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China’s Mobile Payments Market Expected to Become World’s Largest by 2013; Government’s Role Cited

A new report from research firm Celent finds that China is likely to become the world’s largest mobile payments market by 2013. The country’s mobile payments market is expected to grow 48 percent year-on-year to 410 million mobile users by 2013. The growth is in both remote payments (e.g. fund transfers and remittances through the mobile phone) and contactless mobile payments (e.g. using near-field communications technology to effect payment at subway turn styles, vending machines, or point of sale terminals in convenience stores or retailers). China is expected to have 400 million users of contactless mobile payments alone by 2015.

Celent’s report, echoing conclusions from ITIF’s own report, Explaining International Leadership in Contactless Mobile Payments, about how Japan and South Korea came to be at the world-frontier for contactless mobile payments, finds that government has played a key role in convening and catalyzing the development of China’s contactless mobile payments ecosystem. The report notes the huge potential for mobile payments in markets that have government support, close cooperation between financial institutions and mobile operators, high mobile phone penetration, and (in emerging countries’ cases) low bank card penetration. The report observes that the “growing popularity of mobile payments [in China] is the result of successful cooperation among the various players and notes that “the best business model in the Chinese market focuses on cooperation between operators and banks.”

As the contactless mobile payments market in China begins to rev up with the major players developing a business model that works for them, the United States increasingly risks being passed by. There has been some movement, however, in recent weeks, with the announcement of Isis, a mobile phone payment joint venture between AT&T, T-Mobile, and Verizon Wireless. Isis’ initial focus will be on building a mobile payment network that utilizes mobile phones to make point-of-sale purchases by utilizing smartphone and near-field communication (NFC) technology to modernize the payments process. Certainly this is a step in the right direction for contactless mobile payments in the United States. But the development of contactless mobile payments in the U.S. has been slow, and China, the world’s largest mobile phone market with 740 million subscribers in 2009, could quickly pass the U.S. by. If that happens, the U.S. will fall behind in the deployment of a potentially transformative digital technology platform. As ITIF’s report notes, U.S. federal and state governments can play an active role in facilitating the adoption and deployment of NFC-based contactless mobile payment technologies, including by requiring that public transit authorities receiving federal funding deploy turnstiles/POS terminals capable of accepting NFC payment from smart phones, and in being early purchases of NFC-enabled mobile phones.

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