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New Report: What’s Holding Back China’s Mobile-Money Market?

China further solidified its position as a market that could greatly impact payments in 2013. Those who require proof need only look at how China’s love affair with bitcoin drove the price to more than $1,200, only to send it back down amid escalating regulations in December.

Because of this market power, payments observers are curious about China and its potential to drive adoption of what many consider the payment method of the future: mobile. This is especially true in light of its takeoff in similar, formerly cash-centric markets such as Japan.

In a newly released report, Maverick China Research took an in-depth look at China’s payments system, including the factors that are shaping the market and which major players are driving its growth. It also looks at why mobile payments still haven’t taken hold, despite the availability of the technology, a highly mobile consumer base, and the relatively low use of debit and credit options compared with other developed markets.

Boaz Rottenberg, the co-founder of Maverick China Research, spoke with PYMNTS.com about the report in a recent interview, revealing new insights into both the report and how China’s mobile market will attempt to advance in 2014.

Notably, though the mobile platform will play a bigger role in eCommerce, mobile payments and wallets will not take hold directly, Rottenberg indicated. The report cited three reasons to support this prediction:

1. Consumer indifference – As with other developed markets, many Chinese consumers treat their phones differently from their wallets.

2. Low merchant adoption – Most Chinese merchants simply don’t know how to accept mobile payments.

3. The burden on banks – With a very higher number of smartphones, operating systems and technologies involved in NFC, many banks are concerned about the security of mobile funds transfers.

For more insights into the market, read excerpts from our full interview with Rottenberg below.

PYMNTS.com: Your paper found that cash is still king in China. What factors make it more appealing to Chinese consumers than debit and credit options?

Boaz Rottenberg – Cash is still king; it’s declining though. Until just a few years ago, there was just no other way to conduct electronic payments in China.

A lot of users are used to making purchases online and paying with cash. It offers a lot of convenience. If you pay with cash, you can wait until the product reaches your house to decide whether you’re going to pay for it or send it back. There are also a lot of advantages to paying with regular credit cards, debit cards, too, but the starting point was different than it was in the West.

In light of this difference, do you think there will be a resistance on the part of China’s consumers to quickly migrate to yet another form of payment, i.e. mobile payments?

That depends on how you define mobile. If you define it more traditionally as a wallet, it doesn’t really fit in. There’s a lot of hype everywhere in the world, and it’s not happening on a mass scale in China either. They’re doing most of the purchases online, and since you can pay with cash, you don’t need a payment function in a mobile phone.

A lot of the commerce part of the equation is now done on the mobile phone. Maybe not the final payment always, but that is increasing.

What are the biggest obstacles to mobile payments not on the consumer side, but on the hardware/business side of the equation? Which do you think is most important?

For the traditional mobile wallet, the main obstacles are what they are in most other places, (and that’s) the lack of an ecosystem or a functioning business model. There are not enough players cooperating with each other. If you talk about mobile as a wallet, in almost all instances you need financial institutions (FIs), mobile telecom operators and third-party providers to be operating. They’re not. FIs in China−banks−they have been slow to online payment and eCommerce. They never saw mobile payment as a high priority, and that’s one of the main reasons mobile as a wallet is not substantially taking off.

Looking ahead to 2014 and knowing the trends that you do, give us the scoop. How do you expect mobile payments in China to evolve?

I think one of the most interesting things we’ll see in 2014 is an increase in mobile commerce. Another interesting thing we’re going to see is Square-like devices and whether they will take off in China. If something happens, the products are going to be unique to China. Debit and credit cards, you can’t just swipe them, you need to put in a password. There’s going to be a little bit of experimentation.

Mobile wallets, unless one of the big players, telcos or financial institutions, or one of the large third-party payment providers, is going to push it, I don’t think it’s going to happen.

Still, that’s just part of what is included in the full report, which details the three top obstacles to mobile contactless-payment development in China. It also provides a detailed analysis of what other markets, such as Japan and Africa, can teach the Chinese markets.

To learn this and more, download a full copy of the report here.

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