Mobile Payments via Messaging Apps- Is the Eastern Reality still a Western Dream?
Part 2 in a series on how WeChat shines a light on the future of Messaging Apps in the West.
I approached a beaming little old Chinese lady selling watermelons in a ‘Hutong’ ( small alleyway) in Shanghai. After choosing my purchase, I reached over her bicycle-pulled wooden stall to hand her the cash. First, she shot me a puzzled look before laughing at the silly Laowai trying to pay her in such an outdated fashion! She pointed instead to the laminated QR code she had taped to the front of the stall. Like thousands of Chinese Businesses, WeChat Pay is how she operates.
Mobile Payments Today
In a recent report eMarketer estimated that by 2016 there will be an estimated $60 billion in mobile payment sales. 90% of smartphone users will have made a mobile payment by 2020. The mainstream push towards mobile payments began in earnest in 2014 with the launch of Apple Pay and within a year, Android and Samsung Pay ramped up the competition with their own versions.
Though Apple Pay has received wide acclaim for being the first product to really kick start the growth of mobile payments, a glance over The Great Firewall reveals this is not entirely true!
“Mobile payments in China are at least 3 to 5 years ahead of Europe.” Tobias Futze, consultant at Mediamen Shanghai
In this post, I will analyse the phenomenon that is WeChat Payments and how the Western world is moving in a similar direction with recent developments such as Messenger’s payments enabled platform. I will also discuss the Challenges faced by the large messaging platforms in the West, as they strive to replicate WeChat’s success in markets with very different characteristics to China.
In an article on 2017 tech trends, Michael Wolf of the Wall street Journal states that messaging apps have become crucial in how users conduct transactions as ‘their patience with specialized smartphone apps fade’. What is an emerging trend in the West, is a well-established reality in the East.
“WeChat is not so much an app as an entire mobile operating system, and accounts for more than one-third of all time spent online by Chinese mobile users; HSBC values the app at over $80 billion” The Economist
Consumer adoption of Mobile Payments in China
67% of WeChat users spend over 100rmb ($15) per month on the platform in 2016, which is double what they spent in 2015. And according to McKinsey, the volume of users of the WeChat pay function also doubled in the same period. Why the big increase in mobile payment spend and adoption? Utility! WeChat mobile payment users in China have instant, friction-less access to the WeChat Wallet services, all official accounts that sell products or services, and any associated promotions or campaigns.
Since it’s launch in 2013, WeChat Payments has revolutionized how retailers and customers interact. In a study conducted by research firm Nielsen Norman Group, many Chinese research participants considered the app’s payment service more central than the chat service. By leveraging its users’ dependency on social media and instant messenger services, WeChat has managed to literally replace people’s wallets.
Through the wallet section and the integrated browser of WeChat, users can perform a variety of transactions using WeChat Pay, including but not limited to:
- Transferring money to friends (especially as “red envelopes” shared during Chinese festivals)
- Performing transactions on e-commerce websites
- Paying for water, electricity bills and mobile top-up.
- Order and pay for a cab, train ticket or flight.
Three years ago, only a tiny fraction of users actually used the payment function, but now roughly two thirds of its users are making regular e-commerce purchases directly through the app.
How does WeChat Payments Work?
The best way to illustrate WeChat Payments is to show an example:
- This is the WeChat home screen. I clicked the plus on the top right then selected ‘money’ from the drop-down menu.
2. Here you can see the two options- send or pay. In this example, I chose ‘Pay vendors’.
3. I then entered my password pattern.
4. Next, this QR code was automatically generated. A vendor can then scan this code using their own WeChat scanner or an ordinary bar code scanner. The transfer takes place immediately and a confirmation message appears.
Messenger Payments
As I have alluded to in a previous blog, where WeChat leads, others are following.
Messenger made its intentions clear when the company appointed former Paypal CEO David Marcus as VP of messaging products in 2014. Marcus made a difference at Facebook almost immediately; less than a year after his arrival, the company added a person-to-person payments feature to Messenger.
“Marcus says he has always admired China’s WeChat platform and used it as the inspiration for his vision of what Messenger could become. That suggests that P2P is likely only Messenger’s first act of many”. Karen Webster, CEO of Market Platform Dynamics
Experts predicted that Facebook would push the payments angle further as people became accustomed to communicating with brands via messaging apps. And they were right.
In September 2016, it was announced that the Messenger chatbot service is now commerce enabled. Marcus, explained that users will no longer be sent to an external website because Messenger bots will be able to facilitate payments natively, TechCrunch reported.
Furthermore, the credit card info people already have stored in Facebook or Messenger can be used to instantly make purchases in bots that are part of the new closed beta that developers can apply for.
In the same announcement, Marcus confirmed that 34,000 developers have joined the platform and that 30,000 bots were created. He also noted that Facebook is working with many major payments companies, including Stripe, Braintree, Visa, Mastercard, American Express and PayPal, to support payments in Messenger.
A good example of Messenger Payments in action is the Shopify-Messenger integration. The integration works by giving customers a “Shop Now” option when they start a conversation with any Facebook Business Page store. Using Shopify’s Messenger sales channel, the merchant’s entire product catalog can be brought up. Users can then tap through to browse and buy, completing purchases via Shopify’s checkout portal, which operates completely within Messenger.
“From an end-consumer perspective, it’s still pretty novel to think of messaging a business first when you want to interact with them, so that’s going to take some time to catch up with some of the interactions that are common in Asia,” explained Shopify product manager Brandon Chu in an interview. A bigger bet on Messenger seems smart, especially if the North American scene moves (as many are hoping it will) to more closely mirror the state of mobile in other markets, like Asia. Watch this space!
What are the Challenges and Risks of Mobile Payments?
Despite these advancements, it must be noted that the concept of Mobile Payments via messaging apps still faces significant obstacles in its push to become a ‘method of the masses’, especially in the Western World. Three critical issues are security concerns, competition between mobile payment providers and entrenched cultural differences.
- Security
The obvious question which arises when discussing mobile pay relates to security. Inevitably, when payment transfers become as convenient and simplified as the tap of a screen, a myriad of fraud and data protection issues spring to mind.
“Your cell phone can be your wallet, but most people are still too worried about hackers to switch from paying with cards and cash” John Rampton,Entrepreneur.com
However Facebook is confident that it has put sufficient security checks in place with ‘industry-leading controls’ and ‘bank-level encryption’. “Payments can now be integrated into messages, making it easy for customers to shop and purchase without leaving the app,” Facebook wrote in a blog post. Transactions and payment info are encrypted, and Facebook says “These payment systems are kept in a secured environment that is separate from other parts of the Facebook network and that receive additional monitoring and control,” from an anti-fraud team.
2. Competition
“ China is a sort of technological Galapagos island, a distinct and isolated environment in which local firms flourish. Chinese firms are protected from external competition by government regulation and the Great Firewall” The Economist
WeChat Payment’s rise to mainstream acceptance in China was facilitated by the fact that it had no real competition in the mobile messaging app market and certainly no competition with regards to messaging apps providing a payment function. (Alipayoccupies a significant share of the mobile payments market but is not a messaging app)
The mobile payments via messaging apps space is much more competitive here and Messenger faces stiff competition from Snapchat Inc (Snap cash) and Telegram ( the company has promised a payments feature in the near future). And of course it goes without saying that designated mobile payments providers such as the aforementioned Apple Pay as well as Samsung and Android Pay further add to the competition.
3. Cultural Differences
And finally, no discussion juxtaposing China-related issues to those of the West is complete without touching on the subject of cultural differences.Chinese consumers are increasingly embracing new technologies. The tendency to embrace change has been embedded in the Chinese Psyche since the sweeping reforms which have taken place ever since the cultural revolution. Back in 1978, President Deng Xiaoping likened the process of reform to ‘feeling the stones to cross the river’.
This trial and error approach to change is evidenced today by China’s embracing of new technologies such as WeChat Payments. Young, digital-savvy consumers have leapfrogged the desktop-era and even credit cards, choosing instead to embrace mobile payments. Living in a fast-moving economy, Chinese consumers have proven themselves to be early adopters of disruptive new technologies. This may not translate in more developed Western markets as existing technologies and credit cards mean there are much higher switching costs for consumers.
The Future of Mobile Payments
“ by 2020, 90 percent of smartphone users will have made a mobile payment.” Techcrunch
People in the West are still unfamiliar with mobile payments and security concerns are compounding this. The staggering success of payments via messaging apps in the East is indicative that it can be done and the West will eventually catch up. The fragmented nature of the messaging app ecosystem and the prevalence of operating system based payments in the West, makes it unlikely that there will be an outright winner like WeChat in China.
“mobile payments are expected to reach US$3 trillion by 2021- an estimated 11%, up from approx 5% in 2016.” Mobile Payments Today
But what will it take to get mobile wallets into wide adoption? I agree with the Mobile Payments Today sentiment that ‘what it’s going to take to get the mobile wallet to replace the tattered leather one in your back pocket is… when everything that’s in your wallet is in your phone, and more’. And everyone accepts that as reality. In China, this is already the case. The question is, how long, if ever, will it be before it becomes a worldwide reality?
This is the second post in a series of pieces on WeChat and how its business model and user experiences might succeed in the west, as well as where different tactics may be required. Keep an eye on our blog for the rest of the series. All comments, positive or negative are welcome!
