Leping Huang, #1 Technology analyst in the industry, outlines how regulation will affect the evolution of the China payment industry.
In 2016, the People’s Bank of China (PBOC) extended the licenses of 27 third-party payment service providers but narrowed the business scope for several companies at the same time.
We believe current business models will be transformed from pure expansion to providing value-added services or extending the value chain. Examples include Alipay and Tenpay starting to focus on cross-border payment services and strategic cooperation campaigns with payment networks, merchants and payment terminal vendors. For hardware vendors in the downstream of the value chain, market consolidation may have a negative effect on bargaining power, putting greater pricing pressure on them, and pushing vendors to provide value-added services to their hardware selling models.
Additionally, the PBOC’s acknowledgement of the legitimacy of 2D code payment may mean that first movers in the 2D code payment terminals will benefit more. With the regulators’ approval, Alipay and Tenpay expanded their 2D code payment business by leveraging their large user base. 2D payment is now common in various locations and think users’ preference for convenience and speed is the dominant factor in technology replacing other card-based payment technologies.
Overall, our analysts think the marketing consolidation and acknowledgement of new technologies (like 2D code) guided by government regulations will push payment companies to enrich their product offerings and service quality, ultimately creating more benefits for customers.
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