china mobile payment and cybersecurity november … · metro commute , to access to a ... defining...

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November14,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Chinaisthelargestmobilepaymentsmarketintheworld,andaverydynamicone,too.MobilecybersecurityhasbecomeasignificantissueforChineseconsumers,andthehackingofpersonaldataandInternetscamshaveresultedinsignificantfinanciallosses.Inthisreport,weshow:

1) HowmobilepaymentshavebecomeubiquitousinthedailylivesofChineseurbanconsumers.Itprovidesanupdate—usingthemostrecentfigures—onthesizeofthemobilepaymentmarketinChinaaswellasthecompetitiveenvironment.

2) HowthemobilepaymentmarketinChina—dominatedbytwoplatforms,AlipayandTenPay—hasgrownatdouble-digitfiguresandisalmost50timeslargerthanthatoftheUS.

3) ThefinancialimpactofmobilecybersecuritythreatsinChinaandhowsignificantitcanbe.In2016,theaveragelosspervictimincurredfromonlinefraudbyusersreportingcybercrimestotheBeijingPublicSecurityBureauwas¥9,471($1,426).

Cybersecurity and the China Mobile Payment

Market: The Risk to Chinese Consumers Is

Great

Deborah Weinswig

Managing Director,

FGRT

deborahweinswig@fung1937.com

US: 646.839.7017

HK: 852.6119.1779

CN: 86.186.1420.3016

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November14,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

IntroductionMobilepaymentshavebecomeubiquitousinthedailylivesofChineseurbanconsumers.ShopperspayforeverydaysmallexpendituresbyscanningQRcodesatpoint-of-saleterminalswiththeirsmartphones—buyinganythingfrombreakfastatthelocalcoffeeshoporticketsfortheirmetrocommute,toaccesstoabike-sharingschemeorfooddeliveryfordinner.EvenstreetvendorssellingeverythingfromdumplingstomobilephonecoversuseQRcodestoreceivepayment.

However,thepopularityofmobilepaymentsenablestheproliferationofcybersecuritythreats,asthehackingofpersonaldatahasbecomeveryappealingforcybercriminalslookingatgettingtheirhandsonusers’financialdetails.

ThisreportprovidesabriefupdateonthemobilepaymentmarketinChina,withthelatestdataavailablefromspecialistmarketresearchfirmsAnalysysandiResearch.WefirstexaminedChina’smobilepaymentmarketinourreportinNovemberlastyearMobilePaymentsinChina,andsincethen,themarkethascontinuedtogrowsignificantly.

Wealsoconsidertheimplicationsofmobilecybersecurity,whichhasbecomeasignificantconcerninChina,giventhewidespreaduseofmobilephonestonavigatetheInternetandasapaymenttoolforeverydaytransactions.

DefiningMobilePaymentsandE-WalletsWedefinemobilepaymentsinthisreportandinourpreviousreportMobilePaymentsinChinaaspaymentprocessesperformedviamobiledevicesthateliminatetheneedforaphysicalcreditcardpaymentinfrastructure.ThetwomostcommonlyusedmobilepaymenttechnologiesinChinaare:near-fieldcommunication(NFC)andQRcodes.

Mobilepayments:PopularpaymentservicesthatrelyonNFCtechnologyincludePayPal,ApplePay,HuaweiPayandSamsungPay.QR-basedpaymentservicesincludeWeChatPay,AlipayandBaiduWallet.TopayforanitemthathasaQRcode,thecustomerscansabarcodethatcontainsinformation—suchasawebpagewithproductororderinformationprovidedbythevendor1`—andisthenredirectedtoapaymentpageinthephone’sbrowsertocompletethetransaction.

E-wallets:E-wallets(alsoknownasmobilewalletsordigitalwallets)areusedtoinitiatemobilepayments,andmaybesupportedbyeitherNFCorQRtechnology.Ane-walletenablesuserstostoretheircreditcardinformation,suchasnumber,andexpirationdate,inamobileappinsteadofhavingtouseaplasticcardwithachipormagneticstripe.Userscanthenmakepurchasesthroughtheapp.E-walletsareconsideredmoreconvenient,astheyprovideabetteruserinterfaceandcanstorecouponsandloyaltycardinformation.

MobilepaymentshavebecomeubiquitousinthedailylivesofChineseurbanconsumers.

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November14,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Source:iStockphoto

China,theWorld’sLeadingMobilePaymentMarketChinaisalargeanddynamicmarketformobilepayments.Inits3Q2016(latest)QuarterlyMonitoringReportonChina’sMobilePaymentMarket,marketresearchfirmAnalysysshowsthatthird-partymobilepayments—paymentsbetweenabuyerandasellerprocessedthroughathirdpartythatactsasanintermediary,suchasAlipayorTenpay—inChinagrewby106%yearonyeartoreach¥90.4trillion($13.6trillion).Figure1showsthesizeofthemobilepaymentmarketinChinain3Q2016versus3Q2015.

Figure1.TransactionSizeinThirdPartyMobilePaymentMarket(¥Trillion)

Source:Analysys.cn

Infact,Chinaisthelargestmarketintheworldformobilepayments,accordingtomarketresearchfirmiResearch.ItsdatashowthatthemobilepaymentmarketinChinareached$5.5trillionin2016,anincreaseofmorethan175%yearoveryear,anditexpectsthemarkettoreach$8.0trillionin2017.Bycomparison,marketresearchfirmForresterResearchestimates

43.9

90.4

3Q2015 3Q2016

Chinaisalargeanddynamicmarketformobilepayments.

Chinaistheworld’slargestmarketformobilepayments.

4

November14,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

theUSmarketformobilepaymentswas$112billionin2016,amere2%ofChina’smarket.

InourreportlastNovemberMobilePaymentsinChina,weidentifiedthemaindriversofmobilepaymentadoptionintheChinesemarket:

• UbiquityofmobileInternet:Fully95%ofChineseInternetusersaccessedtheInternetviatheirmobilephonesin2016,accordingtotheChinaInternetNetworkInformationCentre(CNNIC),theadministrativeagencyresponsibleforInternetaffairsundertheMinistryofInformationIndustryofthePeople’sRepublicofChina.

• Consumerpreferences:E-walletsareverypopularamongChineseconsumersinurbanareaswithastrongomnichannelretailpresence.Atthesametime,Chinahasaweakcreditcardculturethatfavorstheadoptionofalternativeelectronicpaymentsolutions(suchasmobilepayments),whichareconsideredsaferandmoreconvenient.

• Infrastructure:Themobile-phoneindustryandNFCterminals—thetechnologyusedmosttoprocessmobilepayments—arerelativelysophisticatedinChina,resultinginamobilepaymentinfrastructurethatismoreadvancedcomparedtoothercountries.

• Merchantadoption:MostretailersinChinaoffermobilepaymentoptions,fromlargeinternationalchainssuchasStarbuckstosmallindependents,suchasstreetvendors.Retailers’adoptionofmobilepayment,whichisinresponsetoconsumers’preferenceforthistypeofelectronicpaymentsolution,fuelsavirtuouscirclethatcontributestothefurtherpenetrationofmobilepayment.

Mobilepaymentpenetrationhasmovedbeyondretailing.Forexample,UnionPayisworkingwithGuangzhouMetrotoenablepublictransportusersinthecitytopayfareswithQuickPass,aUnionPaymobilepaymentapp.

UnionPayisoneofthemanyplayerswithinthemobilepaymentindustryinChina,whichremainsdominatedbyAlibaba’sAlipayandTencent’sTenpay.

Alipaybenefitsfromitsfirst-moveradvantage—itwastheappthatpioneeredmobilepaymentsinChinawhenitwasintroducedin2004asaservicetofacilitatetransactionsonAlibaba’sonlinemarketplaceTaobao.

Tencent,ontheotherhand,capitalizesonthewidespreaduseamongChineseconsumersofWeChat—theTencent-ownedmessagingappthatembedsTenpay—thecountry’sdominantmessagingapp.

Combined,AlipayandTenpaymakeup88.5%oftheChinesemobilepaymentmarket,asof3Q2016(latest),accordingtoAnalysys.Figure2summarizesthecompetitiveenvironmentofChina’smobilepaymentmarket.

AlipayandTenpaymakeup88.5%oftheChinesemobilepaymentmarket.

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November14,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Figure2.MobilePaymentMarketinChina,MarketSharein3Q2016

Source:Analysys.cn/FGRT

SmartphonestheMainTargetofCybersecurityThreatsThepopularityofsmartphonesinChinahasencourageddevelopersofcybersecuritythreatstofocusonmalwareprogramsthatattackmobiledevices.

Withsomanypeopleusingelectronicwalletsontheirsmartphonesforeverydaypayments,mobiledeviceshavebecomealeadingtargetforhackersseekingtogetdatasuchaspaymenttransferdetailsandpasswords,accordingtotheCybersecurityAssociationofChina.

Paymenttrapsanduser-privacyviolationswerethetopcybersecuritythreatin2016,with88.3%and76.0%,respectively,ofmobileInternetusersaffectedduringtheyear,accordingtotheInternetSocietyofChina.

Androidusersaremoreexposedtomobilesecuritytreatssincetheyturntothird-partyproviderstodownloadapps.In2016,morethan2millionmalwareprogramstargetingmobiledevicesweredetected,accordingtotheInternetSocietyofChina.Ofthese,99.9%targetedAndroiddevices.

SmartphoneusersinChinaare,therefore,largelyexposedtocybersecuritythreats,consideringthat87%ofChineseconsumersin1Q2017(latest)useAndroidsmartphones,accordingtomarketresearchfirmKantarWorldpanel.

ThefinancialimpactofcybersecuritythreatsonInternetusersinChinacanbesignificant.AnideaofthepotentialfinanciallossthatcouldbeincurredbythevictimsofcyberthreatsisgiveninareportpublishedbytheBeijingPublicSecurityBureau,adepartmentoftheBeijingmunicipalgovernmentresponsibleforpublicsecurity.Accordingtothereport,therewere20,623reportsofonlinefraudonthedepartment’scybersecurityplatformin2016,withatotallossof¥195million($29.3million)andanaveragelosspervictimfromonlinefraudof¥9,471($1,426).

Inresponsetotheriseofmobilecybersecuritythreats,theChinesegovernmentadoptedtheCybersecurityLawinNovember2016,whichwentintoeffectonJune1,2017.Thelegislationcontainscybersecurity

3.4%

1.1%

1.2%

1.2%

1.2%

3.3%

38.1%

50.4%

Others

UnionPay

UnionMobilePay

PingAnPay

Lianlianpay

Lakala

TenPay

Alipay

ThepopularityofsmartphonesinChinahasencourageddevelopersofcybersecuritythreatstofocusonmalwareprogramsthatattackmobiledevices.

ThefinancialimpactofcybersecuritythreatsonInternetusersinChinacanbesignificant.

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November14,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

requirementssuchasmeasuresaimedattheprotectionofpersonaldataandindividualprivacythatorganizationshandlingdatamustcomplywith.

Mobile-phonemanufacturersandconsumersmustalsoplaytheirpartinreducingtheriskofcybersecurity,accordingtotheCybersecurityAssociationofChina.Smartphoneproducersneedtoimprovethedefensesontheirdevices,whileindividualusersshouldtakecarenottoleavetoomuchpersonalinformationonlineandshouldbecautiouswhenselectingthethird-partyproviderstheydownloadtheirappsfrom.

KeyTakeawaysChinaisthelargestmobilepaymentmarketintheworldandaverydynamicone.Mobilecybersecurity,whichhasbecomeasignificantissueforChineseconsumers,hasthepotentialtoresultinsignificantfinanciallosses,duetothehackingofpersonaldataandInternetscams:

• Third-partymobilepaymentsinChinagrewby106%yearonyeartoreach¥90.4trillion($13.6trillion)in3Q2016(latest),accordingtoAnalysys.

• TheChinesemobilepaymentmarketreached$5.5trillionin2016,accordingtoiResearch.Thatisalmost50timeslargerthanthemobilepaymentmarketintheUS.

• Combined,AlipayandTenpaymakeup88.5%ofChina’smobilepaymentmarketin3Q2016(latest),accordingtoAnalysys.

• In2016,88%and76%ofmobileInternetuserswerevictimsofpaymenttrapsanduserprivacyviolations,respectively,accordingtotheInternetSocietyofChina.

• TheaveragelosspervictimincurredfromonlinefraudbyusersreportingcybercrimestotheBeijingPublicSecurityBureauwas¥9,471($1,426)in2016.

• AsothercountriesfollowChinainadoptingmobilepayments,legislators,businessesandconsumerswillneedtobeawareofthesecurityrisks.

Chinaisthelargestmobilepaymentmarketgloballyandaverydynamicone.Mobilecybersecurityhasbecomeasignificantissue.

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November14,2017

DeborahWeinswig,ManagingDirector,FGRTdeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

DeborahWeinswig,CPAManagingDirectorFGRTNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comFilippoBattainiResearchAssociate

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