When it comes to mobile cash transactions, there is no doubt that China is light-years ahead of other countries and is well on its way to becoming a cashless society. eMarketer predicts that by 2021, 79.3 percent of smartphone users in China will be scanning, swiping, and tapping at the point of sale.
In this article, we discuss the trend of mobile payment systems in China, commonly used mobile payment platforms, and what a cashless society entails for the world’s second-largest economy.
What are the major Chinese mobile payment systems?
As of 2012, about 96 percent of payments in China were transacted via a variety of means including cash, check, and credit/debit cards. However, thanks to the introduction of mobile payment methods, payments systems have been radically transformed in China.
The growth of mobile payment systems didn’t really pick up until 2014. Fast forward to 2019, about 90 percent of payments in China are facilitated via mobile payment platforms and at least 577.4 million Chinese consumers use mobile payment systems.
Given the prevalence of mobile transactions, there are various types of these mobile payment systems with Alipay and WeChat Pay the top two Chinese mobile payment systems most commonly used by Chinese customers.
Alipay is a mobile payment system owned by Alibaba Holding Group Ltd. Alibaba affiliate Ant Financial Services is China’s largest e-commerce network. Launched in 2004, Alipay was the first Chinese mobile payment platform. It was initially developed as an escrow service to facilitate transactions between sellers and buyers on Taobao, Alibaba’s consumer-to-consumer e-commerce platform. With over 500 million monthly active users, a large percentage Chinese consumers, Alipay holds about 54 percent of the market share.
- WeChat Pay
WeChat Pay, also known as Tenpay, is a Tencent subsidiary. WeChat Pay was launched in 2013 and like the name implies, it is available through the Chinese social media app – WeChat. With over one billion active users, WeChat is the most popular social media platform in China so it is not surprising that its mobile payment system is one of the most widely used among Chinese consumers. WeChat holds about 40 percent of shares in the mobile pay market and boasts over 900 million monthly active users.
With over 90 percent of the market share of China’s mobile payment market worth $5.5 trillion USD, it is apparent that the mobile payment industry in China is dominated by the Chinese tech giants, Tencent and Alibaba. Except for very large sums, both WeChat and Alipay do not charge users for mobile transactions.
However, there are other mobile payment platforms beyond the products of these two companies and although they are not as popular, these other mobile payment systems are still commonly used in China; these include Union Mobile Pay, 1qianbao, and JD Bank Mobile Wallet.
How do Chinese mobile payment systems work?
Chinese mobile payment systems, especially, Alipay and WeChat Pay use Quick Response (QR) codes to enable transactions from one party to another. Depending on the merchant or business, QR codes can work in two ways;
In the first method, the person making the payment has to scan the merchant’s QR code which is often printed and placed on the cash register. Once the payment app recognizes the vendor using the app and the smartphone’s camera capability, the buyer can then input the amount to be paid and confirm the transaction to complete the payment. This method is popular with small businesses.
In the second method, the roles are switched. The merchant scans the buyer’s QR code which will be displayed on their smartphone. A unique QR code is generated for each user once they sign up to the mobile payment platform. When the QR scanner/reader recognizes the buyer, the merchant will then enter the payable amount to be deducted from the buyer’s account, linked to the app via their bank card. The second method is more commonly used by bigger businesses who can afford to invest in a QR scanner.
The best thing about QR code-enabled payments is that they can work on any smartphone. Unlike Near Field Communication (NFC) which requires NFC technology-enabled phones and is used by Apple Pay and Samsung Pay, QR payments just require internet connectivity to work.
The only downside here is that in certain parts of China, internet connection is either unstable or very poor which is bound to hinder the use of mobile payment systems in these regions. Nonetheless, the ease of mobile transactions via QR payments has contributed largely to the fast adoption of mobile transactions in Chinese markets.
These companies do seem to promote offline payment systems on their websites and F&Q pages, but many online articles and community forums still discuss how more often than not, using these payment sytems offline or without data just do not work. It still seems that for many users, the best results are when their smartphones are equipped with internet or data. As the market continues to expand, these services are sure to improve.
What are the benefits of a cashless system in China?
Whether you are paying for your taxi ride, paying for a meal in a restaurant, or buying goods from a street vendor, mobile payment platforms have infiltrated almost every aspect of transactions in China. Essentially, thanks to its convenience and ease of use, mobile money transaction is no longer a novelty in China, whereas paying with cash is.
Notwithstanding, mobile payment systems in China offer more than convenience and ease of use. They have had a substantial impact on China’s e-commerce economy. A large number of Chinese consumers make payments via their smartphones, which has persuaded a lot of companies to adapt the mobile payment trend. Companies like Harrods, Starbucks, and the hotel giant Marriott have all adopted mobile payment systems. The world’s largest shopping mall located in Dubai now accepts payments via Alipay to cater to the needs of Chinese shoppers and Chinese tourists in Munich airport can book their flights and pay for their tickets via WeChat Pay and Alipay.
Further, with all the spending that takes place within these mobile payment apps, the companies Tencent and Alibaba sit on a ton of consumer data gathered from their spending behaviours and can be used to create a detailed profile of each user. These companies use this information to send users ads about places and things which align with their consumer behavior.
WeChat Pay and Alipay recently went into partnerships with tax refund companies to enable Chinese consumers secure rebates on their purchases. Alipay itself supports tax refunds in about 80 airports around the world. Both companies are also looking to incorporate financial products such as loans into their systems as well.
Alipay and WeChat Pay are now accepted in about 40 countries all over the world. While the rest of the world is still trying to adopt mobile payment systems, Chinese mobile payment systems are leaving footprints all over the globe, leading a mobile payment revolution that is bound to change the landscape of transactions forever.
China’s thriving e-commerce market is largely driven by its mobile-oriented consumer behavior. Unlike consumers in Western markets, Chinese consumers have been less hesitant about adopting mobile payment systems and today, thanks to a world-class digital infrastructure that facilitates Chinese mobile payment systems, China has the largest e-commerce market in the world with a volume eleven times that of the United States.
Everyone can appreciate the ease of use and convenience of mobile transactions and as a global force in mobile payments, international brands looking to target Chinese consumers will do well to incorporate Chinese mobile payment systems into their business practices.