Gabriel Wildau and Leslie Hook report in the Financial Times:
Chinese mobile payments were nearly 50 times greater than those in the US last year. Digital payment platforms remain a critical part of the underlying fintech infrastructure in China but are also an important source of transaction and financial data that is increasingly being leveraged by the payment companies for new fintech platforms, products and services.
Chinese mobile payments were nearly 50 times greater than those in the US last year, market data show, highlighting Chinese internet companies’ strong position in a market segment viewed as a gateway to the fintech ecosystem. The rise of Chinese mobile payments has been driven by the explosive growth of online shopping as well as internet financial services such as peer-to-peer lending and online money market funds. More than half of all mutual funds in China are now sold online, up from only 5 per cent in 2012.Last year was also a turning point for the use of online payments at physical retailers, including supermarkets, restaurants and clothing shops. Starbucks announced in January that it would begin accepting WeChat Pay — the payments service linked to Tencent’s ubiquitous mobile messaging app — at its China stores. Growth was also robust in 2016 in online to offline services such as ride hailing and food delivery apps that customers pay for through via platforms. “Digital payment platforms remain a critical part of the underlying fintech infrastructure in China but are also an important source of transaction and financial data that is increasingly being leveraged by the payment companies for new fintech platforms, products and services,” said Zennon Kapron, principal at Kapronasia, a Shanghai-based fintech consultancy. The value of Chinese third-party mobile payments more than tripled to Rmb38tn ($5.5tn) in 2016, according to estimates by iResearch in China. WeChat Pay and Alipay, the payment service operated by Ant Financial, an affiliate of Alibaba Group, dominate the market. In the US, mobile payments rose 39 per cent to $112bn, according to global firm Forrester Research, with the market dispersed among rival groups including Apple, Google, Samsung and PayPal. China’s lead over the US in mobile payments is also the result of the lack of other viable options for non-cash payments. Credit card penetration in China is small compared to that of developed markets, while online payments with debit cards are cumbersome — usually requiring authentication through a combination of SMS messages, USB dongles and random code generators. By contrast, payment with Alipay or WeChat is much more streamlined and requires only the scan of a QR code from a retailer’s point-of-service terminal or a smartphone.“China’s rapid adoption of proximity payments is in part thanks to its late-mover advantage — unlike the US and other regions, China does not have a strong entrenched credit card culture. In effect, China has jumped directly from cash to mobile payments,” market research firm eMarketer said in a report. Beyond the revenue earned directly from processing fees, the dominance of China’s mobile payments market by Alibaba’s Ant Financial and Tencent gives them access to valuable user data that can be used for everything from credit ratings to targeted advertising to product development. worldMobile pay: Shanghai vs San FranciscoPlay videoHowever, the eye-catching transaction value of Chinese mobile payments partly reflects payments that do not necessarily correspond to real economic activity. During the recent Spring Festival holiday for example, friends and relatives traded “red envelopes” in auspicious amounts such as 88, which pronounced in Mandarin sounds like “get rich”, and 520, which sounds like “I love you”. While these red envelopes are used to make actual cash gifts, they are often exchanged back and forth as a form of socialising in which most users receive the same amount that they send. About 60 per cent of Chinese mobile payments took the form of person-to-person transfers in the third quarter, according to iResearch, although some portion of these are actually small businesses that have not set up a commercial payment account.“Originally this was just for holiday games, but after cultivation over several Spring Festivals, it’s now everyday behaviour,” said Li Zhefeng, payments analyst at iResearch in Beijing. “In the past, people used bank cards to do fund transfers, but now these transactions have shifted decisively to mobile phones.” Yet in terms of mobile payment growth, China still resoundingly beats the US. Forrester expects US payments in 2019 to be 2.6 times their 2015 value; Chinese payments will grow by 7.4 times in the same period, according to iResearch. In the US, in-person payments at offline retailers rather than mobile payments will be the biggest growth driver in the US. There and in Europe, near field communication (NFC) payments, which involve swiping a phone over a chip reader, are preferred to QR codes. Forrester found that half of all surveyed American retailers planned to install NFC terminals by the end of 2016 or had already done so. However, changing entrenched consumer behaviour is a challenge. “Old habits die hard and, by all accounts, consumers are still reaching for cards rather than phones in the checkout lane,” Forrester wrote in its report.Twitter: @gabewildau