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内容

Merchant Acquiring Landscape in China

Prepared by: Kelvin Tai

Mobile: +8613918235069 ; Email : kelvin.kf.tai@gmail.com 第一资讯的好处

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Objectives Examine the Traditional Merchant Acquiring business model and its value

chain

Explore the opportunities of “Third party payment license” and how are they possible impact to Merchant Acquiring ecosystem.

Provide recent development of Payment Network and insight of how are those international scheme organization would do in China Market

Mobile Payment

Contactless Payment

Online secure payment gateway.

Provide the insight of Third Party Payment companies should do in Merchant Acquiring business and how the Foreign companies, like First Data should catch this chance as entry point in Merchant Acquiring.

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内容Traditional Merchant Acquiring process flow and value chain analysis的好处

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— Sign up and Underwriting the Merchant

— Providing the means to authorize valid card at merchant location

— Clearing and Settlement with Payment Network

Basic Service

— Providing Statement to Merchant

— Analytical data of customer transaction and behavior

Value Added Service Merchant Acquirer

Payment Network

Issuer

Cardholder Merchant

Purchase Transaction flow

Value Chain of Merchant Acquiring

Below chart shows the traditional merchant acquiring transaction flow and its value chain. Later on, we will discuss the Merchant Acquirer and Payment Network in China.

-- From US experience, Small merchant contributed less than 10% of sales volume but committed 42% of net revenue for merchant acquirer. This was due to small merchant needed to pay for higher merchant discount rate…

Insight:

— Merchant Acquiring is the game of volume scale.

— S & M merchant is more profitable but the transaction volume is much less than large merchant, ie the system and infrastructure investment is much lower.

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内容

Explore the opportunities of “Third party payment license” and how are they possible impact to Merchant Acquiring ecosystem.

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With the research paper from iResearch, the China e-commerce market size expect to grow to 1.9 萬 billion in 2014.

Implication

—The consumer finance market expects to have huge growth in coming a decade in China, where the transaction done through internet by using bankcard/credit card would have reached to 19 thousand billion in 2014.

— This means there is a huge emerging market for “Virtual Merchant” in China for a coming decade

The China Government granted third party payment license to 13 companies in Sep 1, 2011, in which all of them are Chinese owned enterprise. For foreign based enterprise like Paypal china still not yet granted the license, who is considering to setup a Joint Venture in China….

Insight:

— The Chinese government deregulation for payment industry to open for foreign based companies may not be so soon.

— Chinese Government has not yet granted the license to Telco companies like China Mobile and China Unicom even through they have both applied for license.

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内容Provide recent development of Payment Network and insight of how are those international scheme organization would do in China Market

-- In the merchant acquiring business, payment network plays a key role in the value chain of payment processing. Below use the Four Quadrant Market Analysis for VISA/MasterCard/AmEx/JCB, in the following slides, we will discuss in details for Production Innovation and Market Penetration for the next two slides

Chinese Government Relationship

Product Innovation Brand Recognition

Market Penetration

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-- For the product innovation, below listed out the initiatives in Contactless Payment, Mobile payment, online secure payment gateway as well as strategy alliance for each card scheme provider

Strategic Alliance & Investment

Contactless Payment

Online secure payment gateway

Mobile Payment

Product Innovation

- Paypass POS and paypass enabled credit card and mobile paypass with sticker or in mircoSD

- Rolled out in China but low penetration

- Paywave POS and Paywave enabled card - Rolled out in China but low penetration

- Mobile Paywave App for smart phone with Paywave chips embedded mircoSD

- Join ISIS network which is JV of US telco- Digit wallet for incorporating multiple different

banding card - Investment in Square who is providing credit card

reader for smart phone

- Leverage with Google Wallet embedded in Android phone for using Paypass POS

- Quckpass POS and QuickPass enabled card - Rolled out in China but low penetration but high

than VISA and Master

- QuickPass support for NFC-SD phone

- Align with China major Telco to rollout the digital wallet

- Align with HTC for NFC SD phone to support QuickPass

- Align with Facebook and FourSquare

- Align with Google- Signed up MOU with China UnionPay

- Align with large scale retailer eg GAP- Investment in Square/Cybersource

- Securecode for enhancing security for the online payment

- 3D secure for enhancing security for the online payment

- Non card payment via digit wallet

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-- From the research paper done by Chinese research company, it shows that the market penetration rate of Unionpay card occupied 70% of card issued, while VISA and Mastercard follow the second and third place respectively.

Below discuss why this happen in China Market and how international scheme organization response.

Market Penetration

“Forces” Strategy Response to the “Forces”

A. “China UnionPay play the role of both policy maker and market player”

Meanwhile VISA/Master still continues to issue the dual currency cards, focus on moving battlefield from traditional card payment channel to internet transaction and mobile payment channel as the card no prefix would be the identifier for which payment channel to be routed.

B. “RMB clearing and settlement business only open for China Unionpay exclusively”

C. “Lower interchange fee charged compared to VISA/Mastercard”

Provide more value added service to Merchant to differentiate from Unionpay, eg-VISA has rolled out the digital wallet which can incorporate multiple other scheme card and to provide loyalty points rewards, more customized coupon discount promotion. -America Express has align with FourSquare which is the fastest growth LBS APPs for providing more customized coupon promotion

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内容Insight of Third Party Payment companies should do in Merchant Acquiring business的好处

-- The non bank institution , the third party payment companies, should focus on providing the specialize services for mostly internet merchants as well as Small & Medium size of retail merchant to differentiate themselves from traditional acquiring bank…

Value Chain of Merchant Acquiring

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-- Strategic Alliance with other companies which are in vital player in value chain, is important step to quick launch the innovative product.

“Possible Move” of Market Player Strategy for the “Possible Move”

B. “ 拉卡拉”

1) Align/Invest with LBS software vendor who has acquired significant amount of Merchant to use their service for more specific merchant coupon pushing to let them become part of the value chain in Merchant acquiring

2) 99Bill has already launched the mobilePOS hardware (like US Square) to the market. Align with the Foreign payment industry experts to provide the technology supports on transaction processing/settlement/Data Mining/Statement/Fraud Detection to reduce the cost in developing these areas by their own.

3) Align directly with VISA/Master to marketing the their MobilePOS

A. “99Bills”

1) Adopt the VISA/Master’s Paypass/Paywave technology to1) Improve the customer experience and eliminate the

customer security concern 2) Leverage with the subsidiary company relationship with Lenovo

to incorporate the Paypass/Payass Chips in their product like Lenovo mobile and Lenovo touch pad

3) Align with the Foreign payment industry experts to provide the technology supports on transaction processing/settlement/Data Mining/Statement/Fraud Detection to reduce the cost in developing these areas by their own

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内容How the Foreign companies, like First Data catch this chance as entry point in Merchant Acquiring. 的好处

-- The Foreign processor/Technology company like HP or First Data , should be able to help the 3rd party payment companies to build a healthy ecosystem

HP1.HP has his own the Best Practice Data Center built in China, which just needs to be certificate by China PBOC.2.Partnership with ACI who has Fraud Detection/Merchant acquiring system solution or use the HP his own Merchant Acquiring solution3.With these to form the Alliance/JV into the third payment companies like 拉卡拉4.Provide the technology infrastructure to help 3rd payment companies on Data Mining/Transaction security/ Fraud Detection/Loyalty reward. This is to let the 3rd payment company to focus on relationship building with Merchant and Bank, innovative product document

First Data1.Partnership or JV with the third party payment company like 拉卡拉 to provide the processing platform in the whole value chain except merchant underwriting or POS installation and Maintenance. This can let the Payment companies to more focus on merchant network building.2.First Data is already a PCI compliant processor that can reduce the cost of 3rd payment company to be comply the PCI standard.3.First Data has other mature industry vertical solution, Eg Prepaid card/ATM and related business consultant to help 3rd payment company to expand the market/product mix in time to market manner.

A. Complied PBOC regulatory requirementData Center and stable and scalable transaction processing

B. PCI Data Security Compliant

C. Provision of Valued Added Service

“Value Proposition” “Area of Synergy”

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