UnionPay Targets Device Makers to Gain Ground in China

May 11, 2016         By: Steven Anderson

It may be a surprise, but UnionPay is not top dog right now in the Chinese mobile payments market, despite being the state-owned clearing network of choice.

With Alibaba and Tencent leading the way—and Tencent recently losing a little ground to Alibaba—it’s difficult for anyone else to break in with these entrenched companies so firmly staking ground.

UnionPay has previously turned to the device makers for help, but will this be enough?

UnionPay is eager to get some of its own back in the field; it lost a reported $22 billion or so in transaction fees to Alipay and Tenpay back in 2015.

With Alipay holding a 48 percent market share, and Tenpay—Tencent’s alternative—holding 20 percent, that leaves a comparatively slim 32 percent of the market left for a host of other firms.

So UnionPay, eager to get in on an 11.8 trillion yuan—roughly $1.816 trillion US—market is turning to mobile device makers like Apple, Samsung, and Huawei, among others, recently bringing in Xiaomi to help.

The good news here is that UnionPay’s work with these vendors has increasingly generated access to near-field communications (NFC) tools, which allow users to essentially swipe a smartphone at the point of sale to complete a transaction.

With Tenpay and Alipay, meanwhile, users have to log in directly. That’s time that users could save, and convenience often has a draw all its own.

However, UnionPay is facing a serious challenge. Alipay and Tenpay’s parent companies have been putting a lot of investment in local services—taxi and food delivery for starters—and that’s made users a lot more interested in putting these tools directly to use. UnionPay, therefore, may find itself aced out in the field.

For UnionPay to say, hey, we’re more convenient, isn’t likely to draw a lot of users who can turn around and say, sure, but so is not changing at all.

UnionPay needs a stronger method to fight inertia, and while convenience is a good start, it won’t be enough by itself.

It needs a clear value proposition to make users throw over the current choice, otherwise the only place it can compete is in that 34 percent band that has neither Alipay nor Tenpay.

This is a tight market, and with rivals firmly entrenched, UnionPay will have its work cut out for it in a bid to get ahead.