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Battle for China’s payments market heats up as UnionPay faces something new: competition

By NexChange

China’s payments industry is preparing for an arms race, according to recent research by a leading investment bank.

The combatants are the incumbent China UnionPay and the challengers are Alipay and Wexin Pay who will square up for dominance in the non-cash merchandise payment market, argues Jeffries in a recent client note.

At present UnionPay is the only interbank network in China, so almost all bank debit or credit bank cards are UnionPay, regardless of the card-issuing banks. Because of its monopoly status, it operates the electronic funds transfer at the point of sale network in China.

UnionPay had a free hand, processing all payments until a few years ago when third party payment systems (outside the banking system) grabbed some market share, firstly with online payments, then with mobile payments.

“Alipay and WeixinPay have been very aggressive in capitalizing on their user base to expand their offline payment business in the past two years, which has led UnionPay to rapidly lose market share. Now UnionPay is determined to win back lost ground by launching a series of new payment tools (ApplePay and SamsungPay), leveraging on its vast POS [point-of-sale] network in China.”

This should be good news for Chinese businesses. Transaction fees are falling and merchants are likely to install multiple POS machines because each provider’s machines will only be capable of supporting their own transaction platforms.

The other winners should be the hardware and service suppliers on the value chain as new technical standards are introduced by China’s central bank to regulate third-party payment systems.

“While we believe it is still too early to crown a definitive winner, the recent actions by UnionPay and Alipay and Weixin Pay suggest the likelihood of an arms race heating up.”

Photo: Simon D

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