card type

International Acceptance

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Over 150 Countries/Regions accept UnionPay cards in n close cooperation with more than 300 overseas institutions

At 26 million POS terminals and 1.8MM ATMs worldwide

Comprehensive Product Range and Technology

QuickPass Contactless

Mobile (M-

commerce)

Virtual (e-

commerce)

Premium Concierge

Service

Global 24/7

Service hotline

UnionPay World

Privilege

Expense Manageme

nt System

Comprehensive

Protection Insurance

Diamond

Money Express

(Remittances)

TXN Mode POS, ATM,

CNP, MOTO

Dual Currency

Integrated Circuit (UICC)

Platinum

Gold

Classic

Service Packages

Program Enhancements

Delivery / Technology

Segments

Prepaid

Credit

Commercial

Debit

2015 e-Commerce Performance

The UPI e-commerce business has enjoyed strong performance in both transaction volumes as well as growth rate

2013 2014 2015E

volume

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Marketing Platform: Shop The World

The Shop the World platform is a bridge between UnionPay cardholders in China and overseas online merchants, thus enabling cross-border online shopping for cardholders

• Enables services such as:

▫ Display of popular merchants & products

▫ International logistics

▫ Proxy buying

▫ Secure Payment

▫ Discounts, warranty and other privileges

30 million registered UPOP users

5 national pavilions

120 initial privileged merchants

2000 selected merchandise

+1 million/month Page View

Future Plans: • Attract more global key merchants to accept UnionPay

• Promote the UPOP brand

• Provide a communication platform for cardholders and online merchants

• Create a similar platform for other markets

• Leverage it for overseas UnionPay CM and China merchants

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UPOP Products

SecurePay

• Multi-layered authentication mechanism

• Typically used in SEA and neighboring markets

• Greater security

• Fraud liability shifted to merchants.

• Pros: Secure/ Covers all 4.7 Bn cards

• Cons: Not supported by US merchants

• Enhancement: SecurePay Plus / ACP

ExpressPay

• A simpler method - minimal information gathered

• Widely adopted by the US, other similar markets

• High performing in terms of conversion rate

• Pros: Easy to implement, covers US

• Cons: does not cover debit

• Enhancement: ExpressPay Plus

Merchant Hosted

• An intermediate solution - one time-authentication of China issued cards, subsequently follow ExpressPay process

• Reduce the hassle and increase conversion rate

• Pros: Covers debit & credit / Covers US merchants

• Cons: Limited merchants

• Enhancement: Merchant Hosted (authenticated)

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Security of UnionPay Online Payment (UPOP)

UPOP takes advantage of multiple safety and security technical guarantee. With the aid of real time risk

audit, complete risk control and solve capability, fully assure the safety of online payment transaction.

UPOP related parts Security Features

Fund Security UnionPay card-not-present self-service purchase service rules specifically stipulate the verification elements and can be divided into self identification mode and auxiliary identification mode according to the strength of the verification information. Self identification mode requires the validation of card and dynamic verification information upon each payment. The issuers may choose to validate the ID number, password and other identity information of the cardholder

UPOP Server PCI DSS certification

Payment Account Each UnionPay card is Real-name Authentication

Payment Ways SecurePay provide one secure & comprehensive online payment gateway to avoid Card information leaving on Merchant/Acquirer side, which is supported by UnionPay UPOP server

Risk Control Real-time transaction is 100% monitored by UnionPay risk system, which can audit unusual txn, large amount txn, multiple trial payment, failure authentication txn and so on

Supporting Rules A unified dispute resolution mechanism with onboard members as a card scheme

Improved online

Acceptance through

partnerships

Improved

product quality & user

experience

Enable e-

Commerce on all international

Cards

Leverage B2B Trade Card

opportunity

Monetize "Shop

the World" Platform

Focus Areas

Our Strategy is to build scale in transaction volume through enhanced value and great customer experience

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Conclusion

A Rapid Business Expansion Opportunity

27

Hu

ge

Op

po

rtu

nity

• China – fastest

growing market for

e-comm globally

• World’s largest

online population –

650 million accounts

• Over 4 tr CNY in

2014 sales

• 120% annual growth

since 2003

Tru

ste

d B

ran

d

• UnionPay’s unique

access to all Chinese

consumers.

• Largest / fastest

card brand globally. –

over 4.7 billion cards

• Best known payment

brand in China and

most trusted

Fle

xib

le a

nd

Sa

fe M

od

el

• ExpressPay offers

convenience and

can be quickly

implemented

• SecurePay supports

all UnionPay cards

and risk is taken by

issuer

• Merchant-hosted

supports all cards

with ExpresPay

convenience Un

iqu

e P

latf

orm

• Huge ‘pent up‘

demand

• Shop the World - the

market place for

Chinese consumers

to shop globally

• Opportunity to jointly

market merchants,

products and

services through this

platform

A Winning Combination