Electronic, Mobile, Virtual

Vesta Corporation and ChinaDotMan Company Limited (CDM) announced the formation of an alliance on March 18 to develop Chinese virtual payment capabilities, with the aim of becoming a market leader in Asia.

The alliance represents a reputed US$20 million investment by Vesta in ChinaDotMan, but the figure was not confirmed by the companies.

Headquartered in Oregon in the United States, Vesta is a pioneer in virtual payments - which company CEO Douglas M. Fieldhouse described as a third payment option after cash and credit cards - and is strong in fraud-screening measures.

CDM is a software developer and systems integrator for the telecommunications, mobile and data communications sectors. It is China's first WAP service provider. In 2004, CDM launched www.9588.com offering electronic air tickets online.

The highlight or the focus of this alliance is to allow the purchase of e-tickets via SMS and virtual payments, which will showcase three new or relatively new conceptions.

Huge E-ticket Market

The air-ticket market is filled with competitors.

Statistics from the China IT Market Information Centre indicate that the total value of electronic air tickets booked via the Internet rose to 400 million yuan (US$48 million) in 2003.

China Southern Airlines (CSN) was first to sell e-tickets in China in March 2000. In 2004, CSN's e-ticket sales alone were valued at 400 million yuan and accounted for 20 percent of the company's overall ticket revenue. What's more, research by Ernst & Young indicates that the cost of a paper air ticket in China is 65 yuan (US$7.85) while that for an e-ticket is 8 yuan (97 US cents).

CSN saved 100 million yuan (US$12 million) on the low-cost tickets in 2004.

In preparation for the 2008 Olympic Games, the CAAC (Central Aviation Administration of China) expects e-ticketing to be used to purchase as many as 50 percent of air tickets sold, which is expected to generate an income of 30 billion yuan (US$3.6 billion) in 2005. In 2007, the percentage is expected to increase to 70 percent.

Studies indicate that customers also prefer e-tickets, because they will never experience the embarrassment of forgetting a ticket and the tickets are often sold at better discounts. In addition, Air China has placed two special desks in the Capital Airport to provide boarding passes for e-ticketed travelers; so they seldom wait in long queues and get quicker service.

CDM CEO Xiao Pingqing was very frank, "Nobody expected that e-tickets would have such a large market."

There's little doubt that Xiao expected to win a thick slice of this huge cake, but 9588.com did not attract much attention when it was first launched at the end of 2004. The giants of online tourism market, ctrip.com and elong.com, who showed up years in advance of 9588, have left little market space for latecomers.

But, Xiao is an early pioneer in China's IT industry and is the head of several famous IT enterprises, and in early February 9588.com promotion of the new booking technique began.

The Almighty Handset

In a report released by RC Group - one of the leading investment companies in the biometrics and security-solutions sector, global payments made via cellular telephones (cell phones) will reach US$20 billion yuan in 2005 as consumers buy increasing amounts of digital content and physical goods through their cell phones and over the Web. About 300 million consumers are expected to use cell phones to make payments in 2006. Arguably, Asia has the largest community of mobile customers in the world, with revenues expected to reach some US$55 billion. The Ministry of Information Industry reports that China had 340 million handset subscribers by January 2005.

As the competition between the handset producers intensifies, more people are expected to rely upon handset-delivered services. In 2004, the SMS market's income soared to more than 21.7 billion yuan (US$2.6 billion). Customers have access to e-mail, games, chat rooms and even English-language instruction via mobile networks. CDM has an advantage in this new sector by offering e-ticket bookings via handsets.

There are three easy ways to book e-tickets: SMS, WAP and Kjava (or Java 2 Micro Edition). To book via SMS, you just send "T" to 9588 and then follow the instructions sent back. Each piece of SMS is charged 1 yuan (12 US cents) now, but the price will go down soon, Xiao promised.

Before the collaboration with Vesta, CDM explored virtual payment solutions on its own. It has also cooperated with UnionPay in Hunan and with mobile network operators in Zhejiang.

Virtual Payment and Security

CDM turned to Vesta because it regarded virtual payments as the road to the future. The table below provided by Forrester Research shows the general situation of global virtual payments in 2004.

Though credit card systems are not well-developed in China, virtual payments indicate a bright future in this ancient country. Online gaming illustrates the point, where millions of players buying pre-paid cards for the games they prefer generate revenues of 2.47 billion yuan (US$296 million) for the industry, according to a report of the nation's General Administration of Press and Publications.

Industry insiders such as Xiao are sold on virtual payments and are focusing their concern on ensuring the reliability and security of such solutions.

Customers are gradually getting used to not "seeing" their money, and it is important to give them a sense of trust if the industry is to develop. A slogan on the homepage of Vesta's Web site says it is "the premier provider of virtual solutions and fraud solutions."

Xiao said Vesta's experience in dealing with fraud is second importance in the cooperation only to Vesta's willingness to invest. CDM also hopes that cooperation with overseas enterprises will bring in more overseas customers.

Whether the Vesta-CDM cooperation succeeds, its attempt to combine and offer electronic, mobile and virtual services is an interesting model for both industry insiders and customers and is a significant event in China's IT development.