China’s Transition to Digital and Mobile Payments
Why is mobile payment so popular in China?
Compared to other countries, mobile payments have taken off extraordinarily fast in the Chinese market. The reasons why include high mobile phone and internet penetration, better social integration and widespread merchant adoption.
As of December 2016, there were 731 million internet users in China, making up about 53% of the total population. Of these 731 million internet users, 95% of them access internet through their phones, or 695 million mobile users. As mobile usage increases, so does mobile payment.
As mobile payments have gotten more popular, the use of credit cards has decreased. Credit cards had a hard time taking hold in the market due to widespread mistrust of using credit and discomfort with the idea of borrowing money. As mobile payments are tied to debit cards, users were able to trust it more. Additionally, mobile payments platforms are highly interwoven into daily life. Both Alipay and WeChat have multiple functionalities, which make them easier to use for payments both online and in store.
Unlike credit and debit card payments, mobile payments generally only require a QR scan. This has led to widespread adoption of Alipay and WeChat among businesses as it is relatively cheap and is faster and more convenient.
Popularity of payment methods vary by city tier level. Amongst the 1st tier cities (including Beijing, Shanghai, Shenzhen and Guangzhou), mobile payment apps like AliPay and WeChat Pay have near dominance at 94.1%. This number drops for 4th tier cities in favor of cash.
How big is China’s mobile payment market?
In 2016, people in China spent US$5.5 trillion using mobile payment platforms – about 50 times the amount spent in the U.S. where the popular form of payment remains debit and credit cards.
The total transaction volume of non-banking payments was almost RMB 100 trillion (US$15 trillion) in 2016, or double the amount in 2015. The total number of third-party mobile payment users increased to 468 million, representing 70 percent of China’s total mobile users.
China is quickly becoming a cashless society.
The size of China’s mobile payments market is not skewed by its large population. In China, per capita mobile payments volume in 2016 was US$1,700, whereas in the US, it was US$475.
Using mobile payments has rapidly become the social norm in modern Chinese culture. According to a report by the Tencent Research Institute, 40% of Chinese people regularly carry less than RMB 100 (approximately US$15), with 14% not carrying any cash at all. This trend is particularly apparent in younger generations, especially the generation born in the 1990s. 52% of Chinese people use cash for 20% or less of their monthly consumption, and 73% said that they use cash when it is the only accepted form of payment.
Who are the main players in China’s mobile payment market?
The two main players are Alipay, owned by Alibaba, and WeChat, owned by Tencent, who together make up 92% of mobile payment market share.
Launched in 2004, Alipay was introduced to facilitate payments on Taobao.com, Alibaba’s C2C e-commerce platform. By the end of 2016, Alipay made up 55% of the market, but it commanded a greater share – 61.5% – of business-related transactions.
WeChat Pay (or “Weixin Zhifu”) is growing quickly. By the end of 2016, WeChat grew to 37% market share, a more than 100% growth from 15.9% in Q3 2015. WeChat is less popular for business transactions, taking 26% of that market.
Other third-party operators together make up 8%. This includes 1qianbao, Union Mobile Pay, LianlianPay, JD Wallet, 99bill, Yibao Pay, Suning Pay and others.
WeChat’s growing market presence outside of China
While WeChat’s parent company, Tencent, has been shy about releasing user data about regions outside of China, it is clear that it has international ambitions, especially in Southeast Asia.
According to December 2015 numbers, WeChat had 70 million users outside of China. However, that number is likely to be much higher. For example, Tencent claims to have 95 percent market penetration in Malaysia. Considering Malaysia’s population of 31 million and a 65 percent mobile social penetration rate, this means over 20 million users in the country alone.
WeChat’s global expansion depends on market acceptance of WeChat Pay. Tencent has been diligently partnering with local payment companies to address this problem and has already seen initial success. Currently, WeChat Pay exists in 15 countries and accepts 12 currencies, and the company recently announced plans to expand to North America.
To date, most of Tencent’s activities outside of China has focused on capturing the lucrative Chinese tourist market. However, the company has hinted that it intends to increase usage to local users in other countries as well.
From 2014 to 2016, the average WeChat user has rapidly increased its number of contacts. In 2014, 13% of users have more than 200 contacts. In 2016, this number increased to 44%.
Due to the wide variety and number of in-app services, users spend more time on WeChat, with almost 34% spending more than four hours on it daily.
From 2013 Q1 to 2016 Q4, the number of monthly active WeChat users has risen significantly, more than 358% from 194 million to 889 million.
Official WeChat accounts include a wide variety of content and services. In 2016, 41.1% of WeChat accounts was related to personal interests, while 36.1% was related to information and news. Only 17.7% was retail and business accounts, suggesting potential growth in that area.
