The root of China SMS-based Payment
McKinsey recently released an article on the prospect of a SMS-basedpayment system in China rural area. The arguments were that China has a low level of non-cash payments when compared to other countries and the Chinese government is keen to develop non-cash payments in order to simulaterural spending. There are both economical and political reasons to have an efficient rural payment system.
I agree with the article's contention that ATM and POS are not the right products for Chinese farmers. The main reason is cost. While the annual income of the averagefarmer in China is below USD 2000, it is relatively costly to acquire and maintain an ATM or POS, which usually costs more than USD 20000. Apart from cost, there is also a trend in other countries of declining rates of ATM adoption. According to the BIS statistics, the number of automated banking machines per million inhabitants decreased by 1123 in the year 2000to 1069 in 2005.
However, the picture portrayed by McKinsey seems to be of the distant future. The China Union Pay website reports that there are 86000 ATM and 608000POS installed. In 2005 alone, the transaction volume was more than five billion RMB (USD 670 M). However, there are only 14 cities in China enabled with mobile payment and with only 2.7 million users.
One major type of money flow in rural China areas is the money transfer from workers in urban cities. Urban city like ShangHai and ShenZhen attract millions of farmer who go to work there and their wages are usually"carried or transferred" back to the villages. This type of transaction is the root of many rural payments. So, the critical success factor may not be in the branches of payments in rural areas, but inthe root of most payments, which is in the cities.
I agree with the article's contention that ATM and POS are not the right products for Chinese farmers. The main reason is cost. While the annual income of the averagefarmer in China is below USD 2000, it is relatively costly to acquire and maintain an ATM or POS, which usually costs more than USD 20000. Apart from cost, there is also a trend in other countries of declining rates of ATM adoption. According to the BIS statistics, the number of automated banking machines per million inhabitants decreased by 1123 in the year 2000to 1069 in 2005.
However, the picture portrayed by McKinsey seems to be of the distant future. The China Union Pay website reports that there are 86000 ATM and 608000POS installed. In 2005 alone, the transaction volume was more than five billion RMB (USD 670 M). However, there are only 14 cities in China enabled with mobile payment and with only 2.7 million users.
One major type of money flow in rural China areas is the money transfer from workers in urban cities. Urban city like ShangHai and ShenZhen attract millions of farmer who go to work there and their wages are usually"carried or transferred" back to the villages. This type of transaction is the root of many rural payments. So, the critical success factor may not be in the branches of payments in rural areas, but inthe root of most payments, which is in the cities.
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