Stefan Rust of Exicon presents at the Mobile Asia Expo 2012 on the challenges, risks and issues of NFC in China

1. NFC: Advancing the Ecosystem
June 2012
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5. Significance of China: Population Comparison
Administrative Regions of China, labeled as countries with
Equivalent Populations
Total population of China
1.3+ billion (mid 2011)
Source: Strangemaps, China; M. Rosenberg (about.com) on population size China
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6. China in numbers
1.3 485 135
BILLIONS MILLIONS MILLIONS
POPULATION WITH ACCESS MORE IN
TO INTERNET INTERNET CAFÉ
655 963 44.5x
MILLIONS MILLIONS GROWTH
URBAN MOBILE SUBSCRIBERS IN GDP SINCE 1985
(50%) AIM TO SURPASS
USG DP - 2020
534k 115
MILLIONAIRES BILLIONAIRES
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7. Significance of China: GDP Comparison
Total GDP of China
2010: 5879 $ billion
2012: 7740 $ bn est.
Per capita 2011: $5,184
(nominal)
$8,394 (PPP)
US per capita 2011:
$48,387 (PPP)
EU per capita 2011:
$31,607 (PPP)
GDP 2010
in $ billion
Less than 50
50 < 120
120-200
200-400
400+
Source: The Economist, Country Equivalent Interactive China Map, Wikipedia on GDP total in China, IMF on EU and US
PPP capita GDP.
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8. China Market Forecasts
• Increase driven by the nation’s huge
number of cell phone subscribers, 900 Estimated NFC payments in China
million in 2011.
• Presently, more NFC handset add-ons
have been shipped than actual NFC-
US$ 8 Billion
enabled mobile handsets.
2014
• Shipment of bridging technologies is
900m or 11,25 % in
expected to grow to 6.5 million in 2014
2011
• Shipment of full NFC phones in 2014 is
predicted to rise to 7 million.
ABI Research, Mobile Payments in China
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9. Overview of NFC in China
Situation • 960 (!) million mobile subscribers -
• Turnover to NFC phones takes time
• Consumers change mobiles every 40 months,
• Smartphones every 29 month.
• Chinese consumer acceptance still uncertain, because security is a concern.
• NFC business driven by telco & banking industry, both having large government involvement.
NFC in China
• In sync with global standards
• Contactless POS terminals are being deployed, creating a network of physical merchants
• SIMpass has captured the market and is driving the momentum with their hybrid solutions.
• Consensus around SWP as leading option for Secure Element.
Key • China Mobile, China Unicom, China Telecom (3 MNOs serving over 960 m subscribers)
Stakeholders • China Unionpay
• UICC based technology governed by MIIT whilst other technologies governed by PBOC
Challenges • PBoC & MIIT
• Consumer adoption (e.g. security issues)
• Proprietary security technology & standards
Source: MobiThinking for subscriber numbers: On phone replacement: Ericsson Survey 2012.
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10. China NFC Ecosystem
MNOs Regulators
• CIITA(China Information Industry
• Issue SIM cards for NFC
Trade Association),
systems
• Ministry of Industry and
• Provide support, Information Technology (MIIT)
• Back-end services • People’s Bank of China (PBoC),
• Partner with Financial CIITA governing the m-payments
industry.
Institutions to sell NFC MIIT
to consumer. • NFI must obtain License from
PBo PBoC before engaging in payment
• Do NOT subsidize or sell & settlement services
handsets.
C
Financial Institutions Others Industry Players
• 2.4 billion bank cards; • Based on the infrastructure
• serving 400+ financial institutions and rules given by the other
stakeholders, technical
• Loinking 1.2m ATM’s of 14 banks. equipment manufacturers
• The Bank of China, the Agricultural and suppliers, consumer
Bank, Construction Bank and the app, security or payment
Industrial and Commercial Bank of service developers
China are the top 4 banks
• Combined individual accounts of
over 600 million (>58% market
share in 2011).
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11. Key Technological Drivers
PBoC
• Payment Cards to be converted to Smart Cards
• 3.3M POS terminals updated to support contactless payment
13.56MHz
selected as national contactless
payment standard, CIITA:
05/2011
Consumer Adoption driven by
Availability
Security
• Solid Base of POS Terminals for NFC
• OEMs leaning towards Unionpay for final NFC technology decision
• It comes down to the merchants
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12. Unionpay versus VISA
China UnionPay is at the center of a NFC standardization initiative in China. The technology they roll-out into the
mass-market will probably be used by the majority of ecosystem players (result from interviews conducted).
They have the leading position in China, as the sole domestic inter-bank bankcard processor, operating the sole
domestic bankcard acceptance in China due to local regulation.
UNIONPAY 400 banks VISA 15,200 banks
% of Global 29.2 % 28.6 %
CARDS
(2011) 1.94 billion cards issued Other Source: 2.4 bn cards 1.9 billion cards issued
Net Profit: $ 1.6 Billion Net Profit: $3.65 Billion
PROFIT
(2011)
Revenue $ not available Revenue $9.2 Billion
ATMs 72,000 (2009) 1.93 million in 200 countries
(2011) in 90+ countries
Source: http://pymnts.com/news on Unionpay and VISA cards usage; websites VISA; Unionpay, www.paymentlawadvisor.com
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13. China Unionpay NFC Projects
Key Player China Unionpay
Project Banking Phones with Micro- Micro-SD mobile payment Micros-SD payments and mobile Micro-SD and Mobile Point Of Sale
SD point of sale terminals Terminals with Banks
Activity NFC-enabled Jiang Yu First trials of Micro-SD Confirmed plans to deploy Refitting and equipping POS
banking phones for Public payment microSD cards. Mobile POS
transport, restaurants & essential in a region where
convenience stores agriculture is the main industry.
Location Chongqing Different regions in China Sichuan Across China
Launch 09/2011 Est. 2011 Est. 2011 2011
Users 9,000 100,000 500,000 300,000-400,000 equipped, 700,000
retrofitted
NFC • MicroSD • MicroSD • MicroSD (GoTrust SWP) • Micro-SD
• HTC • NFC handsets • In HTC Incredible w/ NFC
Device
Type
Partners • Chongqing Rural • China Construction Bank • GoTrust SWP • China Construction Bank
Commercial Bank • Smaller Regional Banks • Datang, HTC , TCl, K-Touch, 2 other
• HTC • HTC handset m.
• Datang • Datang • Wuhan Tianyu Information Industry
• TCL • TCL and Go-Trust/Eastcompeace + 6 other
for Micro-SD
• CUP is focusing on 13.56 MHz with Micro SD cards
• Strong relationship with HTC and DATANG whilst growing ties with TCL and GoTrust
Source: Exicon
• User numbers continue to grow significantly
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14. 3 Major Network Operations & User Amounts
CHINA MOBILE 628 M CHINA UNICOM 186 M CHINA TELECOM 113 M
USERS 158M Using 2G 158M Using 2G 87M Using 2G
(8/2011)
USERS BY AUG 2011
40.31M Using 3G 28.76M Using 3G 25.61M Using 3G
JAN – JUN 2011
JAN – JUN 2011
Net Profit: $96 Million
158M Using 2G Net Profit: $413 Million Net Profit: $39 Billion
REVENUE
(1-6/2011) Revenue $391 Billion Revenue $159 Billion Revenue $188 Billion
158M Using 2G
ARPU
$10.9 $7.3 $8.2
(1-6/2011)
APRU = Average Revenue per user
Source: International Telecommunications Union.
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15. Operator NFC Projects
Key China Telecom
Player China Mobile China Unicom
Project SIMpass launch RF-SIM launch NFC Trial Shanghai Expo Beijing SIMpass Ticketing for 1st trial CT SIMpass project
Date transit Ticketing
Buses, taxis, Ticketing & Ticketing, w/ 100 15,000 POS 2,000 payment & Ticketing Dual- Payment, student ID,
parking facilities & payment merchants, incl terminals in Expo ticketing (transit) interface transport, w/ 11,000
restaurants (entertainment), convenience 2010 & city, incl. locations, incl SIMs, merchants
Activity
w/ 5,000 stores, restaurants SMs, restaurants, gas stations, enabling
merchants & movie theatres CVS & cinemas restaurants, SMs fare pymt,
& cinemas ticketing
Hangzhou Shanghai, Beijing & Xiamen Shanghai Beijing Shanghai Chongqing Nanjing & Jiansu
Location
Other
Launch 3/2010 11/2009 7/2006 2011 05/2010, 01/2009 12/2008 12/2009
Date 01/2011 (com.)
>50,000 >2M RF-SIM orders 100 5,000 + merchants 1,000 (initial) 5,000 phones 10,000 700,000 SIMpass
# of Users
shipped shipped
NFC SIMpass RF-SIM Nokia 3220, RF-SIM SIMpass Hedy Changhong SIM-pass
Device Nokia 6131 Shanghai DG28 & F4,
Type Fudan SIMpass
Hangzhou Citizen China Mobile E-Tong Card Bank of China Bank Beijing Municipal Shanghai Congqing, Nanjing City
Card Expo 2010 (transit fare of Communications Admin., Transportatio Yucheng Najing Zhongshan
Project Hangzhou City 360° Organizers collection) (UnionPay-PBOC Communications n Authority Transportat Institute
Partners Card (local transit 2.0 contactless) Card (BMAP ion Yangzhou
payment app) card) Technology
Institute
Watchdata, Fudan Microelectronics (chips) Watchdata, Lakala,
Other Nationz Technologies, Hedy (largest local phone manufacturer) Yifutong, Enpay, Yeopay
Partners Eastcompeace Changhong (Consumer Electronics Company) Commercial Partners:
Watchdata Nokia, Philips
• Pulled out of RF-SIM Cards @ 2.4 GHz due to technical and Limited success with RF-SIM, SIMpass focus
Status cost reasons, use SIMpass & SIM-based NFC Focus on two solutions SIMpass & Sim-based NFC Planning Disney and
• Signed GSMA LOI ProprietaryGSMA LOI
Signed & Confidential 15
Microsoft Lab NFC trials
Source: Exicon research & Smart Insights, NFC gains momentum in China 2011

16. Summary
NFC in China
• NFC is expected to reach the tipping point by end 2012.
• 4m+ POS terminals with contactless interface supporting 13.56 MHz
• Larger scale contactless mobile payment commercial rollout, led by the
MNOs.
• Anticipating VERY LARGE scale NFC roll-out over the coming years, lead by
MNOs and CUP.
• Key industry players waiting for network of merchants
• Market views China Unionpay as “leader” in this category.
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17. Contact Us
CEO / EXICON
Stefan Rust
EMAIL
stefan@exiconglobal.com
WEBSITE
www.exiconglobal.com
FOLLOW US @exicon
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