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Finance and Economics –Unavoidable Reshuffle of Payment Industry in 2014 Small Companies Intending to Sell License and Quit –Reapal

Grabbing red envelopes, taking taxi with cell phone payment software to enjoy the allowance, swiping card on Lakala at a “7-11” CVS downstairs to pay the water and electricity fees, buying movie tickets on, having a look at the interests of the money deposited in different third-party payment platforms…Behind such lives gradually accepted by people is third-party payment.


At present, the hottest industry is the monetary fund industry. Although the 7-day annualized yields of different third-party payment platforms kept decreasing to lower than 6% since March 2014, more users still chose to transfer their money from bank accounts to monetary fund of payment products, and users of just Yu E Bao exceeded 81,000,000.


However, the industry supervision and restrictions were intensified suddenly when different payments were expecting a promising future. On March 14, People’s Bank of China halted Alipay and virtual credit card products of Tencent and bar code (two-dimension code) payment and other face-to-face payment services. Influenced by this, share price of Tencent (0700.HK) decreased by 4.08% on the same day.


According to an insider of this industry, People’s Bank of China issued the Management Methods of Internet Payment Business Management of Payment Organization, draft for advice, involves amount limits of transfer and consumption of personal payment accounts, to third-party payment enterprises. This would be nothing else but an ace in the hole that may completely prevent third-party payment from developing and expanding. However, this insider also thought that such draft for advice had not been finalized and may not be passed because of the rigorous limits.。


Previously, there was an insider disclosed, wheninterviewed by a journalist of Talents,that: strengthened supervision of third-party payment risks by People’s Bank ofChina has been determined substantially because of the high frequency ofcashing cases committed by making use of bugs in pre-authorization rules ofcredit cards.


Besides the strengthened supervision, the “winner-take-all” of third-party payment industry has been formed. According to statistics of Analysis, in the fourth quarter of 2013, Alipay, China UnionPay Online Payment (UPOP) and Tenpay were the top 3 Internet payment platforms accounting for 39.8%, 30.7% and 15.3% market shares respectively, and the total market share was as high as 85.8%.


This shows that 2014 will be very hard for most other payment companies in the market, and reshuffle is unavoidable.  


The fight of interests


The halt of virtual credit card and two-dimension code payment appealed by People’s Bank of China was a wet blanket on a fire for off-line payment links. As a consequence of halt of the above businesses, all the O2O businesses on the WeChat platform, such as Didi Dache, as well as the Kuaidi Dache and other businesses of Alipay would be influenced.


However, Tang Bin, CEO,Yeepay, told Talents that future payment would be to guide users to turn to consumption transaction-oriented transfer and remittance from price-oriented transfer and remittance. Integration of online and offline payment had been the core breakthrough within payment field.


Actually, no matter UnionPay, the leading enterprise in the market, or any other payment with certain market share is accelerating the integration of online and offline resources, and fights between the three tycoons of payment industry originates from this.


According to some analysts, the tightening policy and intensified supervision was targeted at protection of interest of UnionPay. According to reports of Hong Kong media: in the traditional line acquiring business model, card issuers, acquirers, according to 7:2:1 CUP way into; while acquiring on-line mode, only the issuing bank and credit card fees acquirer, CUP completely sidelined. The two-dimensional code and other payment methods essentially do the acquiring business with online and offline mode is greatly harming the interests of the UnionPay.


The halt may be expedient, and an insider of the industry analyzed and concluded that UnionPay would make use of this break to accelerate the development of the docking platform, and strengthen its cooperation with payment suppliers of ChinaPNR and 99Bill to attract third-party payment enterprise to join its docking platform. The current status is: it is harder and harder for enterprise to seek for breakthroughs, and small and medium-sized payment enterprises are weak no matter they choose to face with “incorporation” policy of UnionPay or cooperation with UnionPay in expanding the market, and their market shares may be encroached on gradually.


Li Zhi, chief analyst of Enfodesk, was pessimistic about the future of small payment enterprises, and he disclosed to a journalist of Talents that “the effect of centralization of this market was very high, and except leaders of this industry, other enterprises may not be optimistic about their market share, though they may have certain opportunities in regional and vertical market segment.””


He pointed out being acquired or strategicallymergered may be a “resolution” in this situation.


At the end of November 2013, ChinaPNR acquired Shanghai Huateng Data Service Co., Ltd. and Shanghai Huateng Intelligent System Co., Ltd. and entered prepaid card industry, and on February 20, YeePay Payment announced that it acquired Shanghai All these actions are considered as the start of integration of this industry.


Selling License and Quitting  


Monopolization, easy availability of license resources, and tightening policy are the three sharp swords hanging over the entire industry.


According to data of Analysys, market shares of top eight third-party payment enterprises (Alipay, Tenpay, UnionPay, 99Bill, ChinaPNR, E-UnionPay, YeePay and IPS) account for 97.5%.


Compared with data of 2012, the industrial concentration ratio was enhanced again, and time to reshuffle of this industry was shortened. Up to now, People’s Bank of China has granted 250 third-party payment licenses, and 90 among which were Internet payment license. It was reported that a new round of payment license release windows would be started after the NPC and CPPCC. This means that payment license is not rare any more.


Easy availability of licenses does not connote deregulation. According reports of several media that in January 2014, People’s Bank of China once convened meetings of different banks and proposed that risk control would be strengthened and several third-party payment enterprises may be removed based on supply of convenience of users in terms of supervision on third-party payment enterprises.


This is another disaster for small payment enterprises. If they have no other supporting business, what they can do is to increase investment to race to occupy more market and may be trapped in vicious cycles.  


A cooperator of a third-party payment company in Shanghai disclosed to a journalist of Talents that “competition of Internet payment is so fierce and internet payment industry depends on volume of businesses that late comers and enterprises without enough innovation abilities will be challenged by shrinking profit margin due to the price war.””


In September 2013, an internet payment enterprise, having obtained the internet payment license for only 8 months, intended to transfer its 100% stock rights and the offer was RMB 40 million. Recently, another four third-party payment enterprises transferred their whole licenses, 3 of which engaged in issuing and handling prepaid cards, and the rest 1 engaged in issuing and handling prepaid cards and internet payment. They had obtained their license for only about 2-3 years and their offerings were about RMB 50 million.


An insider involved in earliest payment license application and declaration told a journalist of Talents that “except for registered capital and investment for building teams, constructing business systems and expanding businesses, large amount of money has been investing in maintaining the operation, but this is not so expensive for enterprises other than shell companies.””