China Moves Toward Mobile Payment Standard

China is looking to rally its nascent mobile payment industry around a single technology standard with the hope of cashing in on the world's largest mobile population. The move would quell a long-simmering debate about the merits of using local versus global technologies and focus the enormous resources of the country's telecom operators and banks on accelerating the roll-out of handsets and point-of-sale terminals.

Mobile payment is slowly gaining traction in China, with systems already in place in top-tier cities for subways, supermarkets, convenience stories, cafes, and fast food chains. China's mobile payment market size is estimated at $417 million in 2010, up 45% from 2009. Users are expected to nearly double to 150 million. These numbers mostly reflect niche forms of mobile payment, from IC embedded traffic cards to online payments made from a handset.

Though the market is still small for payments made from chips embedded into a handset, it has the greatest potential because of China's 720 million mobile users. That market, however, has been stifled by a battle over rival mobile payment technologies.

The country's largest wireless carrier, China Mobile, is indicating it will suspend deployment of a proprietary system based on a standalone 2.4GHz RF-SIM card. Its rival, China Unicom, has adopted Near Field Communication (NFC), an international standard based on the 13.56MHz frequency.

The standalone RF-SIM card makes it easier for subscribers to start using the system -- all that is needed is to change the SIM card, not an entire phone. But there is some dispute over the frequency of use, since 2.4GHz is more susceptible to interference because it lies in the unlicensed band where Wi-Fi also operates.

China's main technology regulator, the Ministry of Industry and Information Technology (MIIT), appears to be behind the surprise move to pick one technology. It appears keen to avoid fracturing the market and allowing China to fall behind in mobile payment, which is already commonplace in Japan and South Korea.

China's fast-growing debit-card market and point-of-sale terminal infrastructure also adds pressure to the regulator to ensure that newly deployed terminals are compatible with mobile payment technology.

Suspending the RF-SIM system would be a major blow to China Mobile. The state-run company has reportedly already purchased 1 million RF-SIM cards and has issued them for use in places like the 2010 World Expo in Shanghai. It has also ordered 10,000 to 15,000 terminals to read the cards, but has yet to deploy all of them.