Thanks to the increasing popularity of mobile payment, Chinese people now can live comfortably without cash. Let's see how WeChat Pay, Alipay and other mobile payments are dominating China market.
Mei is a young designer in Shanghai, China. Every day, she travels to her office in Xuhui district with Ofo - a bike sharing service, which accepts payment via her WeChat Wallet. At noon, she orders food with her colleagues on ele.me and pays with Alipay. In the afternoon, she pays her utility bill, still using WeChat In the evening, she makes some purchases on Tmall and has her Alipay account charged. At night, after a party with some friends, she hails one Didi taxi to go home and pays the fee with WeChat Pay.
Similar to Mei, more and more people in China are now going through their days without using any cash. Thanks to the convenience of mobile payments in China, the “cashless” trend is increasingly dominating Chinese daily life and changing the ways brands are using to attract and retain their target customers.
This article will give you an overview of mobile payments in China - why they are so popular and how brands and retailers are making the most of them.
1. Mobile payment in China - An Outlook
a. Some statistics
In the latest statistics by China Internet Network Information Centre, 64.7 percent of smartphone users, or about 424.5 million individuals are now using mobile payments as a regular method to make transactions. WeChat and Alipay are the two most dominant mobile payment systems in China. In 2016, the total value of transactions handled by WeChat Pay surpassed 1.2 trillion USD, while Alipay accounts for a bigger share of the pie, with nearly 1.7 trillion USD in transaction value. Besides the two giants, Apple Pay, entering China in 2016, has also launched a huge promotional campaign because the brand foresees a large amount of spending by Chinese customers. On the other hand, Swatch also invested in one contactless payment method called Swatch Pay!, allowing customers to pay using a special-designed Swatch watch after opening an account at a partner Bank.
Mobile payment has been adopted by a majority of Chinese consumers, where 84% of people said that they could accept a totally cashless life.
b. Types of mobile payments
Many technologies have been utilized to make mobile payments more accessible to customers. In the previous part, we have mentioned WeChat Pay/Alipay and Apple Pay/Swatch Pay which represented two technologies used for mobile payments:
1. QR Code: In mobile payments using QR Codes, you can either show your QR Code to the retailers’ scanner and have your bank account deducted, or scan the retailers’ unique QR Code to pay. No special device is required. Popular apps: WeChat Pay, Alipay, Baidu Wallet.
2. NFC (Near Field Communication): With NFC mobile payment, you tap or hover your device close to the NFC-enabled reader in order to pay. The reader and the smartphone pass encrypted information back and forth to complete the payment. Encryption can help protect transferring data from being intercepted. Popular apps: Google Wallet, MasterCard PayPass, Visa payWave.
2. Why are mobile payments so popular in China?
As mentioned above, mobile payment is incredibly popular in China. We analyzed 5 reasons that made this result possible.
a. The issue of trust
The issue of trust has been the main problem in any transaction for a long time. Back in the early 2000's, not many people had credit cards, and those who owned one weren't willing to pay in advance or give a CC number online because they didn't trust the security of the websites. On the other hand, cash on delivery for digital payment is not the most suitable solution since the seller has to depend on the delivery company to obtain the money. The introduction of mobile payment methods such as Alipay has solved this issue: in mobile payments, money paid by customers when placing orders will be transferred to an escrow account. This model helps the sellers feel more comfortable because their money is kept by a secured third-party platform and can be claimed after the products have been delivered successfully. The same can be said of the customers, who feel they are always in control in case the product is faulty and they want to apply for a refund or a change of product.
When we created Alipay in 2003, we did it to resolve the issue of trust between people. And by resolving the issue of trust, we’ve also resolved the issue of payment.
- Jack Ma -
b. Promotion by the big players
One of the main reasons why mobile payments are popular in China is that they are promoted by the strongest digital players in China. Alipay belongs to Alibaba Group and is the main payment method on Tmall and Taobao - the two biggest e-commerce platforms in China. Meanwhile, WeChat Pay, a part of Tencent, also proves its popularity thanks to the almost 1 billion users of WeChat in China.
Baidu also backed and developed its own payment system, called Baidu Pay, but never really grew to compete with Alipay and WeChat.
c. China is mobile-first society
China is also a mobile-first market, a fact that greatly contributes to the success of mobile payments. According to Statista, there were more than 626 million smartphone users in China in 2016. By 2019, this figure is forecast to total nearly 690 million and continue to expand in the future. This significant increase in smartphone usage is due to the fact that smartphones are becoming more and more affordable to Chinese customers. With an average Android smartphone, customers can access WeChat and enjoy a variety of services.
d. Red Packet - Adapting mobile payment to Chinese culture
Another factor that pushed the popularity of mobile payments is the introduction of the red packet by WeChat in 2014. This concept was also offered by other big players such as Alibaba and Baidu, making it a very interesting trends in China. Exchanging hongbaos (红包, red packet/lucky money) has been a long-lasting tradition in Chinese culture. Given the convenience of mobile payment, more and more people are using it to exchange hongbaos, especially during special occasions, enhancing the role of mobile payments in Chinese society.
e. Sheer Convenience
As described in Mei’s story at the beginning of this article, mobile payments bring sheer convenience to Chinese users. Using only a smartphone, Chinese can make payments for most activities in their daily life. Mobile payments can be used to pay most of the utility bills such as electricity, gas, water, internet, phone top-up, etc. as well as their meals, online shopping cart, movie ticket and other entertainments. Besides, traveling in China is now super easy as all types of transports from Taxi/Didi to trains and planes have accepted mobile payments. Overall, any Chinese person is comfortable with a totally cashless life. When adoption rates started skyrocketing, more and more business was compelled to accept digital payments, which leads to even more consumers embracing this revolution, creating a virtuous circle.
3. How are brands and retailers making the most out of mobile payment?
Of course, brands and retailers have been experimenting with multiple strategies to try to cash in. We selected a few memorable campaigns and tactics adopted to get the most benefits out of mobile payments.
a. Roger Dubuis - Creating O2O experience
China is leading the O2O (online to offline) trend because of the huge number of smartphone users and the popularity of mobile payments.
Following this trend, ITC created with Velvet Group an O2O campaign for Roger Dubuis on WeChat, allowing customers to make a deposit via WeChat Pay to arrange a personalized shopping tour in Roger Dubuis physical stores and become the first people possessing the latest exclusive timepieces. By combining the convenience of mobile payments and unique experience in physical stores, this campaign has yielded impressive results.
b. Maserati - Selling luxury cars on Tmall
Now that mobile payment is extremely popular in China, even the world's top brands like Apple have established their online stores on marketplaces like Tmall. Maserati - the Italian manufacturer of ultra-luxury cars, hit the news when they put up hundreds of Maserati SUV Levantes for advance sale. Each of these cars is priced at more than 150,000 USD but all of them were sold out after only a few seconds: this shows that mobile payments can be used not only for everyday payments but even for purchases of very high value.
c. CRM/Membership card
Following the high penetration rate of mobile payments, brands are now using virtual membership cards to maintain the relationship with their customers. When customers use online payments, they can automatically become followers of the brands. Using information from the CRM database, brands can analyze customer behavior and retarget the followers using promotions or flash sales.
4. Wrap up
In the mobile era where more than half of Chinese own a smartphone, mobile payment is an extremely convenient method to make the daily transaction. With the expansion of mobile payments, Chinese people, especially youngsters, can live comfortably without cash. This change in customer behavior has resulted in many opportunities and challenges for brands to enter and maintain their business in China market.
As Chinese people are ready to live in a cashless society, the role of mobile payments in the digital ecosystem is expected to skyrocket.
About the author
COO and Co-Founder of IT Consultis
As the COO of ITC, Thomas manages all operations and promotes the adoption of new technologies and philosophies within the company. In addition to raising the efficiency of each project, he invests his time in coaching and mentoring the project management as well as the development team, ensuring they all have standardized knowledge and skills to successfully meet client's expectation.