Money from thin air

China Mobile and UnionPay team up to develop mobile payment systems.


13 Jul 2012
Week in China

In the British Museum there is an oblong gold coin stamped with the image of a lion and a bull. As the museum’s director Neil MacGregor points out, the coin’s significance goes far beyond its metallic value. “It is the world’s first reliable currency,” he says.

The coin was minted in the ancient kingdom of Lydia (today’s western Turkey) around 550BC. Around that time the Lydians sparked the world’s first monetary revolution when they figured out how to make gold coins (removing silver and other impurities). Moreover in a further innovation they stamped them, with the Lydian state guaranteeing their weight and purity. Trust in the new currency quickly developed and the results were profound. From the great trading capital of Sardis, the Lydian coinage soon spread far and wide, being used well beyond its borders. The king who oversaw the project is still remembered through the expression: “rich as Croesus”.

In China a new monetary revolution is just getting started. And two of the nation’s heavyweights are teaming up to dominate it. This will likely see coins and banknotes become things of the past as consumers instead use mobile phones to buy, say, a cup of coffee. The firms that have their eyes on the ‘mobile money’ market are China Mobile and China UnionPay.

Initially, the pair sought to compete, creating separate technologies and thus slowing uptake of the service. But after frustrating each other’s designs, the two companies have now agreed to work together, reports technology web magazine, ZDNet.

It is not hard to see why the two companies have decided to join forces. China Mobile provides the largest mobile phone network, while UnionPay dominates the payments field ...

Part of this cooperation will involve integrating bank details into a SIM card to allow subscribers to pay bills and shop online via their phones. The two will also develop a communication technology which allows smartphones to make radio contact with nearby devices to make payments. There are plans to integrate China UnionPay’s contactless payment service, Quick-Pass, into China Mobile’s mobile wallet services.

It is not hard to see why the two companies have decided to join forces. China Mobile provides the largest mobile phone network, while UnionPay dominates the payments field, facilitating the movement of money whenever someone pays for something in China with a credit card or bank card (see WiC43 for more on UnionPay).

In 2011, a total of Rmb74.2 billion ($11.6 billion) worth of transactions were completed by mobile payments, according to Analysys. But usage is expected to rocket to Rmb385 billion in value by 2014.

The marriage between mobile payments and telecoms companies is causing problems in other countries. In the UK, four mobile operators are getting ready to launch a standardised mobile payment platform that can be used by retailers, banks and other financial companies. But rivals are complaining that the scheme, named Project Oscar, will give its owners monopoly control over the nascent industry, reports the Financial Times. One of the companies objecting to the project is Hutchison Whampoa’s Three, the UK’s fourth largest network, owned by Hong Kong’s Li Ka-Shing.

A similar situation could well occur in China. The first standard to be widely accepted will have a huge advantage over future competitors. China Mobile and UnionPay look now to be in an unassailable position. Around 67% of all mobile phone users in China use China Mobile – that’s 673 million subscribers.

So as China stands on the cusp of a cashless society, UnionPay and China Mobile look set to be the greatest beneficiaries. Perhaps they should call their new venture Project Croesus …

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