Picture this scene: a small town in hilly Anhui province hasn't received its regular consignment of mobile phone top-up cards used by pre-paid customers to recharge their accounts. Without the cards, usually sold at convenience stores and newsstands, many people are denied their primary means of communication.
The solution is a man standing by the side of the road. He is a subscriber with a mobile payment company, which acts as a virtual middle man between the mobile service provider and his bank account. His handset is, in effect, an electronic wallet. People give him cash and, an SMS or two later, he has added the money to their mobile phones.
"As mobile phone penetration increases in rural areas, it can be difficult getting top-up cards to users but, through this system, anyone can become a top-up dealer," said Derek Sulger, CFO of SmartPay, a mobile payment company spun-off in 2002 from wireless value-added service provider Linktone.
"You can, in theory, add money to any phone in China. You can make money from it too – for a RMB50 (US$6.50) top-up, only is actually taken RMB49 from your account."
In a country with 460 million mobile phone users and very low credit card penetration, cracking the mobile payment market could prove lucrative. In addition to phone bills, service providers could draw commissions from a network encompassing everything from plane tickets to utility bills and micro payments to mobile banking.
As yet, though, no one has managed to step up.
According to Beijing-based tech and telecom consultancy Maverick China Research, 75% of mobile phone users don't have any access to mobile payment whatsoever. Of the 25% that do, less than 2% actually use it to conduct transactions.
SmartPay, YeePay, NationM, China M-World and Guangzhou Huanxin are the pre-eminent upstarts in a fragmented market where people still prefer to use cash before anything else. The one big player is UMPay, a collaborative effort from China Mobile and China UnionPay (operator of the country's ATM network) but it has yet to move much beyond traditional mobile billing.
Meanwhile, rumors have been circulating that the e-payment market is in for tighter regulation.
The central bank reportedly held licensing talks in April with the likes of Alibaba's AliPay, Tencent's TenPay, UMPay and PayPal. No details have been offered as to how the licensing system would operate or the impact it would have on those focusing on mobile payment.
YeePay was supposedly at the talks, but this would have been by virtue of the online and telephone payment services that account for the bulk of its business. Although mobile phones play a part in existing services, YeePay co-founder Chen Yu is conservative in his outlook for the pure mobile payment model.
"The mobile device represents a convergence point but I don't think we are going to see much happen in the next two to three years. The networks and the handsets are not ready. There are also issues regarding security and usability.
"Even with the coming of 3G, these won't be solved any time soon."
Maverick China estimates that mobile payment users will rise from 17 million in 2007 to 45 million by 2010. Revenues are expected to hit US$92.8 million in 2010, up from US$24.9 million this year.
This incremental growth will largely be driven by faster networks that allow for more sophisticated applications and push forward mobile commerce.
If there is to be any kind of mass uptake, Maverick China co-founder Edmund Hung believes it will come from mobile top-up. This service is low-tech, taps directly into the needs of prepaid mobile customers who make up the bulk of the market and saves China Mobile and China Unicom producing top-up cards.
To achieve this kind of breakthrough, though, services must become more convenient to use.
Mobile payment providers have to sign contracts with network operators and banks but this is done at a regional, not a national, level. As a result, they don't offer the same services through the same banks across all provinces.
"UMPay offers services in seven to eight cities in China but in each city the banks and merchants they partner with aren't the same," said Hung. "In Beijing you might be able to pay your water bill through SmartPay but only if you have a Bank of China account."
The situation is further complicated by all payments having to be processed in real time, rather than through a credit-based system.
"We have to integrate a system in the banks which works much like an ATM," said Sulger. "We go in and tie our system into theirs and it takes about six months to get a bank fully online."
Small is beautiful
With a RMB50 top up only bringing in a RMB1.50 commission, a number of mobile payment providers are looking to higher value items like air tickets that will generate bigger returns from merchants. But SmartPay also sees great potential in its small value transactions business. The company already has a service in operation that allows small amounts of money to be transferred between people, phone to phone.
The system is comparable to GCash, the highly successful mobile payment platform developed by Globe Telecom in the Philippines.
Much like China, many people in the Philippines have mobile phones but few have credit cards. GCash has proved an effective means of bringing remittances and micro-payments to those who wouldn't normally be able to participate. A Chinese version could also have a deep impact, particularly in rural areas.
"Initially it will be in urban areas because that is where you can market and there will be more volume," said Sage Brennan, research director at technology consultancy JLM Pacific Epoch.
"It will take some time to get it out into the countryside but, if they can do it, it would pay off. There are 460 million mobile phone users in China but only 15 million of these are in Shanghai."