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January 25, 2010updated 04 Apr 2017 4:17pm

A decade of remarkable progress

Electronic payment in China has come of age over the past decade, with huge strides made in the large value and retail payments sectors Much credit goes to China UnionPay which has revolutionised inter-bank payments and facilitated a spectacular increase in the use of cards in the consumer market. Chinas economic growth sparked by economic reforms initiated two years after the death of Communist Party leader Mao Zedong in 1976 has astounded the world.

By EPI editorial

Electronic payment in China has come of age over the past decade, with huge strides made in the large value and retail payments sectors. Much credit goes to China UnionPay which has revolutionised inter-bank payments and facilitated a spectacular increase in the use of cards in the consumer market.


China’s economic growth – sparked by economic reforms initiated two years after the death of Communist Party leader Mao Zedong in 1976 – has astounded the world.

The US-based Foreign Policy Research Institute notes that China’s economy is 10 times larger today than it was in 1978. In the process, China has risen from being the world’s 11th-largest economy in 1980 to become the third-largest in 2008, lagging just behind the US and Japan .

Despite its impressive economic showing, China in many respects remains a developing economy and one in which building an electronic payments system is still a work in progress.

Work on building China’s electronic payments infrastructure began in 1991 under an initiative driven by development organisation the World Bank with the establishment of a group comprising the central banks of Germany, Japan, Switzerland, the US and the UK to advise China’s central bank, the People’s Bank of China (PBC).

china transactionProgress was slow and it was only in 1995 that a consortium headed by Japanese IT company NTT DATA Corporation was tasked to undertake computerisation of clearing and settlement processing between banks. Again, delays persisted and it was not until July 2001 that the National Electronic Interbank System (NEIS) was completed.

In addition to NEIS, China’s four major commercial banks – Industry and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), Bank of China (BoC) and China Construction Bank (CCB) – each established their own intra-bank payment systems which became operational in late-1996. About two-thirds of all non-local payments volumes are cleared by the four banks’ systems.


The local clearing house system (LCHS) forms another key component of China’s payment infrastructure, comprising 2,300 local clearing houses, most of which are owned and managed by the PBC though a few are jointly owned by participants. LCHS is responsible for all local paper-based transactions, including cheques.

Continued progress

The next phase of the development of China’s electronic payments system, spearheaded by the PBC, began in October 2002 with the start of testing for the large value system – the China National Advanced Payment System (CNAPS) – provided by US data management software and services company, Sybase.

The CNAPS system has three components:

• The High-Value Payment System, a real-time gross settlement system used for transactions of CNY500,000 ($75,000) or more and for emergency credit transactions;

• The Bulk-Entry Payment System for small-value transactions (under CNY500,000) with daily netting night batch processing; and

• The Settlement Account Processing System for common operations related to settlement accounts, including receipt and payment of money, settlement of LCHS transactions and management of overdraft limits.

China payment cards

The PBC has continued to build on the foundations laid, with refinements such as the national cheque imaging exchange system completed in June 2007. Also completed that year was a payment management information system enabling real-time monitoring of the payment processing system and an identity information network system which, in co-operation with the Ministry of Public Security, enables banks to verify client identity online.

Rapid progress is also evident in the growth in electronic payments. According to the PBC, in 2008 there were a total of 18.3 billion non-cash transactions – 18.8 percent more than in 2007 and two-thirds more than there were in 2006.

The combined value of transactions processed by all payments systems in 2008 was CNY1,074 trillion, up 26.2 percent compared with 2007 and equal to 34.6 times China’s GDP. Of the total, the PBC’s payment and clearing system handled about CNY640 trillion in transactions.

Rise of the payment card

Within China’s non-cash retail payments arena the big growth story has been payment cards, which have seen soaring growth in numbers and usage in recent years. However, while the card boom is a recent phenomenon, payment cards have a long history in China.

The first credit cards date back to 1979, when Bank of China (BoC) began issuing credit cards as an agent for foreign banks such as HSBC and Chase Manhattan. BoC’s first credit card, the Great Wall Card, was issued in 1985.

The number of payment cards – primarily debit cards – grew steadily, reaching 277 million by the end of 2000. Use of cards was, however, limited by an inadequate acceptance infrastructure with, according to the PBC, only 38,000 ATMs and 290,000 electronic POS terminals in use in China at the end of 2000.

Indicative of the poor penetration of electronic payments in 2000, there were only 29 ATMs per million people and 224 electronic POS terminals per million people. This compares with the Eurozone, where there are about 920 ATMs per million people and 18,000 electronic POS terminals per million people.

Another obstacle in the development of card payments in China was been the lack of a unified national inter-bank switching network. Efforts in this regard dating back to the early 1990s proved fruitless.

The major turning point for China’s payment card market and acceptance infrastructure came in March 2002 with the establishment of China UnionPay (CUP) under the approval of the State Council and the PBC. China’s only card association, Shanghai-headquartered CUP today has about 300 domestic and overseas associate members.

Among CUPs primary objectives was the establishment of an inter-bank transaction settlement system through which the connection and switch between banking systems and inter-bank, cross-region and cross-border use of bank cards issued by associate banks could be achieved.

china networked ATM

Indicative of CUP’s significance in the development of China’s electronic payment infrastructure, the association’s establishment was selected by the Chinese Academy of Social Sciences as one of the 50 most important events in China’s financial reform since 1978.

Remarkable progress

The advent of CUP brought with it remarkable progress in China’s card and related infrastructure market, as well as a huge increase in consumer use of cards.

In terms of the number of cards in issue, growth during the CUP-era has actually been lower than it had been in preceding years. Specifically, between 1996 and 2001 the number of cards, both credit and debit, increased at a CAGR of 55.6 percent. The pace of growth slackened to a CAGR of 24.8 percent between 2001 and 2008, from 383 million to 1.8 billion. Penetration of cards stood at 1.36 cards per capita at the end of 2008.

Significant growth has been seen since CUP’s establishment in the acceptance infrastructure. According to CUP, by the end of June 2009 it had 1.35 million domestic merchants, 2.11 million networked POS terminals and 180,000 networked ATMs – respectively, 9 times, 9.7 times and 4.7 times more than had been in existence at the end of 2001.

A growing number of cards, combined with the increase in the number of acceptance terminals, has resulted in the use of cards for payments soaring. The value of bankcard transactions reached CNY127.16 trillion in 2008, 15 times the value of transactions in 2001 (CNY8.43 trillion) and, according to the PBC, equal to 91 percent of total non-cash transaction volume.

payment cards

Perhaps the best illustration of the growing significance of card payments, in 2008 CUP reported that cards accounted for 24.2 percent of China’s retail payments, up from 21 percent in 2007, 17 percent in 2006 and a mere 2.7 percent in 2001. The PBC noted in a payment system review that in 2008, cards accounted for up to half of retail payments in major cities such as Beijing and Shanghai.

Despite the rapid progress, CUP concedes that the development of the acceptance network in China still lags behind that of developed countries. For example, the number of POS terminals per 10,000 people in China at the end of 2008 was less than 14, compared with 170 in the US and 471 in Korea at the end of 2007. At the end of 2008, the number of ATM terminals per 10,000 people was 1.19 in China, compared with 13.9 in the US and 17.7 in Korea at the end of 2007.

CUP has responded to the terminal number challenge with the introduction of alternative facilities such as the Standard China UnionPay Card Network in 34 cities. The service utilises so called intelligent phones that enable consumers to use cards to undertake payments including those for public service fees, mobile phones and internet shopping. By the end of June 2009, 17,000 intelligent phones had been deployed.

Debit cards dominate

The issue of cards in China is dominated by a handful of China’s around 200 banks, with CUP noting that at the end of 2008 the four dominant players in the debit card market were ICBC, CCB, BoC and Postal Savings Bank of China with a combined market share of 67 percent.

In the credit card market ICBC, CCB, BoC and China’s seventh-largest bank, China Merchants Bank, had a combined market share of 70 percent.

A notable feature of China’s card market is the preponderance of debit cards, though credit cards are making some inroad into the market, accounting for 7.9 percent of cards in issue at the end of 2008 compared with 5.2 percent five years earlier.

In terms of market penetration, credit card use is still minimal. CUP noted that at the end of 2008, the 142 million credit cards in issue represented 0.11 per capita compared with the 1.66 billion debit cards which represented 1.25 per capita.

Many reasons exist for the low penetration of credit cards. Among consumers there is a general abhorrence of debt, lack of experience in using credit and a high propensity to save. Illustrating this, upwards of 90 percent of cars are sold for cash in China. Adding to this are harsh penalties, including imprisonment, for intentionally defaulting on credit card debt.

However, probably the biggest obstacle from the perspective of banks to wider spread issuance of credit cards has been the absence of a national credit bureau in China. A key move towards remedying this came in May 2008, with the PBC’s launch of its Credit Reference Centre.

A further step towards enhancing credit information was taken in October 2009, with an announcement by the State Council that establishment of private credit bureaus was to be permitted.

Consumers flock online

With most things in China numbers are big, and the internet is no exception. CUP reporting that during 2008 retail and business-to-business (B2B) payments processed by third parties online soared by 181 percent, from CNY97.6 billion in 2007 to CNY274 billion. The number of internet users between 2007 and 2008 increased from 210 million to 298 million.

CUP noted that shopping was the largest generator of online payments, accounting for CNY104 billion, up 130 percent compared with 2007.

Shopping was followed by purchasing of airline tickets at CNY49.6 billion, gambling and lotteries at CNY33.2 billion, bill payments at CNY30.4 billion and B2B commerce at CNY12.6 billion.

networked POS

Consumers continued to flock online during 2009, with Chinese research firm iResearch China reporting online shopping sales of CNY65.85 billion in the third quarter of 2009 – up 17 percent compared with the previous quarter and 90 percent compared with the third quarter of 2008.

The big success story in China’s online commerce market is Alibaba Group, in which US internet services provider Yahoo has held a 40 percent stake since August 2005. Founded in 1999 by a former English teacher from the Chinese city of Hangzhou, Jack Ma, Alibaba’s presence in the online payments space encompasses in the B2B market, Taobao in the retail commerce market and Alipay, a third-party online payment platform.

All three units have enjoyed impressive growth. boasted 45.3 million registered users – of which 34.8 million were based in China and 10.5 million in about 240 other countries and regions – at the end of September 2009. The number of paying business members of stood at 578,901 on the same date, a 45.3 percent year-on-year increase.

Building on its success in the B2B market, Alibaba turned its attention to the retail market in 2003 with the launch of Taobao. Dominating online shopping in China, Taobao achieved gross merchandise volume of $11.8 billion in the first half of 2009 which, according to Alibaba, represented 78 percent of the Chinese-domestic online consumer market and 1.4 percent of China’s total retail trade. In mid-2009 Taobao had nearly 145 million registered users.

Completing Alibaba’s online offerings, Alipay was launched in 2004 and has grown rapidly – and has overtaken PayPal in terms of user numbers.

According to Alibaba, Alipay had 250 million users in December 2009 while at the end of the third quarter of 2009 PayPal reported 200 million total accounts and 78 million active registered accounts.

In terms of total payment volume Alibaba reported that in December 2009 Alipay was on a daily basis processing some 4 million transactions valued at up to a total of $120 million, or about $10.8 billion on a quarterly basis. In the third quarter of 2009, PayPal reported total merchant payment services volume of $9.9 billion.

Alibaba is, however, not without competition, with a major potential rival having emerged recently in the form of CUP’s CUP Secure internet payments platform. By June 2009, 12 national banks including ICBC, ABC, BoC and CCB and 15 regional banks connected to the platform.

transaction value


China goes mobile

Big numbers also pervade China’s mobile telephone market, with the country’s Ministry of Industry and Information Technology reporting that there were 739 million mobile subscribers at the end of November 2009, 100 million more than a year earlier.

This huge market prompted CUP and the country’s largest mobile network operator, China Mobile, to establish mobile payments joint venture (JV), Union Mobile Pay (UMP) in 2003.

Launched in mid-2004 and now in partnership with 19 banks, UMP mobile payment services include bill payments fund transfers and lottery and airline ticket purchases.

By the end of 2008, UMP had attracted 16.2 million users, an increase of over 10 million compared with a year earlier, while by June 2009 the number of users was approaching 20 million. Though small in the totality of China’s payment market, payment volumes have also grown significantly – reaching CNY24.3 billion in 2008 and CNY17 billion in the first half of 2009.

Initiatives such as mobile payments come in response to the government’s aim to build an “internationally advanced payment system,” as Su Ning, deputy governor of the PBC, termed it in a speech delivered in 2009. In particular, use of cards, mobile payments and telephone payment must be promoted, he urged.

Concluding his speech, Ning called for formulation of a “national payment system development plan”.

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