China will have 230 million mobile payment users by the end of this year, generating estimated transactions of 11.37 billion yuan ($1.8 billion), 400 percent up on the previous year, according to a new report. Wu Changing / For China Daily

Volume is expected to increase from 11.37 billion yuan this year to nearly 36 billion in 2012, say observers

BEIJING - Payments by mobile phones in China will see rapid growth over the next few years, boosted by the rising number of smartphone users as more capital and policies are directed toward the industry, a report by Minsheng Securities and iResearch showed.

China is expected to have 230 million mobile payment users by the end of this year, generating estimated transactions of 11.37 billion yuan ($1.8 billion), 400 percent up on the previous year, the report said.

The volume is expected to rise to 35.78 billion yuan in 2012, when there will be approximately 320 million mobile subscribers who do payment by cell phones in China, it added.

China's mobile phone subscribers increased by 81.1 million people year-on-year in the first eight months this year to more than 940 million people, of which, 94.1 million are third-generation (3G) mobile phone users, said the Ministry of Industry and Information Technology on Sept 26.

Mobile payment is also known as Mobile wallet. It is an alternative payment method for cash, check or credit cards and is used to pay for a wide range of services and digital or hard goods using a mobile device.

Mobile payment can be made in two ways in general: remotely via SMS and the Internet, or near field communication (NFC) which is used mostly in paying for purchases made in physical, as opposed to virtual, stores or transport services.

Globally, purchases made via mobile devices will together generate transactions worth $86.1 billion in 2011, iResearch Consulting Group's data showed.

British market researcher Juniper Research said the Far East and China, western Europe and North America will represent more than 70 percent of global mobile money being transferred by 2013.

A plan drafted by the Ministry of Industry and Information Technology expected China's electronic commerce to triple by the end of the country's 12th Five-Year Plan (2011-2015), with mobile payment as a leading sector.

According to a report by Analysys International, support from the telecom operators and financial institutions will be a major impetus for an expanding market in China, while user consistency and more NFC will be the two major growth drivers.

Song Ming, a researcher with the China Mobile Research Institute, said mobile payment is an "inevitable trend" reflecting the development of smartphones and the mobile Internet.

"It is also becoming an arena for telecom, Internet and credit card giants, as mobile payment is renovating the entire payment system," said Song.

There are currently a total of 40 companies with third-party electronic payment licenses (EPL), a permit for a non-financial institution to offer a payment service. None of the three major operators, China Telecom, China Unicom and China Mobile, was awarded an EPL.

Song predicted a number of mergers and acquisitions by the three mobile operators in the near future, as time is needed to obtain approval for a third-party EPL.

According to a report by Shanghai Securities Journal, China Mobile may have already obtained a license indirectly via stake-holding company Union Mobile Pay, which was included in the list of 13 companies granted licenses by the People's Bank of China in the second round of approvals.

The widespread use of smartphones is another reason for the boom of mobile payment.

The number of smartphones being shipped in China will reach 52 million in 2011, with another 50 percent added in 2012, the research note by Minsheng Securities said, citing an iResearch estimate.

Industry information provider IHS said the number is likely to reach 110 million by 2015, and that excludes the millions of iPhone and HTCs smuggled into the country every year.

"When mobile phones become the center of the Internet, or the first choice for users to access online, mobile payment would be logical," Hu Yanping, director of the Data Center of China Internet, was quoted by Phoenix TV as saying.

"The day is near," Hu said.

Mobile devices are already contributing one third of the traffic for some popular online communities such as renren.com and weibo.com, something that was unimaginable a year ago, Hu said, explaining that the mobile Internet is evolving faster than everyone thought it would.

But Hu's optimism is not shared by Tang Bin, chief executive officer of Yeepay.com, a third-party financial service provider.

"The mobile payment concept was introduced to China 12 years ago but, after all these years, there is still much talk but little action," Tang said.

The major obstacles are the banks. They are much too conservative. That presents a challenge to the mobile payment industry because the system needs cooperation between industries in order to work, he said.

Analysys International's report also attributes one of the bottlenecks in the development of mobile payment to "the division of earnings among telecom operators and banks".

Other challenges include "bad user experiences" and "low awareness and doubts about security", the report said.

Sun Jiangtao, executive director of Qiandai.com, another online financial service platform, suggested industry players should install a system for mobile payments into online games to test the water.

"Gamers are mostly young people with an eagerness to try new things," Sun said, citing the boost given to the Internet by online gaming.

"The gaming industry can be a barometer. If the gamers would like to pay with their mobile phones, that means the demand for mobile payment is on," Sun said.