China's third-party online payment industry is set to take off in the next couple of years, with the number of players and services certain to expand.
The industry was given a boost when the People's Bank of China recently announced licenses for 27 non-financial institutions to operate third-party payment systems. The recipients included market leaders such as Alipay and Tencent's Tenpay.
Most of third-party payment systems have been in operation for seven or more years. The central bank's "birth certificates" put them under an umbrella of better regulation, transparency and risk management.
At the end of the first quarter, Alipay led competitors with a 45.5 percent share, followed by Tenpay at 20.3 percent and smaller rivals such as China PnR, 99 Bill and Yeepay.
The value of the market on March 31 was estimated at 397 billion yuan (US$61.1 billion), according to research firm Analysys International.
"In the next few years, the market will become more diversified and more players will be introduced, and the industry overall will mature and be better regulated," said analyst Zhang Meng at the Beijing-based research house.
Yeepay, a leading online payment company in north China, covers a wide range of payment strategies, including payment for mobile phone fees and recharging of online games accounts. It was also among the earliest to tap into the car insurance market.
"Yeepay will expand in insurance and other wealth-management sectors," said company Chief Executive Officer Tang Bin.
Cheng Shanbao, an analyst at iResearch Inc, said the online payment industry has been focused on relatively mature markets such as online shopping and flight booking. That's about to change, he predicted.
"Now that 27 companies have obtained official licenses, more will be introduced into sectors such as wealth management, logistics and traditional trade, and even segments serving everyday public needs," Cheng said.
He cited car insurance as one example. Yeepay launched a car insurance program in 2009 that connects car owners, insurance companies and auto dealers.
"Third-party payment companies have big potential in the insurance sector because users want to save time dealing with agents and service people from the insurance company," Yeepay's Tang said. "We are also planning to launch marketing campaigns for car dealerships and insurance companies, given our vast user base."
Cheng said the property insurance market, valued at 200 billion yuan, is also an ideal target for expansion of online third-party payments.
Payment units operated by Internet giants such as the Alibaba Group and Tencent Inc have already extended their business models to a wider realm of services. Alipay serves Alibaba's online shopping platform, and Tenpay is an adjunct to Tencent's popular instant messaging service.
"Payment companies that adapt more quickly to the changing market situation and provide easy-to-use services to customers will be better off," Cheng commented. "Those who rest on the laurels of their existing businesses and see no urgent need to come up with innovative products will find the going tough."
Unique approach
Although most payment companies boast services that allow customers to complete transactions with vendors by entering their bank card numbers and focus on establishing partnerships with online shopping sites, there are those in the market that take a more unique approach.
Shanghai-based China Payment and Remittance Service Co, also known as China PnR, in August became the first payment company authorized by the China Securities Regulatory Commission to run open-ended fund trading on the Internet. It serves as sales agent for fund management companies via its newly launched TTYFund.com website.
While waiting for commission approval for four years, the company steered clear of direct competition with Alipay and Tenpay, preferring to run payment systems for online flight booking agents and digital game operators.
"Fund management companies have direct selling channels on their websites, but they don't have the strong marketing capability of big commercial banks," China PnR President Zhou Ye said, explaining the niche market the company has seized.
Users who register at China PnR can connect their bank accounts with their accounts at fund management companies. Commission rates can be as low as 0.4 percent, a 60 percent discount to the transaction rates charged by banks or other sales agencies.
Customers now can buy into nearly 400 open-ended funds using bank cards from 19 domestic banks. Zhou said he expects TTYFund to have 1 million registered users by the end of this year.
Although the central bank's new system of licensing third-party payment operators is expected to bring order to the industry, the sector still has its teething problems, as highlighted in the ongoing spat between Alibaba and major shareholders Yahoo! Inc and Softbank Corp.
It was revealed last month that Alibaba Group Chairman Jack Ma had transferred the group's payment arm Alipay to a new entity under his control. Yahoo and Japan's Softbank - which together hold a 70 percent stake in Alibaba - demanded compensation to majority shareholders for their lost footing.
Shares of Yahoo sank nearly 18 percent in the wake of the disagreement.
The dispute is rooted in the central bank's new licensing system. The People's Bank of China said applicants must be domestically owned corporations with registration capital of at least 100 million yuan.
Companies funded by overseas investors were required to make their licensing applications to the State Council, China's Cabinet.
Ma sold Alipay to Zhejiang Alibaba E-commerce Co, a private company controlled by himself and Xie Shihuang, another co-founder of Alibaba Group, for 330 million yuan.
After the dispute flared, Ma insisted Alibaba board members had agreed to the transaction in order to gain central bank licensing approval. The compensation dispute has yet to be resolved.
