China's big three telecom carriers might have been among the first companies to get licenses to run mobile payment services, but they have since fallen to the back of the pack. Alibaba Group Holding's Alipay and Tencent Holdings' WeChat Wallet now control the vast majority of China's immense mobile payment market. Nevertheless, the telecoms have not given up. With mobile users sending fewer text messages, the carriers see the need to develop new businesses - especially mobile payments. A China Telecom executive believes the company has an opportunity to leap over the market's current leaders by getting in early on the next generation of mobile payment technologies. However, analysts and insiders believe that the carriers' rigid management systems will make the road to mobile payment leadership a long and bumpy one.
They say that it's the early bird that gets the worm, but the old adage hasn't been true for China's telecoms in their battle to capture the country's rapidly expanding mobile payments market.
China's three major telecom carriers each obtained license to get into the mobile payment business in 2011, the same year that Alibaba Group Holding got licensed for its popular Alipay service, and a year before other Internet companies like JD.com Inc received the license.
Although the carriers got in early and have released numerous products based on their payment services over the years, they have failed to get more than a toehold on the market.
China Telecom, the country's third-largest carrier by subscribers, appears to have been the most active one among its peers in developing its mobile payment business.
In 2011, it established a company, China Telecom Bestpay Co, to run its mobile payment business, Bestpay, which handled 770 billion yuan ($116 billion) in transactions in 2015, according to media reports.
China Mobile's payment service followed closely behind with 600 billion yuan in transactions in 2015, with China Unicom's payment service coming in a distant third with 100 billion yuan in transactions.
As an amount of money, 770 billion yuan might sound impressive, but it is next to nothing compared with the size of China's mobile payment market.
Alipay handled 72.9 percent of the 9.31 trillion yuan in mobile payments transacted in the country in 2015, according to data from BigData-Research. Tencent Holdings' WeChat Wallet was a distant second with 17.4 percent of the market, which still amounts to well above 1 trillion yuan in transactions. JD.com also made it into the top 10 with 0.5 percent of the market. However, none of the telecom giants broke the top 10.
High hopes
It's pretty clear that Alipay and Tencent dominate China's mobile payment market, but China Telecom Bestpay General Manager Gao Hongliang sees a chance coming.
Mobile payments made via quick response codes (QR codes) have been rapidly replacing cash thanks to the success of Alipay and WeChat Wallet, and China Telecom Bestpay is well-positioned to exploit the trend.
"We expect to overtake them once the next generation of payment technologies replaces QR codes," Gao told the financial magazine Caixin Weekly on August 12.
"Over the next two decades, biometrics will become the mainstream method for mobile payment processing."
China Telecom Bestpay has established an innovation center to explore new mobile payment technologies. China Mobile and China Unicom also plan to invest heavily in their own mobile payment businesses.
China Unicom has redirected much of its resources to mobile payments, said Li Weibing, deputy general manager with China Unicom's payment service. He predicted the service would take a great step forward in 2017.
China Mobile, the country's largest carrier, is banking on near-field communication (NFC) technology to capture a larger piece of China's mobile payment market. NFC allows users to make payments without needing a sales clerk to scan their mobile phones. Some see NFC payment systems as more convenient, though they do require users to have NFC-enabled smart phones and vendors to have NFC-ready point-of-sale terminals.
China Mobile plans to continue pushing sales of NFC-enabled smartphones at its stores and hopes to have 10 million users for its mobile payment service by the end of 2016. The target is up from 6 million users in 2014.
No choice but to change
The telecoms see the need to transform their businesses as smartphone apps have supplanted their traditional services such as voice calls and text messages.
In 2015, the number of text messages sent in China fell 8.4 percent to 699.18 billion, according to a report issued by the Ministry of Industry and Information Technology in January.
Internet finance is another area of interest for the carriers. China Unicom and China Telecom began selling monetary fund products in 2014. According to Caixin's report in May, China Mobile plans to invest 2 billion yuan in two insurance companies under China Merchants Group.
New businesses such as mobile payments and wealth management might not end up as a windfall for the telecoms, an unnamed industry insider was quoted by Caixin as saying, but they might help them build up customer loyalty.
The telecoms' efforts in Internet finance seem like they are just following the path of China's Internet giants - Baidu Inc, Alibaba and Tencent, which got ahead by amassing huge pools of users with free Internet finance services that they could monetize later, the insider said.
Core concerns
However, some people wonder whether the telecoms have the expertise to move into new businesses such as mobile payments.
How much can a payment service contribute to their core business? This is the question the carriers' employees ask the most, Caixin reported, citing an unnamed source close to the telecoms.
Some branch offices of the major carriers have balked at promoting their companies' mobile payment services because they see the marketing a large cost that will not immediately bring in new users, the source said.
By contrast, WeChat Wallet and Alipay routinely hold promotions to attract users. A WeChat Wallet promotion on August 8 enabled its users to save 978.86 yuan per purchase at 700,000 stores around the country, according to media reports. The event attracted more than 100 million consumers.
None of China's telecoms could put together a promotion with so many stores - nor do they have the ability to spend so much money to build up their user bases, the source said.
Gao said that Bestpay is currently seeking capital from strategic investors and also plans to adopt an equity incentive program to attract talents.
Analysts said that such moves may help make the telecoms' management more efficient, but it's hard to say how soon it will happen.
