Merchant acquiring Business Landscape in China

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This is to explore the opportunity of the 3rd party payment license granted in China and how are the market player would react

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  • We carried out this research study because debit is becoming an increasingly important topic for banks worldwide. We wanted to examine what is driving the growth of debit and help banks to address the opportunities and challenges this presents. To get a view of how debit is growing across the world, we examined the debit growth drivers in different countries – in strong debit markets, strong credit markets and in emerging markets.
  • Merchant acquiring Business Landscape in China

    1. 1. 内容 <ul><li>Merchant Acquiring Landscape in China </li></ul><ul><li>Prepared by: Kelvin Tai </li></ul><ul><li>Mobile: +8613918235069 ; Email : kelvin.kf.tai@gmail.com 第一资讯 的好处 </li></ul>
    2. 2. Objectives <ul><li>Examine the Traditional Merchant Acquiring business model and its value chain </li></ul><ul><li>Explore the opportunities of “Third party payment license” and how are they possible impact to Merchant Acquiring ecosystem. </li></ul><ul><li>Provide recent development of Payment Network and insight of how are those international scheme organization would do in China Market </li></ul><ul><ul><li>Mobile Payment </li></ul></ul><ul><ul><li>Contactless Payment </li></ul></ul><ul><ul><li>Online secure payment gateway. </li></ul></ul><ul><li>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. </li></ul>
    3. 3. 内容 <ul><li>Traditional Merchant Acquiring process flow and value chain analysis 的好处 </li></ul>
    4. 4. <ul><ul><li>Providing Statement to Merchant </li></ul></ul><ul><ul><li>Analytical data of customer transaction and behavior </li></ul></ul>Value Added Service 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. <ul><ul><li>Sign up and Underwriting the Merchant </li></ul></ul><ul><ul><li>Providing the means to authorize valid card at merchant location </li></ul></ul><ul><ul><li>Clearing and Settlement with Payment Network </li></ul></ul>Basic Service Merchant Acquirer Payment Network Issuer Cardholder Merchant Purchase Transaction flow
    5. 5. -- 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… <ul><li>Insight: </li></ul><ul><ul><li>Merchant Acquiring is the game of volume scale. </li></ul></ul><ul><ul><li>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. </li></ul></ul>
    6. 6. 内容 <ul><li>Explore the opportunities of “Third party payment license” and how are they possible impact to Merchant Acquiring ecosystem. </li></ul><ul><li>好处 </li></ul>
    7. 7. With the research paper from iResearch, the China e-commerce market size expect to grow to 1.9 萬 billion in 2014. <ul><li>Implication </li></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>This means there is a huge emerging market for “Virtual Merchant” in China for a coming decade </li></ul></ul>
    8. 8. 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…. <ul><li>Insight: </li></ul><ul><ul><li>The Chinese government deregulation for payment industry to open for foreign based companies may not be so soon. </li></ul></ul><ul><ul><li>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. </li></ul></ul>
    9. 9. 内容 <ul><li>Provide recent development of Payment Network and insight of how are those international scheme organization would do in China Market </li></ul>
    10. 10. -- 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
    11. 11. -- 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 <ul><li>Paypass POS and paypass enabled credit card and mobile paypass with sticker or in mircoSD </li></ul><ul><li>Rolled out in China but low penetration </li></ul><ul><li>Paywave POS and Paywave enabled card </li></ul><ul><li>Rolled out in China but low penetration </li></ul><ul><li>Mobile Paywave App for smart phone with Paywave chips embedded mircoSD </li></ul><ul><li>Join ISIS network which is JV of US telco </li></ul><ul><li>Digit wallet for incorporating multiple different banding card </li></ul><ul><li>Investment in Square who is providing credit card reader for smart phone </li></ul><ul><li>Leverage with Google Wallet embedded in Android phone for using Paypass POS </li></ul><ul><li>Quckpass POS and QuickPass enabled card </li></ul><ul><li>Rolled out in China but low penetration but high than VISA and Master </li></ul><ul><li>QuickPass support for NFC-SD phone </li></ul><ul><li>Align with China major Telco to rollout the digital wallet </li></ul><ul><li>Align with HTC for NFC SD phone to support QuickPass </li></ul><ul><li>Align with Facebook and FourSquare </li></ul><ul><li>Align with Google </li></ul><ul><li>Signed up MOU with China UnionPay </li></ul><ul><li>Align with large scale retailer eg GAP </li></ul><ul><li>Investment in Square/Cybersource </li></ul><ul><li>Securecode for enhancing security for the online payment </li></ul><ul><li>3D secure for enhancing security for the online payment </li></ul><ul><li>Non card payment via digit wallet </li></ul>Strategic Alliance & Investment Contactless Payment Online secure payment gateway Mobile Payment Product Innovation
    12. 12. -- 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. “ 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” <ul><li>Provide more value added service to Merchant to differentiate from Unionpay, eg </li></ul><ul><li>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. </li></ul><ul><li>America Express has align with FourSquare which is the fastest growth LBS APPs for providing more customized coupon promotion </li></ul>Market Penetration
    13. 13. 内容 <ul><li>Insight of Third Party Payment companies should do in Merchant Acquiring business 的好处 </li></ul>
    14. 14. -- 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
    15. 15. -- 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 ” <ul><li>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 </li></ul><ul><li>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. </li></ul><ul><li>Align directly with VISA/Master to marketing the their MobilePOS </li></ul>A. “99Bills” <ul><li>Adopt the VISA/Master’s Paypass/Paywave technology to </li></ul><ul><ul><li>Improve the customer experience and eliminate the customer security concern </li></ul></ul><ul><li>Leverage with the subsidiary company relationship with Lenovo to incorporate the Paypass/Payass Chips in their product like Lenovo mobile and Lenovo touch pad </li></ul><ul><li>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 </li></ul>
    16. 16. 内容 <ul><li>How the Foreign companies, like First Data catch this chance as entry point in Merchant Acquiring. 的好处 </li></ul>
    17. 17. -- The Foreign processor/Technology company like HP or First Data , should be able to help the 3 rd party payment companies to build a healthy ecosystem <ul><li>HP </li></ul><ul><li>HP has his own the Best Practice Data Center built in China, which just needs to be certificate by China PBOC. </li></ul><ul><li>Partnership with ACI who has Fraud Detection/Merchant acquiring system solution or use the HP his own Merchant Acquiring solution </li></ul><ul><li>With these to form the Alliance/JV into the third payment companies like 拉卡拉 </li></ul><ul><li>Provide the technology infrastructure to help 3 rd payment companies on Data Mining/Transaction security/ Fraud Detection/Loyalty reward. This is to let the 3 rd payment company to focus on relationship building with Merchant and Bank, innovative product document </li></ul><ul><li>First Data </li></ul><ul><li>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. </li></ul><ul><li>First Data is already a PCI compliant processor that can reduce the cost of 3 rd payment company to be comply the PCI standard. </li></ul><ul><li>First Data has other mature industry vertical solution, Eg Prepaid card/ATM and related business consultant to help 3 rd payment company to expand the market/product mix in time to market manner. </li></ul><ul><li>Complied PBOC regulatory requirement </li></ul><ul><li>Data Center and stable and scalable </li></ul><ul><li>transaction processing </li></ul>B. PCI Data Security Compliant C. Provision of Valued Added Service “ Value Proposition” “ Area of Synergy”

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