QFPay, The Square of China, Is Processing Close To $400M Per Year

Posted: May 11, 2013 in GT, Mobile

QFPay‘s card reader admittedly looks a bit clunkier
than its U.S. or European equivalents Square or
iZettle. It looks like a wonky, old calculator. But that’s
because Chinese consumers don’t trust merchants
easily and a basic phonejack reader without a keypad
makes them nervous, says COO Tim Lee. He says
consumers are worried that their PINs will get stolen
by unscrupulous merchants. “Aesthetically, it’s not that beautiful,” he said. “Square
is very Apple-like and we’d want to have good design,
but we are practical for two reasons. We must have a
PIN pad in China and secondly, we have limited
money so we’d want to build a minimum viable
product and then keep on improving.” Because of these more practical modifications,
QFPay is seeing traction that has it processing close
to $400 million per year on an annualized basis. They have 30,000 merchants all over China and
recently picked up funding from Sequoia China,
although the size of the round is still undisclosed. Among their clients are better-known names like
Groupon-like 55Tuan, which uses QFPay to collect
fees from merchants all across China. QFPay’s model is slightly different than Square’s. For
one, they don’t give away their readers for free. They
charge 899 renminbi or just under $150 for each one.
Competitors like Lakala also charge for their readers
at about 199 renminbi a pop. QFPay’s transaction fees also legally have to be a lot
lower than what U.S. and European companies can
charge. They don’t charge more than 0.78 percent per
transaction, which is one-third of the 2.75 percent that
Square charges. That cuts the company’s margins on
every swipe, although Lee says that R&D costs are substantially lower in China. QFPay also recently released an API that lets third-
party developers create payment experiences.
(Square does not currently offer an API.) It’s still early
so there just 100 developers on the platform. The Chinese market has myriad challenges, which
could also be good opportunities for QFPay. For one, penetration for point-of-sale terminals is still
quite low. Lee says only about 5 million merchants
out of China’s estimated 100 million have proper
point-of-sale machines, so QFPay has to do a lot of
education on why its products are valuable. The country is also heterogeneous with different
provinces having different business cultures. “In the north, merchants just have a leisure life. They
open the shop and go home at 5 of 6 p.m.,” he said.
“But in the Southern provinces, they will stay open
until midnight.” The Western provinces are also far
less developed than the coasts, with many Chinese
merchants still carrying feature phones. Lee said they started working on the company about
six months after Square launched. The company’s
management team has experience working for
Paypal, Mastercard, HSBC and Western Union; that
breadth of experience spans the entire history of
digital payments in the country. They face internal competitors like Lakala and
iBoxPay, but Lee says those are consumer-facing
solutions. He says they basically target reader sales
at consumers that want to pay for utilities and other
services through their phones. But QFPay is aimed at merchants and the company
is working on all sorts of software tools to handle
CRM, analytics and loyalty products.


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