China’s leading mobile payments apps are forcing competitors to innovate

WeChat Pay owned by Tencent and Alipay owned by Ant Financial are the two most prominent mobile payment apps in China accounting for 66% of the market share, having dominance over the Chinese market they are now entering other Asian markets, forcing rivals to innovate at the risk of being thrown over and losing customers.


China has adopted a cashless way of life quicker than any other country

According to iResearch, a professional consulting and market research company, the sum of all online mobile reached 38 trillion yuan (US$ 5.76 trillion) last year, making China the first in the list of countries that uses the most mobile payments. About three years ago, using cash was the main way of completing transactions. However, this has changed nowadays. Mobile payments now have paramountcy over even the littlest transactions such as settling taxi fares, making them common in every household. Tencent’s WeChat Pay has a total of 600 million users and Ant Financial’s Alipay, a total of 800 million users. 

Numerous factors influenced this meteoric growth in China’s cashless economy

For a very long time, counterfeit banknotes were in circulation in the Chinese economy and mobile payments resolved that huge problem. Additionally, there is usually a service charge when using credit cards and vendors need to have a card reader at all times. Both customers and vendors benefit from mobile payments as the service charge is eliminated. The QR code needed for customers to pay is also much easier to set up than a card reader which makes it a viable option for small-scale vendors to adopt mobile payments. It is also a very efficient and secure way of handling payments for these vendors. 

WeChat Pay made use of WeChat’s internet users, estimated at 335 million at the time of the launching, to promote its mobile payment app. Currently, WeChat has close to a billion users and more than 90% of the users residing in hubs such as Beijing and Shanghai use WeChat Pay. Alipay on the other hand, was launched in 2004 to ease online transactions on Alibaba’s Taobao and by 2015, Alipay had around 400 million users. Both companies promoted their respective apps heavily and advertised going cashless as being eco-friendly and a more modern way of completing payments. “Initially, I only used Alipay for shopping on Taobao. But now its usage has really spread and it pervades all parts of daily life,” says Yeung Ching-ching, a Shenzhen resident, who uses the app to order food deliveries, buy cinema and flight tickets, and to change foreign currencies.

UnionPay is one of the rivals that has been forced to innovate

UnionPay is China’s leading bankcard services provider but only owns 17% market share of third-party mobile payments. To gain a higher market share, the company launched the UnionPay QuickPass app so as to compete with Alipay and WeChat Pay. Three years after Alipay and WeChat Pay launched “scan to pay” and peer-to-peer functions, UnionPay advertised UnionPay QuickPass app as supporting both near field communications NFC and QR codes which allows most banks in China to expand mobile payments on one single platform. “It’s a bit late for UnionPay to enter the mobile payments market now, most consumers are used to Alipay and WeChat Pay. But UnionPay is not going to just give up the market, they also want to fight for a piece of the pie” said Wang Xiaofeng, a senior analyst at Forrester Research. 

Alipay and WeChat Pay are now looking to expand to other Asian markets

Both companies have started smoothing their way into Hong Kong and Singapore to introduce their services. In January 2016, WeChat Pay launched a WeChat Wallet function in Hong Kong. This allows its users to link their credit cards to their mobile phones, their phones then becoming their ‘wallet.’ On the other hand, Ant Financial launched AlipayHK, a local version of Alipay for users in Hong Kong. Both companies then, in an attempt to move quickly, put mobile payment services forward for taxis in Hong Kong with various incentives such as no administration fees. 

“In Hong Kong taxi drivers often don’t have change for big banknotes or sometimes customers forget to bring enough cash,” a spokesperson for Alipay said. “We can see that a lot of mainland tourists coming to the city under the solo travel scheme have a great demand for easy transportation and convenient payment methods. That is why we want to break into the Hong Kong taxi market,” she added. 1,000 taxis signed up for WeChat Pay while 1,500 taxis chose Alipay HK. 

Now, through partnerships, both companies are trying to introduce their services to the city’s MTR subway system which would allow customers to pay for their subway fares through mobile payment at selected MTR stations. 

In Hong Kong, the Octopus card seems to be losing its hold

Launched in 1977 to collect fares for Hong Kong’s public transportation services, the Octopus card is a reusable and contactless pre-paid smart card that is used to make electronic payments in online or offline systems. Locals use it for anything from paying for their train ticket fares to making any other cashless payment, thus no longer having to buy tickets every time they take the MTR subway system. 

The Octopus card has failed to convince taxi drivers to use them due to high administrative fees. “As to Octopus, its previous trial runs fell through because it demanded an administrative fee of 1 percent of Octopus payments. This time we asked Octopus to consider using taxi advertising to cover its administrative fees. We are still waiting for its feedback” said Chan Man-keung, chairman of the Association of Taxi Industry Development. Having no administrative fees, WeChat Pay and Alipay HK will seemingly be adopted by taxi drivers as they have been hesitant to accept anything but cash for a long time and have been criticized for falling behind technological advancements and not giving customers other electronic payment methods. 

In order not to lose their two-decade stronghold on Hong Kong’s market, the company announced that they are uniting with Samsung Pay that will allow customers to make payments through the NFC function on their smartphones. Octopus then also launched its own QR code based payments aimed at small vendors and encouraging them to start using this technology. “We believe Smart Octopus will become the new norm for smartphone users seeking greater convenience while carrying less,” said Octopus chief executive Sunny Cheung Yiu-tong, talking about the new advancements. 

Everywhere else in Asia, incumbent payment operators are competing to launch their own mobile payment services in order to protect themselves should Alipay HK and WeChat Pay choose to enter their markets as well. 

The two major mobile payment companies have been laying the groundwork to enter the Singaporean market

WeChat Pay and Alipay have gotten into talks with local merchants and third-party payment operators so as to allow Chinese tourists to pay using the two Chinese mobile payment companies. In a local media report, it was said that Alipay is still “looking for partners” to launch its mobile payment services. 

Lee Hsien Loong wrote in a tweet that he lamented the island-state’s divided mobile payments system, which was found to be “inconvenient for consumers and costly for businesses.” Singapore already possesses a number of mobile payment systems from the many banks such as the DBS bank and from grab-hailing company Grab who runs and operates GrabPay. Within a very short time, local payment operator Nets launched its own mobile payment service called NetsPay that will allow users to pay using QR codes or the NFC feature like the UnionPay QuickPass app. 

Razer firm, a hardware US-based gaming company also announced that they will be launching RazerPay. In an interview, Singapore-born chief executive Tan Min-liang said that RazerPay could be expected to launch “in the short term.”

Local payment operators may not be able to compete with the two Chinese mobile payment operators

Wang Xiaofeng, the senior analyst at Forrester Research says that it will be difficult for local payment operators to compete with Alipay and WeChat Pay as they are very experienced

“If Alipay and WeChat Pay get licenses from regulators and roll out localized versions, they’re going to be a huge threat,” she said. “It’s going to be difficult to compete with them because they are already so experienced, be it in the technology side or the go-to-market strategy in encouraging adoption.”

“The biggest difference between tech companies and payments incumbents is speed. When services like WeChat Pay or Alipay enter a market, they move very, very fast. Traditional payments operators or banks just simply do not have the same agility.”

Additionally, Alipay and WeChat Pay can invest much more into their advertising budgets. Users may also be more prone to using the two companies’ mobile payment apps seeing their dominance and success in China. 

 

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