CHANGING CHINA

An update presented by UnionPay

International

AGENDA
China Today
The Chinese Consumer
About UnionPay
Business Overview
E-Commerce Products Overview

Questions

Population
Over the past three decades, since the introduction of reforms, China has been an economic
powerhouse charging ahead. Here are some interesting facts

Approximately 1.4

billion people live in

China

Thats about 20% of the

world population and
4.5 X size of US

Youth
Second to only India, China has a youth population (10-24 years) of 269 million

At 269 mm the Chinese youth form about 22%

of its population.

(thats more than the combined populations of the UK, France, Germany and Italy)

Economy
Chinas economy has been growing at 9 to 10% on average over the last 30 years

China is now the 2nd largest

economy, having overtaken Japan
in 2011

Despite a slowdown, China still is

fastest growing major

the
economy in the world

Economy
30 years ago, all businesses were controlled by the state to a certain degree. Today, non-state
owned companies account for 70% of the GDP

China is now the worlds

largest manufacturing
country by output.
Fortune magazines latest
rankings of the worlds
largest companies includes
2 US firms in the top 10

China has three

Luxury
By 2020 China will account for 19% of global demand for luxury items

China is already LVs

largest market

accounting for 15% of global

sales
The average Chinese
millionaire is only 39. The
country already has 2.9

million of them

The Chinese Consumer

Evolving Landscape
Chinese consumers shopping habits have changed dramatically as incomes have risen and new
products and concepts have entered the China market.

Different regions have developed

at different rates

Distinctly different spending

habits

Rising consumption of luxury

goods

The luxury market is undergoing a fundamental shift, brought on by evolving customer

dynamics, an influx of new, emerging luxury labels, and an economic slow-down. As a
result, luxury brands in China must step up their game in 2015 by adapting to new market
conditions and customer expectations Bain & Co
Source: CBR, McKinsey, Bain, etc.

Customer Segments
Customer segments are not clear cut, with common behaviors no longer observed across
demographic groups

Value Seekers
Search hard for the best deal
Spend a lot of time researching
products and comparing prices
Applies to high and low income
groups, but more apparent in
lower income group

Sophisticated High
Earners
Generally in larger cities
Shop to satisfy emotional needs
and show individuality
Willing to pay a premium for
quality products and services

Pragmatic Masses

Self-indulging Youth

Almost 400mm emerging

middle class consumers
Reside in smaller cities in inland
areas
Price sensitive and focused on
basic functional products

More self-indulgent in their

purchasing
More individualistic in their
wants
More loyal to their favorite
brands
More internet-savvy

Source: Forbes, Bain

Travel Trends
As the travel market matures, self guided and overseas trips have experienced rapid growth

Mainland China became the worlds biggest source of

foreign tourists. Approximately 110 million Chinese
traveled abroad in 2014
These newly affluent travelers spent $164 billion
overseas while they traveled, making them the biggestspending tourists.
Top 5 destinations in 2012 : HK, Macau, South Korea,
Thailand and Taiwan
Group travel is still popular for convenience and price
as well as a history of restriction on individual travel,
however it is slowing down
FIT has seen a dramatic increase and is growing even
faster than foreign travel in general
Source: Euromonitor, Skift,, Bloomberg etc.

Going Online: Chinas e-Commerce market

With the number of internet users growing rapidly, eCommerce volume has followed suit
In 2011, Chinas online retail purchases surpassed Japans. The following year, its online retail
penetration hit 16 percent, cruising past that of the United States

More than 600 million potential consumers have access to the Internet in the country today and
80% access it through smartphones and other wireless devices
The popularity of e-commerce has quickly increased in China due to the economic development,
the growing Chinese middle-class, rising disposable incomes and above all due to Internet and
mobile penetration in the Chinese daily life

Source: Alizila

China Online Travel Market

A large and growing market, with consumption habits rapidly evolving to keep pace with other
developed markets
Increasingly, travel bookings are made through mobile devices, with 77% survey respondents opting to search for
online travel service on mobile devices.
In 2014, China online travel was aUS$50 billion market with an increase of 38.9% YoY. It is expected to grow to
US$130 by 2018
Ctrip, at 23%, has the largest share of the online travel booking market,
followed by Tuniu and eLong

Profile of the
Online
Shopper

Source: Alizila

Profile of the online

shopper (contd.)
For cross-border purchases, Chinese online
consumers purchase goods from the US (84%),
Hong Kong (58%), Japan (52%) and UK (43%).

About UnionPay

China UnionPay & UnionPay International

17

Established in 2002 and headquartered in Shanghai, China UnionPay is the largest bankcard
association in the world
UnionPay International (UPI) is a wholly-owned subsidiary of China UnionPay and it:

Oversees the international business of UnionPay, accelerating entrance

and growth in global markets by collaborating with members and
merchants

Manages operating platform that connects UnionPay international

acquirers and issuers -- in line with global rules and standards

Creates product standards and manages the UnionPay brand in global

markets

Promotes usage of UnionPay cards globally through merchants and

direct to consumers

100% of domestic Chinese familiar with UnionPay brand (AC Nielsen)

CUP is a member of EMV Co.

UnionPay in Numbers
18

Over 300 issuing and acquiring members

around the world

No. 1 in Purchase
Volume by card
type

More than 150 markets accept UnionPay

card

No. 1 in Card
Volume with over
4.7 Bn UnionPay
cards issued
worldwide

International Acceptance
19

Over 150 Countries/Regions accept UnionPay cards in n close cooperation with more than
300 overseas institutions
At 26 million POS terminals and 1.8MM ATMs worldwide

Comprehensive Product Range and Technology

Program Enhancements

Diamond

TXN Mode
POS, ATM,
CNP, MOTO

Money
Express
(Remittance
s)

Dual
Currency

QuickPass
Contactless

Platinum

Credit

Debit

Segments

Mobile
(Mcommerce)

Gold

Prepaid

Commercial
Virtual
(ecommerce)

Classic

Global
24/7
Service
hotline

Integrated
Circuit
(UICC)

UnionPay
World
Privilege

Premium
Concierge
Service

Service Packages

Expense
Manageme
nt
System

Comprehen
sive
Protection
Insurance

Delivery /
Technology

2015 e-Commerce Performance

21

The UPI e-commerce business has enjoyed strong performance in both transaction
volumes as well as growth rate

volume

2013

2014

2015E

Marketing Platform: Shop The World

22

The Shop the World platform is a bridge between UnionPay cardholders in China and overseas online
merchants, thus enabling cross-border online shopping for cardholders

30 million registered UPOP users

5 national pavilions

120 initial privileged merchants

2000 selected merchandise

+1 million/month Page View

Enables services such as:

Future Plans:
Attract more global key merchants to accept UnionPay
Promote the UPOP brand
Provide a communication platform for cardholders and online merchants
Create a similar platform for other markets
Leverage it for overseas UnionPay CM and China merchants

Display of popular merchants & products

International logistics
Proxy buying
Secure Payment
Discounts, warranty and other privileges

UPOP Products
23

SecurePay

ExpressPay

Merchant Hosted

Multi-layered authentication
mechanism
Typically used in SEA and
neighboring markets
Greater security
Fraud liability shifted to merchants.

A simpler method - minimal

information gathered
Widely adopted by the US, other
similar markets
High performing in terms of
conversion rate

An intermediate solution - one

time-authentication of China issued
cards, subsequently follow
ExpressPay process
Reduce the hassle and increase
conversion rate

Pros: Secure/ Covers all 4.7 Bn

cards

Pros: Easy to implement, covers US

Pros: Covers debit & credit / Covers

US merchants

Cons: does not cover debit

Cons: Not supported by US
merchants
Enhancement: SecurePay Plus /
ACP

Enhancement: ExpressPay Plus

Cons: Limited merchants

Enhancement: Merchant Hosted
(authenticated)

Security of UnionPay Online Payment (UPOP)

UPOP takes advantage of multiple safety and security technical guarantee. With the aid of real time risk
audit, complete risk control and solve capability, fully assure the safety of online payment transaction.
UPOP related parts

Security Features

Fund Security

UnionPay card-not-present self-service purchase service rules specifically stipulate the verification
elements and can be divided into self identification mode and auxiliary identification mode
according to the strength of the verification information. Self identification mode requires the
validation of card and dynamic verification information upon each payment. The issuers may
choose to validate the ID number, password and other identity information of the cardholder

UPOP Server

PCI DSS certification

Payment Account

Each UnionPay card is Real-name Authentication

Payment Ways

SecurePay provide one secure & comprehensive online payment gateway to avoid Card
information leaving on Merchant/Acquirer side, which is supported by UnionPay UPOP server

Risk Control

Real-time transaction is 100% monitored by UnionPay risk system, which can audit unusual txn,
large amount txn, multiple trial payment, failure authentication txn and so on

Supporting Rules

A unified dispute resolution mechanism with onboard members as a card scheme

Focus Areas
25

Our Strategy is to build scale in transaction volume through enhanced value and great customer
experience

Improved
online
Acceptance
through
partnerships

Improved
product quality
& user
experience

Enable eCommerce on
all international
Cards

Leverage B2B
Trade Card
opportunity

Monetize "Shop
the World"
Platform

Conclusion

A Rapid Business Expansion Opportunity

27

A Winning Combination

China fastest

UnionPays unique

Huge pent up

ExpressPay offers

growing market for

access to all Chinese

convenience and

e-comm globally

consumers.

can be quickly

demand

implemented
card brand globally.

650 million accounts

over 4.7 billion cards

Over 4 tr CNY in
2014 sales
120% annual growth
since 2003

Best known payment

brand in China and

most trusted

market place for

SecurePay supports

Chinese consumers

all UnionPay cards

and risk is taken by
issuer
Merchant-hosted
supports all cards
with ExpresPay
convenience

to shop globally

Unique Platform

online population

Flexible and Safe Model

Largest / fastest

Trusted Brand

Huge Opportunity

Worlds largest

Shop the World - the

Opportunity to jointly
market merchants,
products and

services through this

platform