Is China ready to dial 'M' for money?

China Mobile, the telecommunications operator with the world's biggest subscriber list, is preparing to bring a new revolution to the People's Republic after buying a local bank. But are the masses ready for mobile phone banking?

When China Mobile bought a 20 per cent stake in Shanghai Pudong Development (SPD) Bank, it was making more than just another strategic investment.
The deal, announced last month and worth 39.8 billion yuan (Dh21.41bn), saw the company with the world's highest number of mobile phone subscribers secure a platform that could prepare the world's most populous nation for mobile phone banking. SPD Bank shareholders approved the deal last week. With more than 500 million subscribers, China Mobile towers over its rivals, in part due to its hard work in building up network coverage across the whole nation, making it a particular favourite among rural users.
But with its competitors buoyed by the central government's wish to see a more open and competitive marketplace, with broadcasters and cable network operators entering the telecommunications market, China Mobile has been looking to diversify and offer a wider range of services to help sustain its strength in the marketplace. When the deal was announced, China Mobile confirmed that it was determined to enhance its mobile payment services.
"The co-operation between China Mobile and the SPD Bank signifies the aspiration of a closer integration between mobile communication and e-commerce applications," said Wang Jianzhou, the chairman of China Mobile. This means mobile customers will be able to carry out functions such as fund transfers and payments using their handsets. Bank of China, among others, already offers customers the ability to check balances and transfer funds between accounts using their mobiles. China Mobile launched a limited mobile payments service last year and has set up a successful mobile finance service for farmers as a result of its heavy penetration rates in rural areas.
The company now seems keen to secure a slice of China's online payment market, which is worth 180bn yuan a year. While the organisation that regulates Chinese government-related companies, the Assets Supervision and Administration Commission, initially expressed doubts about China Mobile's purchase of SPD Bank due to reservations about buying non-core businesses, observers feel China Mobile has made a canny selection in tying up with the financier.
SPD Bank, they have said, is large enough to introduce a comprehensive mobile banking service, but small enough for China Mobile to buy a substantial stake in and exert significant management control, which includes the right to appoint directors to the bank's board. So if China embraces mobile banking as enthusiastically as other nations, the scale could be immense. Mobile banking has created a financial revolution in some developing countries, where it has allowed the rural poor undreamt of control over their money.
In Kenya, for example, people who live many kilometres from the nearest bank branch, and who would have struggled with bank accounts because of poor literacy and limited funds, can now deal with money transfers and the payments of salaries through their mobiles. Cash can be collected at places such as supermarkets and petrol stations. So it is no wonder that mobile banking in Kenya has attracted more customers than traditional banking.
The benefits for the banks, which have to spend less on physical branches and call centres, are obvious. To the mobile operators it means becoming an integral part of the banking industry, not just a platform for the services of others, and allows them to offer services to a much bigger slice of the population than traditional banking. But how much enthusiasm does mobile banking generate among China's hundreds of millions of mobile phone users? That question is difficult to answer, says Jiao Jie, a senior analyst at the internet and telecoms consultancy BDA (China).
"Currently there are very people who use these services," Ms Jiao says. "Right now in China, mobiles can run payment services but it's just small payments and very few people." The main concern of China's mobile users appears to be security, perhaps not surprising in a country where concerns about trust between consumers and companies are often voiced. "It takes time to let people get used to these new things," says Chen Zhenyu, 30, a doctoral candidate at Peking University who uses internet banking. "Like e-commerce, some people feel it's not secure. Mobile phone banking might take several years or a decade to become popular in China."
Fu Shan Shan, 19, a languages student, admits she does not trust internet banking, and is even less enthusiastic about using a mobile phone for financial transactions. "I think a mobile phone is just for making calls and sending messages," Ms Fu says. "[Mobile banking] is unnecessary. I don't have much interest in it. I can always use a credit card or a debit card." It remains to be seen whether China Mobile's purchase of a stake in SPD Bank will lead to the wider range of mobile payment services offered in some neighbouring markets.
Last December the Bank of the Philippine Islands became the latest to launch payment services that allow customers to perform a range of purchases, from buying cinema tickets to ordering coffee on their mobiles. They can also shop with the likes of Zara and Marks and Spencer. Ms Jiao thinks it is unlikely this will happen soon in China. "[Will it extend to] large payments and can it be linked up with your credit card?" she asks. "I am not sure because it's never happened [in China]. Will they be able to buy clothes, or can they use it in restaurants? These are very important for user behaviour.
"I think there are a lot of factors, including with the telecom operators, about whether they will push this business. And on the financial policy side, [it's a question of] allowing the mobile operators to run something like this. "Although China Mobile has purchased Pudong bank, the policy is still not clear. Now China Mobile can run more mobile payment services, but to what degree?"