Smart money

Chinese consumers drop cash and skip cards to create world's largest mobile payment market

Thomas Derksen, a German who has won fans online for a series of videos poking fun at everyday life in Shanghai, spent an entire day this summer shopping in a major Chinese city - without cash or a credit card.

The 24-hour adventure in Hangzhou, which was streamed live on the internet in August, saw Derksen ride a bus, buy a bouquet of flowers for his wife and even enjoy a street snack, all paid for using apps downloaded to his smartphone.

Going out without cash is "something I couldn't imagine doing back home in Frankfurt", says Derksen, who lives in Shanghai and is known as A Fu among his Chinese fans.

After traveling to hundreds of cities in more than 30 countries, he believes Hangzhou, the capital of Zhejiang province and home of internet giant Alibaba Group, is No 1 in terms of mobile payment. Statistics from the Hangzhou-headquartered Ant Financial Services Group, the operator of Alipay - China's largest mobile payment service provider - show that about 98 percent of supermarkets and more than 40,000 restaurants allow customers to pay with apps.

Hangzhou is not unique in China, though. In most cities, especially developed metropolises, mobile payment apps are now a part of everyday life.

A report in June by eMarketer, a research company in London, says China has the world's largest proximity mobile payment market, with an estimated 200 million people regularly paying for goods and services by tapping or swiping a smartphone, up 45.8 percent from last year.

Unlike in the United States and Europe, China does not have a strong credit card culture. In effect, the country has jumped directly from cash to mobile payment.

"The phenomenal opportunity for retailers is that smartphone users in China are more willing to store payment information in their phones and are more willing to experiment with other forms of noncash payments than users in most other countries," says Shelleen Shum, a forecast analyst at eMarketer.

A surging smartphone user base (it is forecast to reach 740 million in 2017), a booming e-commerce market, government policies to encourage the market, and an array of players including Alipay, WeChat, Samsung Pay and Apple Pay have led to a boom in China's mobile payment market, adds Zhi Ying Ng, an analyst at multinational management consultancy Forrester.

In addition, mobile payments mean companies can collect a massive amount of data from users, offline merchants can benefit from a lower-cost and more-efficient payment process, and users can enjoy a new level of convenience.

Speedy shopping

According to French supermarket chain Carrefour, on average a cashier spends 1 minute handling a standard payment at the checkout. Yet by using Alipay, which is operated by Alibaba affiliate Ant Financial Services, the process can be shortened to 15 to 20 seconds.

"You can scan the QR code to pay or show the cashier your QR code on WeChat or Alipay. Within 1 second, the payment process can be completed," says shopper Guo Cuiling.

An Ipsos report in May showed almost 50 percent of mobile payment users live in first- or second-tier Chinese cities, with the average age 31.

Guo, 55, of Beijing, says she started using WeChat and Alipay to pay for her shopping in December, when the two services offered hundreds of millions yuan worth of subsidies to lure new users.

"It was complicated for me to link my bank card on WeChat, but as soon as my son helped me set it up it was very convenient to use," she says.

Data provided by Analysys, a Beijing internet consultancy, show overall transactions in China made by third-party payment solutions reached 5.97 trillion yuan ($895 billion; 797 billion euros) in the first quarter of this year, up 5.34 percent quarter-on-quarter.

More than 63 percent of transactions were made via Alipay, with 23 percent made via Tenpay, which is operated by internet company Tencent Holdings. Many of Tencent's payment services, such as WeChat payment and QQ payment, are based on Tenpay's technology.

Fang Fang, a partner with PricewaterhouseCoopers' Strategy&, says compared with other countries where near-filed communication technology-enabled mobile payment services, such as Apple and Samsung payment apps, are major players, in China, paying by scanning a QR code is the dominant method for mobile payments.

Alipay and WeChat, which both require users to scan QR codes at the point of sale, are established players, having spent hundreds of millions of yuan on discounts and cash-back offers to encourage customers to use their apps.

Fang considered the 300 million user base of Alipay and WeChat as huge advantage for the QR code payment to thrive in China.

In some way, NFC comes with better user experience. However, which method will eventually come out on top is yet to be seen.

Apple and Samsung's services, both launched in China this year, are based on near-field communication, technology that enables two electronic devices to "talk" by bringing them within a few centimeters of each other. However, which method will eventually come out on top is yet to be seen.

"The landscape of payment industry is changing rapidly. Paying by QR code is certainly leading the way in China right now, but one of the challenges in further development this method come from convincing more offline merchants in China to update their cashier systems to enable QR code payment," she says.

An estimated 1 million offline merchants in China allow payment by QR code. Meanwhile, about 15 million cash machines support payment by debit or credit card, and about 6 million support payment via near-field communication.

"The infrastructure for near-field communication payment is good," Fang says. "But as late movers, companies that provide NFC-enabled payment services really need to step up their efforts to help users form the habit of using such payments."

Attractive market

In addition to internet companies, banks and other companies, such as real estate developer Wanda Group, have made moves to expand into the mobile payment market.

Tang Kok San, country manager for Worldpay China, a payment processing company in London, says the battle for supremacy in the payment app market is just heating up.

"Never before has consumer choice been so broad," he says. "There's no doubt China's mobile payments space is getting bigger and more competitive."

The fierce competition, as well as the growing number of Chinese outbound tourists and their rising spending power, has prompted Chinese companies to look abroad for new growth momentum.

Eric Jing, president of Ant Financial, says the company aims to have 2 billion customers using Alipay in the next decade, with about 60 percent from outside China. However, he concedes that developing countries that are relatively weak in finance infrastructure offer more potential than developed regions.

Last year, Ant Financial invested in Paytm, one of India's largest digital transaction platforms, and since then the Indian company has seen its customer base grow by 22 million to more than 130 million users.

But Jing hasn't given up on his dream of cracking the West. He's pinning his hopes on convincing businesses in developed countries to allow Chinese travelers to select Alipay as their first-choice payment option.

"By changing the habits of Western businesses, we hope we can one day change consumers' habits, too," he says.

To seize the opportunities brought by China's National Day holiday (Oct 1 to 7), one of the most popular seasons for outbound travel, Ant Financial reached a deal in September with 10 overseas airports, including Munich, Singapore Changi, Narita International (Tokyo), to ensure Alipay is accepted there.

WeChat, and Baidu Wallet, which is run by search engine operator Baidu Inc, have also stepped up efforts to make sure Chinese tourists can use their apps in more shopping malls and airports overseas.

Li Chao, an analyst for iResearch Consulting Group, says the swelling number of Chinese outbound travelers and their spending power are only part of the reason companies are looking abroad.

"Intense competition has dragged down profits for digital payment services in China," he says. "Looking abroad is in line with their internationalization strategy and the goal to be more profitable. The best way to start is with Chinese outbound travelers."

However, Tang at Worldpay China says the European market is already crowded and there is a sense of "app fatigue" setting in among consumers, so it may take a while for WeChat and Alipay to reach similar heights in Europe and the United States.

"But these businesses can offer something new and unique to the app fragmentation that currently dominates mobile use in the West," he adds. "They have the potential to disrupt the status quo and fundamentally change the way social media platforms are used by consumers in these markets."

mengjing@chinadaily.com.cn