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A Conversation with...

Bin Tang
YeePay

September 19, 2006

Ecosystem Challenges and Opportunities in China

In China, credit cards are rare and the payments industry is in its infancy. Few consumers use cards instead of cash to pay at retail stores. And only a small percent of retail stores accept cards for payment. But both consumer use and acceptance are increasing rapidly. At the same time, the players in the payment card industry have been moving rapidly to spur card use in one of the world’s fastest growing economies.

Recognizing this potential, numerous innovative new ventures have started to develop payment card methods using the mobile phones and the internet. Other new businesses are entering this industry to provide everything from payment terminals to loyalty card programs. Recently Bin Tang, CEO of YeePay talked to us about how the market in China differs from the US, the challenges of building a payments ecosystem and YeePay’s potential both in China and other developing countries.

MPD: Tell us about YeePay”s payment platform.

BT: YeePay’s services enable consumers and merchants in China to send and receive payments securely, conveniently and cost-effectively via the Internet, mobile phone or telephone. Our platform is built on top of the existing bank card infrastructure and utilizes advanced fraud prevention technologies to create a secure, reliable and real-time payment solution. YeePay’s innovation is an integrated payment service platform covering both online and offline transactions, providing universal accessibility to end users and merchants.

MPD: How did this idea evolve?

BT: When I started traveling back to China (from the US) several years ago, I found it very difficult to make payments even for the basic things. For example, when I called a travel agent to buy an air ticket, I had to prepare large amount of cash in advance, wait in the hotel room for the ticket to be delivered and then pay in cash. I realized that payment was a huge problem and probably one of the biggest unmet demands in China.

Credit card penetration is extremely low (less than 5%); personal checks are non-existent; legacy payment systems such as Cash On Delivery (COD), postal wires/bank wires, prepaid cards etc, are highly inefficient. Payment is the missing link to e-commerce. There’s a huge opportunity here, so we decided to start a company to provide payment solutions in China.

As we grew our business, we realized that the market environment in China is very different than that of the US. There are only 120m Internet users but 420m mobile subscribers and 400m landlines. So, the offline market constitutes a significant part. We innovated on the payment solutions to integrate offline services including mobile and telephone payments in addition to online payment, this allows us to address a much broader user base and a greater number of traditional businesses.

MPD: It’s interesting that you have offices in both Beijing and Silicon Valley. What markets do you currently serve?

BT: Currently we only operate in the Chinese market. YeePay was founded by Chinese returnees from the US so we first started the company in Silicon Valley and then moved our headquarters to Beijing. We hope to combine the technology and entrepreneurial spirit of the Silicon Valley with the tremendous potential of the Chinese market, and bring out the best of both worlds.

MPD: What do you see as the biggest differences between the China and US markets? Are you looking at other markets, as well?

BT: There are substantial differences between the China and US payment environments. In the US, the payment market is well developed, with high credit card penetration and good protection for consumers - there’s a high level of trust. In China, the trust level is low. There’s no reliable credit system and most people only have debit cards with very little protection for consumers so most of the transactions are still conducted in cash.

YeePay’s innovation addresses the specific issues in the Chinese payment market. It’s also applicable to many other developing countries with a similar payment environment as China’s like low credit card adoption rate and a much broader mobile/telephone user base than internet user base. With the rapid growth of global commerce, cross-border money transfer also becomes an increasing demand. Therefore we are definitely looking at the international market.

MPD: So, who are your customers?

BT: YeePay’s business model is based on collecting transaction commission from the merchants, so our direct (paying) customers are merchants, both online merchants and traditional businesses. As payment is a generic need our customers span across a wide range of industries, including top internet sites like Baidu, Sohu, Tom, Shanda, Dang Dang, as well as more traditional businesses like Shenzhen Airlines, China Travel Services, GoMe Electronics, etc. As we also support a virtual stored value account based service similar to PayPal, we have signed up millions of registered end users (consumers). YeePay’s solutions help these merchants collect payments from their users more efficiently.

MPD: What incentives do you provide to get consumers on board your platform?

BT: In many cases, we solve practical problems for consumers. For example, they don’t have to go to the convenience stores to purchase prepaid cards for playing online games, they don’t have to pay the delivery guy in cash to buy air tickets… so consumers love our services. We also have loyalty programs and work with many merchants to provide consumers with free trials and discounts.

MPD: How about the merchants?

BT: For the merchants, we try to position ourselves not only as a payment platform, but also as a marketing tool. We provide many cross-promotion, cross-selling opportunities for our merchants leveraging the existing user base and merchant network.

MPD: What do you think is the biggest challenge facing YeePay?

BT: For any consumer-facing business, user adoption and market acceptance always present a big challenge. Security is a big concern for payments. Usability could also be a bottleneck. YeePay needs to keep innovating on new payment products/services to enhance user experience and strengthen security and fraud prevention, so we can better serve the market and leap ahead in the competition.

Payment is supposed to be a highly regulated market so payment companies all face the regulatory risks. The Central Bank (People’s Bank of China) is in the process of drafting new regulations on the third-party payment providers and soon payment companies will require a license to operate. We believe the new regulations are healthy for the market in the long run. We are prepared for applying for the necessary license.

MPD: What advice would you give other emerging payment companies?

BT: Payment is a “long haul” business, consumer/merchant adoption, market acceptance all take a long time to build, nothing’s going to happen overnight. So it takes a lot of patience. Also, payment is not only about technology, it’s more about building an ecosystem, with banks, merchants, consumers and the payment provider, it requires a lot of sophisticated planning and execution.

MPD: Besides YeePay’s platform, what do you think is the coolest new emerging payment technology?

BT: The coming of the 3G technology will significantly change the security and usability aspects of mobile phones so it will definitely have an impact on payment solutions. NFC (Near Field Communication) will also have many potential applications in payment.

MPD: What’s in store - What do you think the payment world will look like in 20 years? Who will be in and who will be out?

BT: The payment market will change significantly in the next 20 years. Online payment will become a dominant way of making transactions; mobile phone will become the convergence point for many different things including payment. Money, in essence, is a type of information and trust; it doesn’t have to be represented by a piece of paper of plastic. With the development of biometric technologies, eventually, the consumers themselves will become the sole identifier for any transactions.