On the heels of reports that Apple Pay is gearing up for a February launch of its mobile payment service in China (update: it is, and so is Samsung), the country’s biggest credit card company has entered into an agreement with a startup out of the UK to take its own steps into smartphone-based transactions.
UnionPay Network Payments — a wholly owned subsidiary of China UnionPay, the state-run company that controls debit and credit card payments processing in China — has inked a 10-year deal with Powa Technologies, a venture-backed mobile commerce company based in London.
Initially, Powa developed a Square-like dongle for payments before moving into a wider omnichannel commerce strategy. It’s the latter of these two, promoting on-the-go shopping, that will be at the heart of this deal.
Companies like Apple and Samsung, as well as local companies Tencent and Alibaba (which dominate online payments) are looking to make headway in point-of-sale transactions, which will require deals with UnionPay as the company that controls all card-based payments in the country. Powa and UnionPay, meanwhile, are taking a different approach. The strategic partnership — in which Powa has a 49% share and UnionPay 51% — will focus initially on the online-to-offline (“O2O”) market rather than POS.
That is to say, consumers will be able to make purchases of items by scanning codes in stores, in printed media and online, with point-of-sale transactions potentially coming into play down the line, said Dan Wagner, the founder and CEO of Powa.
While UnionPay’s subsidiary is managing the payment processing, the technology underpinning the mechanics of the O2O transactions is called PowaTag. Powa claims that it is working on PowaTag omnichannel commerce projects with some 1,200 brands worldwide including L’Oreal and French supermarket giant Carrefour.
The PowaTag tech is based around QR codes, which can be visual or audio-based. U.S. retail leviathan WalMart last week unveiled WalMart Pay, its own mobile commerce service based on QR codes.
Powa says it has worked with UnionPay to develop a special version of this to work in China. It’s not an exclusive deal for Powa, but it does have the blessing of being integrated directly local JV that has a 10-year agreement with UnionPay, and being the first to do this.
UnionPay has some 1.3 billion credit and debit card users, and while MasterCard and Visa are more household names in the Western world, UnionPay — with its focus on the huge Chinese market — is actually considered the world’s biggest merchant acquirer, with some 6 million merchants under its wing.
Powa says the joint venture will first launch in Q1 in Guangdong Province, which has a population of 106 million. Initially, the rollout will be to 100,000 merchants.
The other significant aspect of this deal is that it’s a signal of how the card processing giant is working with third parties to create more services to enable digital payments in the country to meet demands in a market that is still rapidly expanding at a time when more mature markets like the U.S. are slowing down in their growth.
Apple added UnionPay to its App Store payment options in China last year, In one of the more notable examples of how Apple was sharpening its business focus in China; and how China’s financial giants were also gradually working more with non-Chinese tech companies to grow its business.
At the same time, UnionPay has been gradually rolling out its own solutions, that may eventually link up with those of Apple and other third parties.
Earlier this week, the company announced that it was expanding its QuickPass contactless technology to mobile devices: the NFC-based service previously worked by way of phyiscal cards, and now UnionPay will offer smartphone users an option to upload those cards virtually into a mobile wallet (not unlike the model behind Apple Pay). UnionPay says that it’s working with 20 commercial banks on the service so far, with the tech based on NFC (near-field communication), HCE (host-card emulation), TSM (trusted service manager) and Token technologies.
The idea of building an adjacent service with Powa could be for two reasons: an expansion of UnionPay’s wider role in payments anytime, anywhere; but also potentially to hedge bets, since it’s not clear just what will end up being the most popular way that consumers use mobile devices to buy things.
“Our platform is a project which operates together with UnionPay Network Payment. Our mobile internet products, O2O products and the POS system of China UnionPay connect together, speeding up integration and extending the capabilities of PowaTag,” chairman of the joint venture, Hu Jinxiong, said in a statement. “We have a target to reach at least 50 million consumers regularly using the platform within one year from launch.”
The O2O market is talked about a lot in Asian commerce, and in China alone it generated some $47 billion (304.94 billion yuan) in the first half of 2015, according to estimates from China’s ministry of commerce. Wagner told TechCrunch that the JV estimates it will generate $5 billion in revenues in its first three years.
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