Mobile Payment in China —— Concepts, Current Situation and the Future Fang Senior Strategy Analyst Shanghai Pudong Development Bank

Mobile financing is getting popular nowadays in China as wireless network promoted to 3G Mobile Payment: online remote payment onsite contactless payment Mobile Banking: supermarket shopping mall metro utilities payment online shopping The services offered to customers to allow them to access a bank account from mobile phones, i.e., the on-line banking from mobile phones. Major functions: account management, fund transfer and etc. The services offered to customers to allow them to make the payment by mobile phones, either linked to a bank account or not.

Japan ： NTT DoCoMo Osaifu-Keitai – ‘e-wallet’ iD mobile payment platform DCMX – consumer loans Korea: SK Telecom MONETA – mobile credit card Philippines: SMART Smart money – online payment & money transfer Kenya: Safaricom M-PESA – money transfer While many Best Practices in the World ……

Mobile Payment in China is only at the beginning Mobile Payment Solutions Advantages Disadvantages Intelligent SD card iSIM SIMPASS NFC mobile phones RF-SIM card: ‘e-wallet’ with no bank accounts linked Just need to change a SIM card, easy to promote Not compatible with PBOC2.0 standard, need to put new POS machines Need to install an antenna or change a mobile phone for onsite contactless payment A financial IC card is embedded, compatible with PBOC2.0 standard, can leverage current POS machines with update Strategic Alliance: China Mobile & SPD Bank, China Unicom & China Industrial Bank

Several Issues need to be addressed …… 1 st Issue: Technical Standards 2.4G frequency The ‘e-wallet’ developed by China Mobile applies 2.4G standard. 2.4G standard is not compatible with the current standards applied in financial and metro areas. The technology maturity needs to be further tested. If apply 2.4G standard to mobile onsite payment, the signal is quite strong and customer just needs to change a SIM card. Need to put new POS machines other than update the current POS machines for bank cards. 2.4G frequency The ‘e-wallet’ developed by China Mobile applies 2.4G standard. 2.4G standard is not compatible with the current standards applied in financial and metro areas. The technology maturity needs to be further tested. If apply 2.4G standard to mobile onsite payment, the signal is quite strong and customer just needs to change a SIM card. Need to put new POS machines other than update the current POS machines for bank cards M frequency 13.56M standard is quite mature internationally. In China, PBOC2.0(the standard for 2 nd generation of financial IC card) is 13.56M. If apply 13.56M standard to mobile onsite payment, the signal is not quite strong, hence an antenna is required. China Union Pay prefers 13.56M standard since it is compatible with PBOC M frequency 13.56M standard is quite mature internationally. In China, PBOC2.0(the standard for 2 nd generation of financial IC card) is 13.56M. If apply 13.56M standard to mobile onsite payment, the signal is not quite strong, hence an antenna is required. China Union Pay prefers 13.56M standard since it is compatible with PBOC2.0. Neither party takes leading role so far

2 nd Issue: Business Model wireless operator involvement bank involvement High Low There is no answer for the best model operator-lead customer->operator->merchants bank accounts service bank-lead customer->bank->merchants wireless service 3 rd party-lead customer->3 rd party->merchants accounts & wireless service cooperative model customer-> ->merchants bank operator

3 rd Issue: Customer experience & Consumption environment  89.1% internet users ever heard of mobile banking, but only 33.2% used it.  Customers are getting used to swipe bank cards for onsite payment.  Signed merchants & compatible POS machines are far from enough.  Need to promote to more business & applications.  Different mobile phones make customer experience different.  Security & Regulatory issues.

We are optimistic about the prospects for mobile payment in China Huge potential customer base: Mobile phone is more popular than computer in China. Almost 0.8 billion mobile subscribers, 0.23 billion of them are using mobile internet. Number of 3G subscribers doubles each 5 month. Convenience of mobile financing: Anywhere 、 anytime services: reach financial services with less restrictions Accelerating financial inclusion: provide low-cost financial services in rural areas Banks and operators are realizing the importance of cooperation: Banks control the customer accounts 、 clearance/settlement channel 、 POS machines; Wireless operators control the SIM card 、 mobile phones 、 wireless network. Both parties are irreplaceable.

End of branch? Branches are everywhere! market campaigns, loyalty programs, e-coupons remote payment, e-wallet, e-debit card, e-credit card bill payment onsite small amount contactless payment onsite large amount contactless payment transaction and payment among users, e-business What matters is not the physical shape of the branches but who controls the customer accounts

Thank you!