China – first country to go cash-less /Jamila Dahoum



China, a country where cash doesn’t exist – WeChat alipay

Interestingly China (more specifically Chengdu) was the first country to introduce paper cash, yet China is now the country that dominates in cash-less mobile transactions. In 2016, the Chinese spent $5.5tn through mobile payment platforms, for comparison, this is 50 times more than the US1. For this reason, it is crucial for your business to tap into this market and utilise the significant smartphone usage in China and gain access to Chinese consumers.

This blog post will discuss the variety of ways that allow you to take advantage of this massive smartphone market, such as ensuring your website is available in mobile version, compatible on Chinese phones and integrated with Chinese payment methods.

Payment methods – in-store

How would you summarise China’s payment methods? In just three words…“QR codes everywhere”. It is very common for people to just carry nothing but their smartphone with them. Chinese consumers rarely carry cash around with them and cash is becoming a thing of the past. In fact a recent survey found that 70% of people thought carrying cash was unnecessary2. Long gone are the days when people would carry cash and cards, instead, people carry phones and power banks!

Chinese consumers do not just use their smartphones to purchase products online, through websites and mobile apps, they also use their smartphones as a payment method in physical stores. China is definitely ahead of any other country in this respect, with over 38% of shoppers using their smartphone to pay for products in-store3. In some cities, even things like buses, street vendors and market stalls support this payment method. Furthermore in Hangzhou, home of Alibaba, even visitors of the major Buddhist temple can make electronic donations using the payment apps can be paid through the same QR code method. This works through two mechanisms, WeChat wallet or Alipay.

The two Payment Methods in China: Alipay and WeChat

China’s mobile transaction market is immense and in the first 3 months of 2017, transactions amounted to 18.8tn CNY ($2.76tn)4. Alibaba’s Alipay, and Tencent-backed Ten-pay (embedded in the WeChat app and called WeChat Pay), together hold 90% of the market1, in fact last year Apple Pay launched in China and struggled to become a genuine threat to the dominance of these two payment methods. In 2016, Alipay and Tenpay took 50% and 38% of China’s mobile payment market (respectively)5, clearly leaving little room for a new entrant or competitor.

WeChat Wallet (微信支付)

WeChat is a very popular multi-functional “super” mobile app with 938m active users globally (almost 1/7 of the world's population). 500m of these are in China alone. In China, WeChat users make up 79.1% of all mobile phone messaging app users6. In fact, WeChat is considered the most advanced mobile messaging app globally; due to its functionality and array of services it offers users and businesses4.

WeChat works by allowing users to sync their bank card into the app which allows users to go cash-less and to scan QR codes to make payments. The WeChat wallet function is a very popular feature with over 300m users having their credit card linked to their account7. The feature provides a clear and simple way to make in-store purchases. Users get an immediate notification as soon as the code is scanned and a separate ‘service message’ notification appears in the chat section of the app, when the payment goes through. Upon clicking on the service message one can see previous transactions, allowing Chinese consumers to track spending with ease. Furthermore, money can be sent as a one-off, meaning no need to sign up to mailing lists and no information about the user is exchanged.

WeChat Pay is a truly multifunctional app, and the app also allows firms to provide coupons and loyalty cards. Coupons allow users, who are signed up to a particular WeChat Official account, to get discounts and coupons. A common way for this to be done is via the use of “VIP cards”, this allows for increased customer loyalty, providing consumers with better prices, discounts, money-off and rewards for making a certain number of purchases. This allows consumers to get better value for money and enables firms to gain from consumer loyalty, increased popularity, while promoting themselves.

Not only can the wallet be used to pay in physical stores but it can be used to transfer money between people. This can be done in 2 ways: a simple transfer or a red packet. The former refers to the direct transfer of money into the other persons account; the individual receiving the money gets a chat notification. The latter is based on the Chinese tradition of ‘hongbao’ (red envelope), where money is given as a gift.

Each of these money transfer methods are simple and easy to use and take effect almost immediately, enabling individuals to track incoming and outgoing expenditure on the app easily. In addition to this, the app allows users to move money between their bank account and the app effortlessly and as frequently as the user likes, which further facilitates expenditure tracking.

Alipay (Zhi-fu bao 支付宝)

Alipay is China’s most popular payment app, with over 450m registered users worldwide (2017)8, 100m daily active users9 and 300m users in China10. Alipay is known as the ‘Almost-universal Paypal’ and in fact in 2013 Alipay overtook PayPal as the world's largest mobile payment platform11

Alipay offers a very similar payment system to WeChat, allowing users to make payments for day to day expenses, pay bills, transfer money to individuals and to transfer money to and from their bank account. Alipay provides payment services globally, for 65 financial services, including Visa and Mastercard12, as well as payment services for Taobao and Tmall, China’s largest online selling website (similar to Amazon and Ebay in the Western world), along with over 460,000 Chinese businesses13. Furthermore, Alipay currently supports transactions in 14 major foreign currencies.

Alipay recently launched facial recognition and “smile-and-pay” technology in in Hangzhou, in order to attract younger users. This technology does not require users to carry their phone and is one of the was that Alipay hopes to use in order to expand globally and ensure future growth.

Even though Alipay is expanding globally, in Western markets Alipay doesn’t command the same dominance as it does in China. In the Western market Alipay has to compete with other established payment apps, such as Apple pay and Google pay. However, their main aim of expansion is to support Chinese tourists who travel abroad.

Summary

Overall both Alipay and WeChat are very similar, allowing users to make in store payments, pay bills, rent and transfer money. However, Alipay doesn’t have the social element that WeChat does, yet ALipay is integrated with TaoBao and JD for online purchases and is looking to integrate mini apps within the app (removing the need to download actual apps, reducing home-screen phone clutter and potentially waive deposits14) and is working to perfect face recognition payment methods. Even though Alipay is ahead of WeChat, WeChat is slowly catching up to Alipays dominance.

Both of these payment methods provide an array of benefits to Chinese consumers, they allow for easy and quick purchases, without the need to carry cash or receive physical change from stores. Individuals can easily track their spending and are notified immediately upon doing so. These payment methods appeal to Chinese consumers who typically don’t like to use credit cards, out of 100 transactions, only one is done by credit card15 and in China there are ten times more debit than credit cards16. Furthermore, it has been found that Chinese consumers prefer to use their phones for purchases17.Chinese consumers don’t like to spend money that they don’t have so these methods provide a viable alternative as any Chinese bank card can be synced to the app.

Thus, in order to expand your business successfully it is crucial to be aware of this and to utilise online, mobile and non-cash payment methods, in order to get the most out of expanding into China and to gain as much access to Chinese consumers. People buy using QR codes, and sellers sell using QR codes, this makes everyone a potential customer or seller!

References:

1 - http://www.npr.org/sections/alltechconsidered/2017/06/29/534846403/in-china-a-cashless-trend-is-taking-hold-with-mobile-payments
2 - A survey recently conducted by Beijing Youth Daily showed that,http://www.trunews.com/article/chinas-wechat-and-alipay-leads-world-into-cashless-society
3 - https://www.applause.com/blog/mobile-payments-global-adoption/
4 - http://www.trunews.com/article/chinas-wechat-and-alipay-leads-world-into-cashless-society
5 - https://techcrunch.com/2017/02/28/apple-pay-china-one-year-on/
6 - http://www.trunews.com/article/chinas-wechat-and-alipay-leads-world-into-cashless-society
7 - from blog number 1 older version
8 - https://techcrunch.com/2017/05/09/alipay-first-data-us-point-of-sale-expansion/
9 - https://expandedramblings.com/index.php/alipay-statistics/
10 - https://www.cultofmac.com/430111/in-china-you-pay-with-cash-or-alipay/
11 - John Heggestuen (11 February 2014). "Alipay Overtakes PayPal As The Largest Mobile Payments Platform In The World". Business Insider.
12 - ↑"About Alipay". Alipay. Retrieved 10 October 2013.
13 - https://ipfs.io/ipfs/QmXoypizjW3WknFiJnKLwHCnL72vedxjQkDDP1mXWo6uco/wiki/Alipay_(payment_platform).html#cite_note-Alipay-3
14 - https://www.techinasia.com/alipay-mini-programs-open-to-devs
15 - https://www.marketplace.org/2008/09/05/your-money/chinese-prefer-paying-cash
16 - https://www.ft.com/content/e1469cf0-9cf5-11e3-9360-00144feab7de
17 - http://money.cnn.com/2016/04/08/technology/beijing-mobile-payments-no-wallet/index.html

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