China’s mobile payment giants seek to expand their services

Several Chinese travellers who visit the famous Ginza shopping district of Tokyo are now processing payments for their purchases through their mobile phones. Instead of digging for the Japanese yen or UnionPay cards from their wallet to pay for their orders, they now opt for mobile-based payment apps such as WeChat Pay or Alipay for their personal transactions. The use of these payment apps is expanding widely throughout the Japanese retail sector.

Cashless payment is the norm in China

For many people living in China, cashless forms of payments have become normal. The popular mobile payment processing companies Alipay and WeChat Pay are now seeking to expand their services towards the overseas markets. They initially plan to target mainly Chinese tourists and residents based overseas. Alipay and WeChat Pay are two Chinese-based fintech leaders that have the potential of providing services to developing countries in Asia that have little access to traditional banking facilities or even credit cards. However, some experts believe that it is likely to be harder in prosperous markets such as in the U.S or Japan.

China leads the world in digital payments

Ever since Alipay decided to use QR codes to process transactions and payments, the mobile payment industry has significantly bloomed. QR codes were developed in 1994 by Denso Wave, a Japanese company, for the automotive industry. Nevertheless, the Chinese took over the responsibility of handling mobile and digital payments by processing them through scanned QR codes at different points of sales. These points of sales are linked to the customer’s bank account back in China.

A report from the Chinese iResearch Consulting Group states that the implementation of QR codes further boosted the mobile payments industry from 1.2 trillion yuan to 58.8 trillion yuan throughout 2013 to 2016. In this specific market of over 1.4 billion people, Alibaba Group Holdings which owns both Tencent Holdings (WeChat Pay) and Ant Financial (Alipay) holds a combined market share of 92% of these transactions. Alipay announced that 256,000 transactions were processed every second on the Singles’ Day festival last November 2017.

Mobile payments work better in China than in Japan or the U.S

According to Wharton’s Dean Geoffrey Garrett, the expansion of mobile payments is more profitable in China than it would have been in Japan or somewhere else. In fact, he believes that since China’s regulations are less mature than it is in the West, new players have the opportunity to “innovate and ‘leapfrog'”. Alibaba is considered to be an end-to-end business that handles sales, payments, delivery, and marketing. Thus, it has been more accessible for the company to access the mobile payments industry through its synergies and resources.

U.S government rejects Alipay’s proposal to collaborate with MoneyGram

Alipay faced some complications with the U.S government after setting a deal in May 2017 that would allow Chinese users to process payments at over 4 million U.S merchant stores online. This deal would provide Alipay access to expand its services across 200 countries to the customers of MoneyGram. On the basis of national security concerns, the U.S government rejected its proposal. Garrett explains that “American firms have a lot of interests to protect, and hence may not innovate as quickly. In the U.S., innovation like this would more likely come from a Paypal 2.0 that one of the big tech players would acquire”.

The mobile payments industry develops quickly in China

The industry of mobile payments has quickly flourished in China due to the limited use of credit cards and the centralized nature of the Chinese e-commerce sector. The principal of China Market Research Group, Benjamin Cavender says, “using banks here for pretty much anything is inefficient, and you have to spend a lot of time standing in line and paying bills or getting them to give you cash. When Alibaba came up with Alipay originally, it was so easy compared with anything people have had before, and they became interested in it very quickly.”

Cavender further adds that even if Alibaba owns both Tmall and Taobao (70% of all e-commerce transactions is generated by them in China), “having access to the retail space where all consumers were already shopping online made it easy for them to build a strong payments platform”. He believes that it would be more difficult to get customers in other markets where no dominant player is present.

Most e-commerce consumers are under 35 years old

The majority group in China which constitutes for consumer spending is the younger generation, especially those under 35 years old who regularly use the internet. Most of them shop only online. Cavender explains, “If you look at American consumers, they have other options. They are used to using credit cards, debit cards or are more likely to log on to their laptops or desktop computers at home. They always have had more choices, so it is more difficult to convince them to use a mobile payments platform”.

The total amount of QR code settlements also increased

In 2016, the total amount of mobile phone payments processed was 58.8 trillion yuan, four times the amount of 12.2 trillion yuan in 2015. According to the iResearch Consulting Group in China, in 2017, the total amount of QR code settlements were 98.7 trillion yuan and the quantity increased significantly to 165.9 trillion by 2018.

The mobile payments market in China is considered to be 90 times bigger than that in the U.S based on a report from the Forrester Research. With a population of over 1.4 billion, the number of payments processed through mobile phones is 96.88% where 58% of the people own one or more smartphone(s). The number is definitely higher than in Japan where 56.8% own smartphones out of 83.6% mobile phone users.

Cash matters more than e-payments in Japan

Indeed, the value of cash is more important in Japan as compared to online banking or credit cards. The Bank of Japan conducted a survey in 2016 where only 6% Japanese use their smartphones or mobile phones to process their payments unlike 98.3% Chinese who were familiar with it. The report also suggests that only 5.6% in America would choose a mobile payment app like Venmo.

Even if Alipay and WeChat Pay is mainly used among Chinese visitors since 2015 these mobile payment businesses are trying to move aggressively in the Southeast Asian regions by “tying up with local payment platforms and other companies” across seven countries. Alipay now offers local mobile payment services in Hong Kong, Thailand, Philippines and India and will soon expand throughout Asia. A spokesperson from Ant Financial states that by the end of 2017, Alipay already had 208 million users in these regions and 520 million in China.

Developing local payment services in underbanked regions

Cavender explains the strategies that were adopted to make Alipay successful in these regions, by first “making it easy for Chinese consumers to travel there for a vacation or business overseas. The second step is to cooperate with local payment platforms or build their own that allow local consumers to use the service”. After acquiring the payment service HelloPay Group from Lazada Group in Singapore, Ant Financial rebranded it as Alipay in 2017.

Ant Financial’s spokesperson Xinyun Yang further added that they were “trying to develop local payment services in countries that have big unbanked or underbanked population. What we are doing now is to find local strategic partners we can work with to provide technology know-how, business know-how, and experience.”

In India also, Alipay collaborated with One97 Communications (handles India’s Paytm Payments Bank which is backed by Alibaba) to provide local payment services. Paytm is owned mainly by Vijay Shekhar Sharma, an Indian entrepreneur and the 49% remaining is owned by One97. In the meanwhile, Ant Financial is cooperating with Ascend Money in Thailand. Even Tencent is flourishing in the region. After having obtained its license to enable local transactions through its payment service in Malaysia, it now has plans to launch WeChat pay this year.

Alipay wants to expand its services to local users overseas

Nikkei, the Japanese financial daily stock index reported in Aug 2017 that Alipay will soon launch a local market payment platform this year whose success will be based on tourists and visitors. In fact, it is expected that the merchants, department stores and vendors in Alipay’s network will expand from 40,000 to 45,000 in 2018. Ant Financial and WeChat Pay are already offering mobile payment services to Chinese tourists in Japan since 2015. Nikkei also announced that Ant Financial is looking for partners to collaborate in expanding and developing Alipay overseas for local users.

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