Smart money

Chi­nese con­sumers drop cash and skip cards to cre­ate world’s largest mo­bile pay­ment mar­ket

China Daily (USA) - - FRONT PAGE - By MENG JING mengjing@chi­

Chi­nese con­sumers are drop­ping cash and skip­ping plas­tic to cre­ate the world’s largest mo­bile-pay­ment mar­ket.

Thomas Derk­sen, a Ger­man who has won fans on­line for a se­ries of videos pok­ing fun at ev­ery­day life in Shang­hai, spent an en­tire day this sum­mer shop­ping in a ma­jor Chi­nese city — without cash or a credit card.

The 24-hour ad­ven­ture in Hangzhou, which was streamed live on the in­ter­net in Au­gust, saw Derk­sen ride a bus, buy a bou­quet of flow­ers for his wife and even en­joy a street snack, all paid for us­ing apps down­loaded to his smart­phone.

Go­ing out without cash is “some­thing I couldn’t imag­ine do­ing back home in Frank­furt”, said Derk­sen, who lives in Shang­hai and is known as A Fu among his Chi­nese fans.

After trav­el­ing to hun­dreds of cities in more than 30 coun­tries, he be­lieves Hangzhou, the cap­i­tal of Zhe­jiang prov­ince and home of in­ter­net gi­ant Alibaba Group, is No 1 in terms of mo­bile pay­ment. Sta­tis­tics from the Hangzhou-head­quar­tered Ant Fi­nan­cial Ser­vices Group, the op­er­a­tor of Ali­pay — China’s largest mo­bile pay­ment ser­vice provider — show that about 98 per­cent of su­per­mar­kets and more than 40,000 restau­rants al­low cus­tomers to pay with apps.

Hangzhou is not unique in China, though. In most cities, es­pe­cially de­vel­oped me­trop­o­lises, mo­bile pay­ment apps are now a part of ev­ery­day life.

A re­port in June by eMar­keter, a re­search com­pany in Lon­don, said China has the world’s largest prox­im­ity mo­bile pay­ment mar­ket, with an es­ti­mated 200 mil­lion peo­ple reg­u­larly pay­ing for goods and ser­vices by tap­ping or swip­ing a smart­phone, up 45.8 per­cent from last year.

Un­like in the United States and Europe, China does not have a strong credit card cul­ture. In ef­fect, the coun­try has jumped di­rectly from cash to mo­bile pay­ment.

“The phe­nom­e­nal op­por­tu­nity for re­tail­ers is that smart­phone users in China are more will­ing to store pay­ment in­for­ma­tion in their phones and are more will­ing to ex­per­i­ment with other forms of non­cash pay­ments than users in most other coun­tries,” said Shelleen Shum, a fore­cast an­a­lyst at eMar­keter.

A surg­ing smart­phone user base (it is fore­cast to reach 740 mil­lion in 2017), a boom­ing e-com­merce mar­ket, govern­ment poli­cies to en­cour­age the mar­ket, and an ar­ray of play­ers in­clud­ing Ali­pay, WeChat, Sam­sung Pay and Ap­ple Pay have led to a boom in China’s mo­bile pay­ment mar­ket, added Zhi Ying Ng, an an­a­lyst at multi­na­tional man­age­ment con­sul­tancy For­rester.

In ad­di­tion, mo­bile pay­ments mean com­pa­nies can col­lect a mas­sive amount of data from users, off­line mer­chants can ben­e­fit from a lower-cost and more-ef­fi­cient pay­ment process, and users can en­joy a new level of con­ve­nience.

Speedy shop­ping

Ac­cord­ing to French su­per­mar­ket chain Car­refour, on av­er­age a cashier spends 1 minute han­dling a stan­dard pay­ment at the check­out. Yet by us­ing Ali­pay, which is op­er­ated by Alibaba af­fil­i­ate Ant Fi­nan­cial Ser­vices, the process can be short­ened to 15 to 20 sec­onds.

“You can scan the QR code to pay or show the cashier your QR code on WeChat or Ali­pay. Within 1 sec­ond, the pay­ment process can be com­pleted,” said shop­per Guo Cuil­ing.

An Ip­sos re­port in May showed al­most 50 per­cent of mo­bile pay­ment users live in first or sec­ond-tier Chi­nese cities, with the av­er­age age 31.

Guo, 55, of Bei­jing, said she started us­ing WeChat and Ali­pay to pay for her shop­ping in De­cem­ber, when the two ser­vices of­fered hun­dreds of mil­lions yuan worth of sub­si­dies to lure new users.

“It was com­pli­cated for me to link my bank card on WeChat, but as soon as my son helped me set it up it was very con­ve­nient to use,” she said.

Data pro­vided by Analysys, a Bei­jing in­ter­net con­sul­tancy, show over­all trans­ac­tions in China made by third-party pay­ment so­lu­tions reached 5.97 tril­lion yuan ($895 bil­lion) in the first quar­ter of this year, up 5.34 per­cent quar­ter-on-quar­ter.

More than 63 per­cent of trans­ac­tions were made via Ali­pay, with 23 per­cent made via Ten­pay, which is op­er­ated by in­ter­net com­pany Ten­cent Hold­ings. Many of Ten­cent’s pay­ment ser­vices, such as WeChat pay­ment and QQ pay­ment, are based on Ten­pay’s tech­nol­ogy.

Fang Fang, a part­ner with Price­wa­ter­house­Coop­ers’ Strat­egy&, said com­pared with other coun­tries where near-filed com­mu­ni­ca­tion tech­nol­ogy-en­abled mo­bile pay­ment ser­vices, such as Ap­ple and Sam­sung pay­ment apps, are ma­jor play­ers, in China, pay­ing by scan­ning a QR code is the dom­i­nant method for mo­bile pay­ments.

Ali­pay and WeChat, which both re­quire users to scan QR codes at the point of sale, are es­tab­lished play­ers, hav­ing spent hun­dreds of mil­lions of yuan on dis­counts and cash-back of­fers to en­cour­age cus­tomers to use their apps.

Fang con­sid­ered the 300 mil­lion user base of Ali­pay and WeChat as huge ad­van­tage for the QR code pay­ment to thrive in China.

In some way, NFC comes with bet­ter user ex­pe­ri­ence. How­ever, which method will even­tu­ally come out on top is yet to be seen.

Ap­ple and Sam­sung’s ser­vices, both launched in China this year, are based on near-field com­mu­ni­ca­tion, tech­nol­ogy that en­ables two elec­tronic de­vices to “talk” by bring­ing them within a few cen­time­ters of each other. How­ever, which method will even­tu­ally come out on top is yet to be seen.

“The land­scape of pay­ment in­dus­try is chang­ing rapidly. Pay­ing by QR code is cer­tainly lead­ing the way in China right now, but one of the chal­lenges in fur­ther de­vel­op­ment this method come from con­vinc­ing more off­line mer­chants in China to up­date their cashier sys­tems to en­able QR code pay­ment,” she said.

An es­ti­mated 1 mil­lion off­line mer­chants in China al­low pay­ment by QR code. Mean­while, about 15 mil­lion cash ma­chines sup­port pay­ment by debit or credit card, and about 6 mil­lion sup­port pay­ment via nearfield com­mu­ni­ca­tion.

“The in­fra­struc­ture for near-field com­mu­ni­ca­tion pay­ment is good,” Fang said. “But as late movers, com­pa­nies that pro­vide NFC-en­abled pay­ment ser­vices re­ally need to step up their ef­forts to help users form the habit of us­ing such pay­ments.”

In ad­di­tion to in­ter­net com­pa­nies, banks and other com­pa­nies, such as real es­tate de­vel­oper Wanda Group, have made moves to ex­pand into the mo­bile pay­ment mar­ket.

Tang Kok San, coun­try man­ager for World­pay China, a pay­ment pro­cess­ing com­pany in Lon­don, said the bat­tle for supremacy in the pay­ment app mar­ket is just heat­ing up.

“Never be­fore has con­sumer choice been so broad,” he said. “There’s no doubt China’s mo­bile pay­ments space is get­ting big­ger and more com­pet­i­tive.”

The fierce com­pe­ti­tion, as well as the grow­ing num­ber of Chi­nese out­bound tourists and their ris­ing spend­ing power, has prompted Chi­nese com­pa­nies to look abroad for new growth mo­men­tum.

Eric Jing, pres­i­dent of Ant Fi­nan­cial, said the com­pany aims to have 2 bil­lion cus­tomers us­ing Ali­pay in the next decade, with about 60 per­cent from out­side China. How­ever, he con­ceded that de­vel­op­ing coun­tries that are rel­a­tively weak in finance in­fra­struc­ture of­fer more po­ten­tial than de­vel­oped re­gions.

Last year, Ant Fi­nan­cial in­vested in Paytm, one of In­dia’s largest dig­i­tal trans­ac­tion plat­forms, and since then the In­dian com­pany has seen its cus­tomer base grow by 22 mil­lion to more than 130 mil­lion users.

But Jing hasn’t given up on his dream of crack­ing the West. He is pin­ning his hopes on con­vinc­ing busi­nesses in de­vel­oped coun­tries to al­low Chi­nese trav­el­ers to se­lect Ali­pay as their first-choice pay­ment op­tion.

“By chang­ing the habits of West­ern busi­nesses, we hope we can one day change con­sumers’ habits, too,” he said.

To seize the op­por­tu­ni­ties brought by China’s Na­tional Day hol­i­day (Oct 1 to 7), one of the most pop­u­lar sea­sons for out­bound travel, Ant Fi­nan­cial reached a deal in Septem­ber with 10 over­seas air­ports, in­clud­ing Mu­nich, Sin­ga­pore Changi, Narita In­ter­na­tional (Tokyo), to en­sure Ali­pay is ac­cepted there.

WeChat, and Baidu Wal­let, which is run by search en­gine op­er­a­tor Baidu Inc, have also stepped up ef­forts to make sure Chi­nese tourists can use their apps in more shop­ping malls and air­ports over­seas.

Li Chao, an an­a­lyst for iRe­search Con­sult­ing Group, said the swelling num­ber of Chi­nese out­bound trav­el­ers and their spend­ing power are only part of the rea­son com­pa­nies are look­ing abroad.

“In­tense com­pe­ti­tion has dragged down prof­its for dig­i­tal pay­ment ser­vices in China,” he said. “Look­ing abroad is in line with their in­ter­na­tion­al­iza­tion strat­egy and the goal to be more prof­itable. The best way to start is with Chi­nese out­bound trav­el­ers.”

How­ever, Tang at World­pay China said the Euro­pean mar­ket is al­ready crowded and there is a sense of “app fa­tigue” set­ting in among con­sumers, so it may take a while for WeChat and Ali­pay to reach sim­i­lar heights in Europe and the United States.

“But th­ese busi­nesses can of­fer some­thing new and unique to the app frag­men­ta­tion that cur­rently dom­i­nates mo­bile use in the West,” he adds. “They have the po­ten­tial to dis­rupt the sta­tus quo and fun­da­men­tally change the way so­cial me­dia plat­forms are used by con­sumers in th­ese mar­kets.”


A toll man col­lects high­way fees in Ningbo, Zhe­jiang prov­ince, by scan­ning the QR code, which is a lead­ing way of mo­bile pay­ment in China.

A bill­board in a shop­ping cen­ter in Zhengzhou, He­nan prov­ince, says peo­ple can pay in many ways, in­clud­ing through Ali­pay, UnionPay and WeChat.

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