The Competitors for the Crown in China’s Cashless Future

By Alexander Pestana, Head of Business Development APAC, ECOMMPAY.

Considering it represents a fifth of the world’s population, and boasts a mobile payment market worth $16.7 trillion and growing, China is remarkably overlooked in western discourse. Perhaps the difficulty western firms face in competing with China’s enormous monopolies on their home turf explains the reluctance to discuss them at much length, but China is worth talking about. In the last decade, the People’s Republic has switched from a domestic economy powered by cash transactions to a vision of the cashless future, and hundreds of millions of Chinese citizens now conduct their daily business using everything from standard credit cards to futuristic app-based mobile payment platforms.

Two years ago, simple card payments dominated cashless transactions in China, and the homegrown UnionPay system was the biggest card scheme of the bunch. The only card network currently going in China that links every ATM from Heilongjiang to Hong Kong, UnionPay effectively dominates the card-based transactions of over a billion Chinese citizens, a number that seems likely to increase as the country’s rural population trades in cash for cards. UnionPay’s flaws and features will be familiar to anyone with a Visa or Mastercard-based bank card: a contactless payment system — integrated with Apple and Samsung Pay — called QuickPass, that sacrifices security for convenience, and functionality with Chinese online retailers that means the red, blue, and green of the UnionPay logo is omnipresent both online and off, and that your card details are perpetually whizzing their way around the internet with the potential for some devious hacker to ensnare them.

What’s more, with Chinese tourism becoming more and more prevalent, traders outside China are increasingly keen to cater to a potential customer base that encompasses a fifth of the world population, all while companies like Visa and Mastercard struggle to make inroads into China itself. UnionPay’s monopoly makes it seem set for eternal growth as a permanent fixture of the landscape in China, but its enormous size and seeming invincibility has made it vulnerable to displacement by less complacent, more innovative forces.

While external competition struggles to put up a fight against China’s card scheme goliath, traditional card payments have found themselves undercut by alternative payment methods, such as online banking or the onslaught of smartphones, particularly in cities like Beijing and Shanghai. Bank transfers are the third most common payment option among Chinese consumers, with recent data showing that 80% of the populace have a bank account.

Considered a safer choice when compared to cards, bank transfers are particularly popular among Chinese tourists abroad. Mobile payments have also risen dramatically over the past decade. Since its creation in 2004, Alipay (part of Alibaba, or ‘China’s Amazon’) has become the largest online payment method in China in terms of transaction volume, handling a cool 3 trillion dollars in 2016 alone. Alipay has been hugely responsible for the breakneck growth of China’s cashless society; where less than a decade ago a visitor would have had to carry wads of cash around the Middle Kingdom, trying to pay a Beijing taxi driver in cash in 2018 would be like trying to pay a London cabbie in shillings. Countless Chinese citizens now pay for their weekly shop by scanning a QR code, a method which keeps their banking details with them, rather than on a retailer’s database. Of course, this whole process is reliant on the buyer owning a smartphone and the vendor being integrated into Alipay’s network. In China, where over half the population tote an iPhone or Android variant, and where vendors are tightly enmeshed with mobile payments, this isn’t an issue. Abroad, it gets trickier, and Chinese holidaymakers still have to do business on their good old-fashioned UnionPay cards on their jaunts overseas (though Alipay are, naturally, keen to change that).

But even Alipay can’t rest easy on the mobile payment throne. Its biggest competitor, WeChat Pay, has seen startling growth since its 2013 launch, maintaining a registered user base almost double that of Alipay. Functionally, WeChat Pay doesn’t have much to differentiate it from Alipay; users can make QR-based payments in shops, pay bills, or move money between WeChat accounts. So why does WeChat Pay boast such a huge lead in users over Alipay?

It has the advantage of being part of an app that practically every smartphone in China already had installed at launch: WeChat, China’s social media behemoth. Imagine if Facebook, Twitter and Instagram — popular as they are — were part of a single app, and you can begin to see just how WeChat Pay managed to secure such a sudden and ginormous lead over its competitors. It still lags behind Alipay in a few areas, explaining the disparity in the size of its user base and the volume of transactions it handles (Alipay still wins on volume, despite its smaller pool of users). It only handles payments in 9 currencies versus Alipay’s 18, and its transaction fees, though small, kick in earlier than Alipay’s. It excels in small, personal payments though; during Chinese New Year, it is widely used to distribute virtual ‘red envelopes’ of money to family members, a Chinese gift-giving tradition. The split, for now, is clear: if you want to move a lot of money at once, you’re probably using Alipay, but for your weekly shop or a small gift, you’re likely to fire up WeChat.

For now, then, it seems the future of payments in China is in the hands of Alipay and WeChat, with UnionPay stuck playing catch up. But bearing in mind that inbound payments and outbound payments are two different things, it makes sense to point out that merchant payment strategies should differ depending on whether they’re working within China (say, a cinema chain) or selling something for Chinese consumers outside of China (like a hotel, for instance). The former should consider Alipay and WeChat above all else, whereas the latter should look to UnionPay or bank transfers. But things change quickly in China, and empires have risen and fallen at dizzying speed before. Just ask UnionPay, whose dominance of cashless payments was unassailable two years ago. Nothing is certain but change in China.

Download ‘Payment & Consumer Trends in Asia and the Pacific’ from ECOMMPAY.

Related reading