Entrepreneur bets on palm-sized payment device

By Wang Chao (China Daily)
Updated: 2010-07-27 17:02
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BEIJING -When Sun Taoran wants to pay a bill, he swipes his bank's debit card through a palm-sized machine that looks virtually the same as a POS, or point-of-sale, terminal at any retailer or restaurant.

By keying in a few numbers, the payment is deducted from his bank account and credited to the institution concerned. Nothing unusual, you might think, except that in Sun's case, the machine is not at a bank or a shop, but in his living room.

And the machine will not only pay bills, but can be used to make donations to selected organizations and even settle parking fines.

Sun, the CEO of Lakala Inc, has a vision that in a few years, such a machine, which he calls Lakala, will be in many homes and be available "every 100 steps in the city".

Over the past three years, his company has spent 300 million yuan ($44 million) rolling out Lakalas across China and so far, about 40,000 terminals are in operation in about 200 cities. By the end of this year, another 10,000 Lakalas will be installed, at a cost of another 15 million yuan.

Entrepreneur bets on palm-sized payment device

Sun is among those entrepreneurs who are coveting the huge market of third-party payment in China. Since 2004 when restrictions on financial services were loosened in China, many companies began providing similar payment services. Alipay, an online payment service company in partnership with, China's biggest online retailer, is leading the way. And Sun hopes to cash in on this.

"Lakala has been developed in conjunction with Unionpay (a Chinese interbank network similar to Cirrus), but we have made it 'smarter' by expanding its services to paying multiple bills," Sun said.

He said queuing in banks gave him the idea. "I used to be very frustrated waiting in queues in banks to pay my credit cards and utility bills," Sun said. "If I had this feeling, I guess other customers would, too."

Sun said the Lakala is also simpler to use than paying bills over the Internet. "Customers have to go through complicated processes to do payment online; I want to make it as easy as sliding your card," he said.

In 2004, Sun persuaded Lonovo Holdings to invest $2 million and founded Lakala. Now, the 40,000 terminals are connected to servers in Lakala's head office in Beijing. The company employs about 600 people across the country.

Initially, Sun was not too sure where the Lakalas should be located. So he installed terminals at some convenient stores as an experiment. The result: the number of customers increased by 90 percent after several months and among those who came to use the Lakala to pay their bills, 40 percent bought goods from the stores.

"Supported by these figures, more and more store owners agreed to install Lakala terminals," Sun said. He set three major functions for the machine: paying utility bills, sending remittance, and ordering goods from online shops.

As an offline payment service company, Sun's revenue generally comes from handling fees paid by its business partners, including Unionpay and the banks he's signed up. Government regulations say the handling fee is allocated on a 7:2:1 proportion in which the bank that issues the card gets seven, Unionpay gets two and the third-party payment platform gets one. Even Alipay, the biggest third-party payment platform in China, is still to earn a profit.

"I'm losing 1 to 2 million yuan every month for providing these services," Sun said. But he's not worried. "The good thing about third-party payment industry is that you win by your scale, since a single deal doesn't bring you too much profit."

A recent policy from the government has added to Sun's confidence. On June 21, the central People's Bank of China has introduced a threshold for companies wishing to enter the third-party payment industry nationally, including assets worth at least 100 million yuan. Companies will also need a license. These rules will result in a consolidation of the industry, shutting dodgy operators and forcing some to clean up their act.

"Generally, we are qualified to apply for the license, and our 300 million yuan investment dwarfs many other companies," Sun said.

And Lenovo Holdings is not pushing Sun for any quick return as it knows it is a "long term investment", he said.

At present, 200,000 people are using Lakala terminals for payment transactions every day, and the number is increasing by 300,000 a month.

"If I can get 10 million customers to use it every month, we can begin to earn money," Sun said. "We are going to achieve this goal at the end of this year."

Sun is now aiming to bring the Lakala into homes, aiming to put the machine into 10 million homes by the end of 2012. "If people can pay their bills in their living rooms, why would they bother to go downstairs to find a convenient store?" he said.

"And as each machine will cost only 399 yuan, I believe it's affordable for families, and a decent price to pay for the convenience.

"This year we are trying to conquer 500,000 families."

China Daily