“Even the beggars around the West Lake are using Alipay,” quipped Alibaba boss Jack Ma in reference to the famed lake in his company’s hometown of Hangzhou. Ma’s Ant Financial owns Alipay, the mobile payments service, which has become ubiquitous in China, establishing a virtual duopoly in mobile payments with Tencent, which offers WeChat Pay and QQ Wallet. Now Ma wants to take Alipay worldwide.
In 2015, mobile payments in China amounted to Rmb10.2 trillion ($1.5 trillion). This represented about 15% of the amount that UnionPay processed through its debit and credit card network. However, mobile payments witnessed exponential growth last year, with the increase in usage in the fourth quarter alone surpassing the whole of 2015.
The trend has continued in 2017, with total payments of Rmb18.81 trillion in the first quarter. By comparison, mobile payments in the United States are expected to reach $75 billion in 2017, just 2.7% of China’s total.
The Chinese are leading the world in mobile payments thanks to Alibaba’s all-encompassing e-commerce ecosystem and Tencent’s dominant presence in messaging and social media. As National Business Daily reports, the two brands have “infiltrated all aspects of consumer life”. But the newspaper has also been examining how UnionPay can best defend its position, following an earlier admission from Shi Wenchao, the card company boss, that physical banking cards “will soon disappear”.
UnionPay has enjoyed a monopoly over Chinese debit and credit card payments, much to the frustration of Visa and Mastercard. But last month it announced a new mobile payment scheme in tandem with 40 commercial banks that is designed to take on Alipay and Tencent. Customers can leverage the apps of participating banks to make QR code payments, which means the card network will be able to support payment options similar to those of Alipay and WeChat Pay. A second group of 60 banks will join the programme by December.
Jiemian, a news site with a tech focus, points out that UnionPay has wasted valuable time trying to set up a bespoke app using near field communication technology, which customers need to download in conjunction with their mobile banking apps. The newer approach acknowledges that consumers seem to favour QR codes – as employed by Alipay and Tencent for smartphone payments – which will be embedded in each bank’s payment app.
Dong Ximiao, a visiting professor at the Chongqing Institute of Financial Studies, says that the involvement of the banks in the UnionPay scheme will finally deliver a national standard. And for the banks, the benefits are twofold: Alipay and Tencent will grab less of their fee income and they will regain valuable information on their customers’ spending habits.
UnionPay is trying to position its mobile payment offering as safer and more trustworthy, which may play better for larger payment transactions, while WeChat and Alipay are more frequently used in payments of smaller amounts. It is also rolling out the scheme internationally where it will compete against Alipay and other payment providers such as Apple Pay and Samsung Pay.
Meanwhile Alipay’s target is to get closer to Visa’s 2.2 billion customer accounts in the next decade. At the end of 2016, it had 450 million active users and its parent Ant Financial postponed an IPO earlier this year to concentrate on building up its international platform.
In February, Ant invested $200 million in South Korea’s Kakao and in the same month it acquired a 40% stake in Mynt in the Philippines, alongside the Ayala Corporation. In April, it purchased HelloPay in Singapore and renamed it Alipay. The biggest move so far, however, is a $1.2 billion offer to purchase MoneyGram in the US. The deal was approved by shareholders last month, but it now faces a rocky ride through CFIUS (the Committee on Foreign Investment in the US) after two senators voiced opposition, claiming it would be virtually impossible for a US firm to make the same kind of acquisition in China.
Equally crucially, Alipay’s agreement with the world’s second largest online payment processing firm, First Data, took effect at the beginning of June. opening up four million point-of-sale terminals in the American market.
© ChinTell Ltd. All rights reserved.
Brought to you by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.