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November14,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Chinaisthelargestmobilepaymentsmarketintheworld,andaverydynamicone,too.MobilecybersecurityhasbecomeasignificantissueforChineseconsumers,andthehackingofpersonaldataandInternetscamshaveresultedinsignificantfinanciallosses.Inthisreport,weshow:
1) HowmobilepaymentshavebecomeubiquitousinthedailylivesofChineseurbanconsumers.Itprovidesanupdate—usingthemostrecentfigures—onthesizeofthemobilepaymentmarketinChinaaswellasthecompetitiveenvironment.
2) HowthemobilepaymentmarketinChina—dominatedbytwoplatforms,AlipayandTenPay—hasgrownatdouble-digitfiguresandisalmost50timeslargerthanthatoftheUS.
3) ThefinancialimpactofmobilecybersecuritythreatsinChinaandhowsignificantitcanbe.In2016,theaveragelosspervictimincurredfromonlinefraudbyusersreportingcybercrimestotheBeijingPublicSecurityBureauwas¥9,471($1,426).
Cybersecurity and the China Mobile Payment
Market: The Risk to Chinese Consumers Is
Great
Deborah Weinswig
Managing Director,
FGRT
US: 646.839.7017
HK: 852.6119.1779
CN: 86.186.1420.3016
2
November14,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
IntroductionMobilepaymentshavebecomeubiquitousinthedailylivesofChineseurbanconsumers.ShopperspayforeverydaysmallexpendituresbyscanningQRcodesatpoint-of-saleterminalswiththeirsmartphones—buyinganythingfrombreakfastatthelocalcoffeeshoporticketsfortheirmetrocommute,toaccesstoabike-sharingschemeorfooddeliveryfordinner.EvenstreetvendorssellingeverythingfromdumplingstomobilephonecoversuseQRcodestoreceivepayment.
However,thepopularityofmobilepaymentsenablestheproliferationofcybersecuritythreats,asthehackingofpersonaldatahasbecomeveryappealingforcybercriminalslookingatgettingtheirhandsonusers’financialdetails.
ThisreportprovidesabriefupdateonthemobilepaymentmarketinChina,withthelatestdataavailablefromspecialistmarketresearchfirmsAnalysysandiResearch.WefirstexaminedChina’smobilepaymentmarketinourreportinNovemberlastyearMobilePaymentsinChina,andsincethen,themarkethascontinuedtogrowsignificantly.
Wealsoconsidertheimplicationsofmobilecybersecurity,whichhasbecomeasignificantconcerninChina,giventhewidespreaduseofmobilephonestonavigatetheInternetandasapaymenttoolforeverydaytransactions.
DefiningMobilePaymentsandE-WalletsWedefinemobilepaymentsinthisreportandinourpreviousreportMobilePaymentsinChinaaspaymentprocessesperformedviamobiledevicesthateliminatetheneedforaphysicalcreditcardpaymentinfrastructure.ThetwomostcommonlyusedmobilepaymenttechnologiesinChinaare:near-fieldcommunication(NFC)andQRcodes.
Mobilepayments:PopularpaymentservicesthatrelyonNFCtechnologyincludePayPal,ApplePay,HuaweiPayandSamsungPay.QR-basedpaymentservicesincludeWeChatPay,AlipayandBaiduWallet.TopayforanitemthathasaQRcode,thecustomerscansabarcodethatcontainsinformation—suchasawebpagewithproductororderinformationprovidedbythevendor1`—andisthenredirectedtoapaymentpageinthephone’sbrowsertocompletethetransaction.
E-wallets:E-wallets(alsoknownasmobilewalletsordigitalwallets)areusedtoinitiatemobilepayments,andmaybesupportedbyeitherNFCorQRtechnology.Ane-walletenablesuserstostoretheircreditcardinformation,suchasnumber,andexpirationdate,inamobileappinsteadofhavingtouseaplasticcardwithachipormagneticstripe.Userscanthenmakepurchasesthroughtheapp.E-walletsareconsideredmoreconvenient,astheyprovideabetteruserinterfaceandcanstorecouponsandloyaltycardinformation.
MobilepaymentshavebecomeubiquitousinthedailylivesofChineseurbanconsumers.
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November14,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Source:iStockphoto
China,theWorld’sLeadingMobilePaymentMarketChinaisalargeanddynamicmarketformobilepayments.Inits3Q2016(latest)QuarterlyMonitoringReportonChina’sMobilePaymentMarket,marketresearchfirmAnalysysshowsthatthird-partymobilepayments—paymentsbetweenabuyerandasellerprocessedthroughathirdpartythatactsasanintermediary,suchasAlipayorTenpay—inChinagrewby106%yearonyeartoreach¥90.4trillion($13.6trillion).Figure1showsthesizeofthemobilepaymentmarketinChinain3Q2016versus3Q2015.
Figure1.TransactionSizeinThirdPartyMobilePaymentMarket(¥Trillion)
Source:Analysys.cn
Infact,Chinaisthelargestmarketintheworldformobilepayments,accordingtomarketresearchfirmiResearch.ItsdatashowthatthemobilepaymentmarketinChinareached$5.5trillionin2016,anincreaseofmorethan175%yearoveryear,anditexpectsthemarkettoreach$8.0trillionin2017.Bycomparison,marketresearchfirmForresterResearchestimates
43.9
90.4
3Q2015 3Q2016
Chinaisalargeanddynamicmarketformobilepayments.
Chinaistheworld’slargestmarketformobilepayments.
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November14,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
theUSmarketformobilepaymentswas$112billionin2016,amere2%ofChina’smarket.
InourreportlastNovemberMobilePaymentsinChina,weidentifiedthemaindriversofmobilepaymentadoptionintheChinesemarket:
• UbiquityofmobileInternet:Fully95%ofChineseInternetusersaccessedtheInternetviatheirmobilephonesin2016,accordingtotheChinaInternetNetworkInformationCentre(CNNIC),theadministrativeagencyresponsibleforInternetaffairsundertheMinistryofInformationIndustryofthePeople’sRepublicofChina.
• Consumerpreferences:E-walletsareverypopularamongChineseconsumersinurbanareaswithastrongomnichannelretailpresence.Atthesametime,Chinahasaweakcreditcardculturethatfavorstheadoptionofalternativeelectronicpaymentsolutions(suchasmobilepayments),whichareconsideredsaferandmoreconvenient.
• Infrastructure:Themobile-phoneindustryandNFCterminals—thetechnologyusedmosttoprocessmobilepayments—arerelativelysophisticatedinChina,resultinginamobilepaymentinfrastructurethatismoreadvancedcomparedtoothercountries.
• Merchantadoption:MostretailersinChinaoffermobilepaymentoptions,fromlargeinternationalchainssuchasStarbuckstosmallindependents,suchasstreetvendors.Retailers’adoptionofmobilepayment,whichisinresponsetoconsumers’preferenceforthistypeofelectronicpaymentsolution,fuelsavirtuouscirclethatcontributestothefurtherpenetrationofmobilepayment.
Mobilepaymentpenetrationhasmovedbeyondretailing.Forexample,UnionPayisworkingwithGuangzhouMetrotoenablepublictransportusersinthecitytopayfareswithQuickPass,aUnionPaymobilepaymentapp.
UnionPayisoneofthemanyplayerswithinthemobilepaymentindustryinChina,whichremainsdominatedbyAlibaba’sAlipayandTencent’sTenpay.
Alipaybenefitsfromitsfirst-moveradvantage—itwastheappthatpioneeredmobilepaymentsinChinawhenitwasintroducedin2004asaservicetofacilitatetransactionsonAlibaba’sonlinemarketplaceTaobao.
Tencent,ontheotherhand,capitalizesonthewidespreaduseamongChineseconsumersofWeChat—theTencent-ownedmessagingappthatembedsTenpay—thecountry’sdominantmessagingapp.
Combined,AlipayandTenpaymakeup88.5%oftheChinesemobilepaymentmarket,asof3Q2016(latest),accordingtoAnalysys.Figure2summarizesthecompetitiveenvironmentofChina’smobilepaymentmarket.
AlipayandTenpaymakeup88.5%oftheChinesemobilepaymentmarket.
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November14,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
Figure2.MobilePaymentMarketinChina,MarketSharein3Q2016
Source:Analysys.cn/FGRT
SmartphonestheMainTargetofCybersecurityThreatsThepopularityofsmartphonesinChinahasencourageddevelopersofcybersecuritythreatstofocusonmalwareprogramsthatattackmobiledevices.
Withsomanypeopleusingelectronicwalletsontheirsmartphonesforeverydaypayments,mobiledeviceshavebecomealeadingtargetforhackersseekingtogetdatasuchaspaymenttransferdetailsandpasswords,accordingtotheCybersecurityAssociationofChina.
Paymenttrapsanduser-privacyviolationswerethetopcybersecuritythreatin2016,with88.3%and76.0%,respectively,ofmobileInternetusersaffectedduringtheyear,accordingtotheInternetSocietyofChina.
Androidusersaremoreexposedtomobilesecuritytreatssincetheyturntothird-partyproviderstodownloadapps.In2016,morethan2millionmalwareprogramstargetingmobiledevicesweredetected,accordingtotheInternetSocietyofChina.Ofthese,99.9%targetedAndroiddevices.
SmartphoneusersinChinaare,therefore,largelyexposedtocybersecuritythreats,consideringthat87%ofChineseconsumersin1Q2017(latest)useAndroidsmartphones,accordingtomarketresearchfirmKantarWorldpanel.
ThefinancialimpactofcybersecuritythreatsonInternetusersinChinacanbesignificant.AnideaofthepotentialfinanciallossthatcouldbeincurredbythevictimsofcyberthreatsisgiveninareportpublishedbytheBeijingPublicSecurityBureau,adepartmentoftheBeijingmunicipalgovernmentresponsibleforpublicsecurity.Accordingtothereport,therewere20,623reportsofonlinefraudonthedepartment’scybersecurityplatformin2016,withatotallossof¥195million($29.3million)andanaveragelosspervictimfromonlinefraudof¥9,471($1,426).
Inresponsetotheriseofmobilecybersecuritythreats,theChinesegovernmentadoptedtheCybersecurityLawinNovember2016,whichwentintoeffectonJune1,2017.Thelegislationcontainscybersecurity
3.4%
1.1%
1.2%
1.2%
1.2%
3.3%
38.1%
50.4%
Others
UnionPay
UnionMobilePay
PingAnPay
Lianlianpay
Lakala
TenPay
Alipay
ThepopularityofsmartphonesinChinahasencourageddevelopersofcybersecuritythreatstofocusonmalwareprogramsthatattackmobiledevices.
ThefinancialimpactofcybersecuritythreatsonInternetusersinChinacanbesignificant.
6
November14,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
requirementssuchasmeasuresaimedattheprotectionofpersonaldataandindividualprivacythatorganizationshandlingdatamustcomplywith.
Mobile-phonemanufacturersandconsumersmustalsoplaytheirpartinreducingtheriskofcybersecurity,accordingtotheCybersecurityAssociationofChina.Smartphoneproducersneedtoimprovethedefensesontheirdevices,whileindividualusersshouldtakecarenottoleavetoomuchpersonalinformationonlineandshouldbecautiouswhenselectingthethird-partyproviderstheydownloadtheirappsfrom.
KeyTakeawaysChinaisthelargestmobilepaymentmarketintheworldandaverydynamicone.Mobilecybersecurity,whichhasbecomeasignificantissueforChineseconsumers,hasthepotentialtoresultinsignificantfinanciallosses,duetothehackingofpersonaldataandInternetscams:
• Third-partymobilepaymentsinChinagrewby106%yearonyeartoreach¥90.4trillion($13.6trillion)in3Q2016(latest),accordingtoAnalysys.
• TheChinesemobilepaymentmarketreached$5.5trillionin2016,accordingtoiResearch.Thatisalmost50timeslargerthanthemobilepaymentmarketintheUS.
• Combined,AlipayandTenpaymakeup88.5%ofChina’smobilepaymentmarketin3Q2016(latest),accordingtoAnalysys.
• In2016,88%and76%ofmobileInternetuserswerevictimsofpaymenttrapsanduserprivacyviolations,respectively,accordingtotheInternetSocietyofChina.
• TheaveragelosspervictimincurredfromonlinefraudbyusersreportingcybercrimestotheBeijingPublicSecurityBureauwas¥9,471($1,426)in2016.
• AsothercountriesfollowChinainadoptingmobilepayments,legislators,businessesandconsumerswillneedtobeawareofthesecurityrisks.
Chinaisthelargestmobilepaymentmarketgloballyandaverydynamicone.Mobilecybersecurityhasbecomeasignificantissue.
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November14,2017
DeborahWeinswig,ManagingDirector,[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFGRTNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comFilippoBattainiResearchAssociate
HongKong:2ndFloor,HongKongSpinnersIndustrialBuildingPhase1&2800CheungShaWanRoad,KowloonHongKongTel:85223004406London:242–246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017FungGlobalRetailTech.com