MOBILE COMMERCE Mobile Banking and Payment in China Wai-Ming To and Linda S.L. Lai, Macao Polytechnic Institute, China Of the more than 500 million Internet users in China as of June 2013, more than 400 million accessed the Web using mobile devices. This article investigates the development of mobile banking and payment systems in China. hina has developed into an Internet prompt payment, continue to increase. Hence, hot spot.1 In 2008, China surpassed China’s fast-growing mobile market, combined the US in number of Internet users, a with its large and growing consumer economy, number projected to reach 690 million means that it now is poised to become a global Cin 2017. 2 China is also one of the fastest growing force in mobile banking and payments. However, mobile markets in the world, with approximately a number of significant issues prevent wide-scale 451 million cellphone owners. Many of these us- adoption of this technology. ers have not yet availed themselves of 3G mobile services.3 Recent Developments Given the country’s sustained economic As Figure 1 shows, the number of online bank- growth and its 7 to 8 percent gross domestic ing users increased from 40.3 million in 2007 to product (GDP) increase in the past five years, 221.5 million in 2012, and the number of online business activities and volumes in China will payment users increased from 33.2 million to likely continue their rapid development. Online 220.7 million during the same period. The num- banking and payment systems have also rapidly ber of online banking and online payment users developed in the past few years.4 At the same increased further to 240.8 and 244.4 million, time, online retailing transactions and business- respectively, during the first half of 2013. How- to-business online transactions, which demand ever, this only represents 40.8 and 41.8 percent, 22 IT Pro May/June 2014 Published by the IEEE Computer Society 1520-9202/14/$31.00 © 2014 IEEE itpro-16-03-lai.indd 22 14/05/14 4:14 PM 250 Online payment Online banking respectively, of all Internet users in China. To 200 achieve a number closer to the 61 percent of on- line banking users in the US, the banking indus- 150 try in China must explore opportunities provided by online transactions such as electronic bank- 100 ing, payment, and e-ticketing.5 Mobile banking is also becoming more popu- lar, as evidenced by the 35 percent of cellphone 50 Number of users in China (million) owners in the US (up from 18 percent in 2011) who conduct their banking through their mobile 0 phones. Meanwhile, only 15.6 percent of cell- 2007 2008 2009 2010 2011 2012 Year phone owners in China (up from 8.2 percent in 2011) conduct their bank transactions through Figure 1. Number of online payment and online banking their mobile phones.4,5 users in China, 2007–2012. As Figure 2 shows, the number of cellphone owners in China who use mobile payment and mobile banking has more than doubled in the last 18 months. Mobile commerce in China took 90 Mobile payment off in January 2009, after the central government 80 Mobile banking awarded licenses for 3G mobile networks to three 70 telephone operators: China Mobile, China Uni- com, and China Telecom.6 Although the Bank of 60 Communications first launched Wireless Appli- 50 cation Protocol (WAP) mobile banking services 40 in 2004, the advantages of mobile banking only became apparent to users in 2010.7 Now, major 30 domestic banks, including the Industrial and Number of mobile users (million) 20 Commercial Bank of China, China Construc- tion Bank, Bank of China, Agricultural Bank 10 of China, China Merchants Bank, Shenzhen 0 Development Bank, and Bank of Beijing, offer Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 a WAP version of mobile banking. All of these banks have integrated traditional online banking Figure 2. Number of mobile payment and mobile functions—such as inquiry, account information banking users in China, 2010–2013. notification, financial management consultation, transfers, remittances, stored value, and payment options—to mobile banking. 1,400 Online retailing also continues to rapidly ex- 1,200 pand in China. According to the China Internet Network Information Center (CNNIC), online 1,000 retailing increased 48-fold from 2006 to 2012, 800 from 2.6 billion Renminbi (RMB) to 1.26 trillion RMB (Figure 3). Annual online retailing trans- 600 (in billion RMB) actions are projected to reach 2 trillion RMB in 400 8 2015. Online retailing transaction Unlike online payments in developed countries 200 such as the US and UK (where online payments 0 are the natural extension of traditional off-line 2006 2007 2008 2009 2010 2011 2012 payments), off-line payments and the underly- Year ing infrastructure have yet to be established and developed in China. The government, banking Figure 3. Online retailing transactions in China, 2006–2012. computer.org/ITPro 23 itpro-16-03-lai.indd 23 14/05/14 4:14 PM MOBILE COmmERCE 160 140 120 Measures for the Payment Services Provided by Non-Financial Institutions” in 2010, and the 100 “Administrative Measures for Prepaid Card Busi- 80 ness of Payment Institutions” in 2012 to regulate 60 the business activities of financial, nonfinancial, (in billion RMB) Mobile payment and payment institutions. 40 The government also requires banks and 20 online payment firms to clearly identify their 0 services and corresponding charges to online/ 2010 2011 2012 mobile payment users, to verify the identity of Year their customers and keep the confidentiality of such information for each transaction, and Figure 4. Mobile payments in China, 2010–2012. to follow customer orders for payment settle- ment. The 12th Five-Year Plan for National Economic and Social Development of China includes a mandate to “actively develop e-com- P2P payment C2B payment – Contactless payment – Contactless payment merce, improve e-commerce services for small – Mobile device POS and medium enterprises (SMEs), and promote Proximity the building of credit service, online payment, payment logistics and other supporting services for the public.”9 As one of the pillars of online pay- ment and fulfillment, mobile payment has – Remote money transfer – Remote online payment (such as mobile e-commerce on digital developed rapidly in the past three years, as products) Figure 4 illustrates. Remote Mobile payments can be classified using payment different methods, such as proximity and re- mote payments.10 In a proximity payment, the payer and payee (or its equipment) are in the same location and communicate directly with each other using contactless communication Figure 5. Classification of mobile payments (adopted technologies, such as near-field communica- from Deloitte Consulting11). tion, Bluetooth, and infrared for data transfer. Remote payments are transactions conducted over telecommunications networks, such as industry, and third-party payment industry are the Global System for Mobile Communications thus exploring innovative ways to fulfill online (GSM) or the Internet, and are independent of payment demands in China. The online pay- the payer’s location. Deloitte Consulting con- ment process involves several parties, including sidered a broader perspective and suggested customers, retailers, banks, third-party pay- that proximity and remote payments can be ment firms, and clearing firms. Therefore, the further categorized based on the nature of the main issues in the adoption of online or mobile transaction (see Figure 5).11 payments are network security; reliability of Public-key infrastructure (PKI) and one-time electronic signature; liability for loss, cost, and passwords (OTPs) are two security measures ad- damages; and certification of third-party pay- opted by online payment firms in China. PKI ment firms. In 2005, the government passed the comes in the form of a digital certificate or a USB Law of the People’s Republic of China on Electronic Sig- key. OTPs can be generated by Alipay (a leading nature, and the People’s Bank of China released third-party payment gateway established by Aliba- the “Electronic Payment Guidelines (No. 1).” In ba that attracts approximately 80 percent of online addition, the People’s Bank of China issued the payment users) for a specific device or can be dy- “Rules for Anti-Money Laundering Efforts by Fi- namically generated by a payment firm and sent to nancial Institutions” in 2003, the “Administrative the user’s cellphone to activate the online payment. 24 IT Pro May/June 2014 itpro-16-03-lai.indd 24 14/05/14 4:14 PM The China Security Payment Union was formed Overall, users have a positive impression of on- in 2011 through the collaboration of banks, Ali- line payment security in China. Approximately pay, third-party payment firms, network security 9 percent of online payment users perceive it firms, and portals. Alipay and other industrial as very safe, 69 percent as relatively safe, and 16 leaders established the China Third-Party Pay- percent as average. Less than 6 percent of online ment Security Union in May 2012 to promote payment users perceive online payment as unsafe information sharing, which could reduce risks or very unsafe.8 in online transactions. During the first half of With regard to online payment media, 61 2012, 133,000 phishing websites were closed percent of online payment users perceive using through the collaboration of such unions, thus computers to be safer than using cellphones for reducing potential financial losses by more than several reasons: they’re familiar with computer- 90 percent. The PCI Security Standards Coun- based online payment processes; computers are cil released the Payment Card Industry Data Secu- equipped with more powerful antivirus and In- rity Standard (PCI-DSS), version 2.0, in October ternet security; and cellphones are often lost.