China is making headlines at the moment, particularly with regard to the coronavirus outbreak. Not only does the pandemic present an enormous societal challenge to the Middle Kingdom, but it is increasingly acting as a brake on what is the world's second largest economy after the USA. Whether factories, shopping centres or leisure facilities, many institutions are at a standstill or only slowly starting up again. As a consequence, economists have scaled their growth forecasts down. Beijing, though, is pulling out all the stops to prevent a downturn. Among the measures, the central bank has cut several reference interest rates with the aim of stimulating the granting of credit. While negative headlines will continue to dominate for the time being, it is difficult to image the virus choking off the ascent of the largest emerging country into an economic superpower.
Among the sectors in which China's transformation will be felt particularly strongly is digitalisation. Beijing is consistently weaving the internet and technological progress into the expansion of the economy. In recent years several related services have been successfully established in the country, which has about 1.4 billion inhabitants. For more and more Chinese, for instance, mobile payment is a part of their everyday life. According to data from iResearch, the volume of mobile money transfers processed through third parties in China in 2018 reached CNYtn 190.5, equivalent to just under USDtn 27. A look back at quarterly trends shows the tempo at which this modern application has spread in the Middle Kingdom (see graph). Following its rapid introduction, says iResearch, the market has now entered a phase of steady development. View more information on investment solutions on the topic “Credit card providers: on the threshold of a trillion-euro market”.
The Chinese market researcher, which specialises in the internet, divides the digital payments into three main segments (see graph). In the 2nd quarter of 2029, more than half of the volume was spent on personal applications. In this total iResearch includes transfers between credit cards, for instance. A good one fifth of sales were based on mobile consumption, such as payment for online games or flights booked using a smartphone. In the third largest category, mobile finance, iResearch considers P2P credit and other mobile financing transactions. China's mobile payment market is heavily fragmented at present. According to iResearch, in the 2nd quarter Alipay and Tenpay together handled almost 94% of this volume. Behind the payment services of the two internet giants, Alibaba and Tencent, come a raft of smaller providers and start-ups. Naturally, this gigantic market is also attracting international credit card providers. These had previously been barred from access to the Middle Kingdom, however.
This is set to change with the trade agreement recently signed by the USA and China. It is indicative that the CEOs of Mastercard and Visa, Ajay Banga and Al Kelly, were in attendance at the White House for the ceremony. In the phase 1 deal, which took months to negotiate, Beijing declared its willingness to process the applications of payment service providers from the United States within a maximum of 90 days. The first positive notification was sent just one month after the agreement was ratified, when the People’s Bank of China (PBOC) granted Mastercard a licence to start a bank card business. The US group must get the systems up and running together with its local partner, NetsUnion Clearing, within a year. The US players are not unprepared. Indeed, they have long been putting out feelers into the Middle Kingdom, for instance as service providers for foreign payments. Now, though, the door towards new orders of magnitude is being opened for the industry giants: there were 8.2 billion bank cards in circulation in China at the end of September 2019.
