Internet & Tech

The second charge

Following WeChat, Alipay is set to introduce transfer fees

Founder and Executive Chairman of Alibaba Group Jack Ma attends St. Petersburg International Economic Forum 2016

Eye on the big prize: Jack Ma

The first plastic gift cards were introduced in 1994 by Blockbuster video rental stores. They were a response to a rise in the fraudulent redemption of paper gift certificates, made possible by the popularisation of affordable colour printers. These plastic tokens were a stroke of genius for retailers, ensuring that customers had funds that had to be spent within their shops.

In a similar way, WeChat Wallet – the mobile payment system operated by internet giant Tencent – may have hit on how to make sure that consumers spend money through its own service.

In March it introduced a fee for withdrawing funds from WeChat accounts and moving them to personal bank accounts. Under the new regime, transferring Rmb1,000 ($150) or more from a WeChat account to a bank account is subject to a 0.1% transaction fee.

Tencent’s boss Ma Huateng defended the charge, saying that many people didn’t realise Tencent had been subsidising its WeChat Wallet users: Chinese banks charge WeChat a fee each time their payment system is used. And these costs had begun to take their toll. “I’ll be honest with everyone, at this point the fees surpass Rmb300 million each month and the biggest worry is that they will continue to increase at a high speed,” Ma said.

Although the charge was initially irksome, a review by Sina Tech concluded that WeChat Wallet’s usage actually increased after it was levied. Perhaps this initial success encouraged Alipay. It had previously said it would not follow its archrival’s lead, but has just announced it’s introducing a transfer fee too.

The motivation is identical to WeChat’s: cost control. Caixin Weekly quotes an Alipay representative explaining: “This is not an easy decision and it does not mean earning money is the only purpose of Alipay, but every service needs to rely on sustainable resources.”

Meanwhile the South China Morning Post says a company official said: “While we are providing more and more convenient and secure services, Alipay’s operating cost has been increasing at a relatively fast pace.”

Alipay occupies a substantially larger market share than WeChat Wallet, at 63% versus 23%. Similar to WeChat, its transfer charge will be 0.1% and will only apply to transfers from Alipay accounts to personal bank accounts. Moreover, the fee will only be charged when total transfers exceed Rmb20,000 . China Business Times believes that Alipay users generally transfer larger sums than WeChat users so this higher threshold will still have an impact on many customers, although Alibaba might hope its more generous policy could lure users away from WeChat Wallet.

Another incentive Alipay offers is its credit rewards scheme: customers gain a credit each time they use Alipay for a transaction and each credit can add Rmb1 to their fee-free threshold. It will also remain free to transfer money between Alipay and Yu’ebao accounts – a money market fund service provided by Alipay.

For both Alipay and WeChat the moves make practical sense: they encourage money to be kept within their own ecosystems and are another sign of their ambitions to play a bigger role in the banking system.

Indeed, there are signs that Alibaba wants to use technology to gain a further advantage over China’s predominantly state-owned banking sector, having made an acquisition last week that could help it weed out identity fraud.

Alipay’s parent Ant Financial announced it had bought EyeVerify – a US biotech company that specialises in retina scanning – for about $100 million. Alipay had already entered a licencing agreement with the company earlier this year, but the outright purchase shows it thinks the American technology could be the key to providing secure banking services. ApplePay might use your thumbprint for payment verification, but Jack Ma is clearly betting that his customers will feel that scanning their retina with their smartphone offers a higher level of security still.

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