The Evolution of Mobile Payments in China
During a recent visit to Shanghai, I had noticed the abundant use of technology for the transfer of funds. For instance, calling for a taxi or rideshare would be only a few simple clicks away with Didi Chuxing, a Chinese ride-hailing app. A cashier would be surprised if you did not pay with WeChat or Alipay at the grocers or in restaurants. But, this was not the technology savvy China that I had known during a previous visit 4 years earlier. How did we get to this point, where the once heavily used source of payment known as ‘cash’ has become almost obsolete?
History of Online Payments
E-payments originated in the 1990s, with the Stanford Credit Union as the first financial institution which offered online banking. Then in 1994, Pizza Hut started to accept online food orders. Next came PayPal, founded in 1999 as company that operated an online payment system which served as an alternative to traditional paper methods such as cash and cheques. At the time, they were innovators in a fairly nascent industry of e-payments. Initially, people avoided e-payments as there was a lack of trust of having their money in an online system. As technology improved, e-payments became more secure and efficient, resulting in a growth in popularity. E-payments were sought as convenient as they were instant and quick, reducing transfer costs and time in-between transfers. Moreover, for businesses, e-payments reduce the risk of receiving fake bills. Consequently, e-payments became widely adopted, with additional e-commerce sites such as Ebay and Amazon requiring them. As Paypal established a foothold in the market since its inception, they quickly rose to the top, becoming one of the largest worldwide platforms for online payments today. As of today, Paypal has a $101.11 billion market capitalization, which further shows their market domination.
Rise of the Chinese Giants
E-payments have since become a method of payment utilized around the world. China, specifically, has been leading the global cashless trend with a mobile payment market of US$12.77 trillion. Currently, Tencent’s WeChat Pay and Alibaba’s Alipay account for 90% of the mobile payment industry.
Alipay was launched by e-commerce giant Alibaba in 2004, creating an easier payment system for their customers. Initially, there were many transaction failures due to a lack of trust. Since then, they have improved their payment infrastructure and grown to be a leader in the industry. As of 2016, they have a 54% share of the mobile China’s $5.5 trillion mobile payment market. On the other hand, WeChat Pay was launched in 2013 as a payment service for WeChat, the largest social media app in China. As, they already have an established customer base, WeChat Pay took a large portion of the mobile payment market immediately. Alibaba’s foothold in the e-commerce market and WeChat’s prominence in the social media market allowed both companies to easily capture the emerging mobile payments market.
The two companies’ successes are also fuelled by society’s transition towards efficient technologies as a whole. According to a study by Ipsos conducted in 2017, 40% of the Chinese population regularly carry less than 100RMB (about $16 USD) of cash when outside. Cash and cheques have become a hassle to the average consumer, and utilizing technology for purchases has become the primary alternative.
How Easy Is The Process?
Both WeChat and Alipay have utilized the increase in smartphone usage to their advantage. Whether it’s in a taxi or on the cash register in grocery stores, a quick response (QR) 2D barcode can be found. The customer has to simply open the WeChat or Alipay app and scan the code, which will provide access to information stored in the QR code. Money will then be transferred from the customer to the seller. The customer and seller both have bank accounts connected to the app, allowing the transaction to occur. Overall, this makes the whole process more efficient without any time delays between the customer paying and the seller receiving the money.
The Future for Mobile Payments
As society continues to become technology dependant, more and more users will begin to use forms of online payments more frequently. Although Alipay and WeChat Pay are large players in China, they seek to expand to foreign countries. There is a good reason for them to expand, as the global mobile payments market is expected to grow to USD $3.3 trillion by 2023. Both Alipay and WeChat pay have recently expanded into North America to match the influx of Chinese tourists overseas. Instead of creating an equivalent app overseas, WeChat and Alipay have focused on signing oversea merchants who would implement their payment systems. This means that more American retailers will accept WeChat and Alipay for payments. Moreover, WeChat Pay has already created features that would make it more appealing to foreign users. One example is “Go Dutch”, a feature that allows WeChat users to divide up a bill and pay using the app, which would appeal to foreign customers who are more likely to split the bill. Furthermore, due to a recent boom in Chinese tourism, more merchants from around the world may want to adopt the new mobile payment strategy to better serve their customers in a quick and reliable fashion. One downside is that traditional consumers, who still choose to pay with cash, may be left out of the picture. All in all, there is a positive forecast for the mobile payment market. As the market continues to grow, demand and supply for efficient technology both increase. With the speed at which society is transitioning towards mobile payments, during my next visit to China, I may truly see a cashless society.
Sources:
https://securionpay.com/blog/5-turning-points-history-e-payments/
https://jumpstartmag.com/alipay-vs-wechat-pay/
https://www.marketresearchfuture.com/reports/mobile-payments-market-2922
