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August 14, 2017August 11, 2017

Cheatsheet: What you need to know about mobile payments in China

The U.S. and Europe often look to China as an example of what a mobile or social payments ecosystem could look like at scale. Consumers and businesses alike online and in-person prefer using WeChat Pay, the mobile payments function of the popular messaging app, or the PayPal-like Alipay to cash — because it’s so easy. People like their payments done easily and quickly with money passing directly from the customer to the merchant or the other way around. That’s what WeChat and Alipay, the dominant forces in mobile payments, offer — and not just at Starbucks; people use mobile payments to pay bills, for transportation, movie tickets, even karaoke.

Now, the Chinese central bank is stepping in so it can monitor payments, without asking permission from the processors, to keep an eye out for money laundering and other illicit transactions.

Key updates

The People’s Bank of China has mandated online payment companies connect to a centralized clearing house by Oct. 15 and route all payments through it by June 30. Whether or not this makes payments as slow in China as they are in the U.S. remains to be seen.
The mandate by China’s central bank could force Ant Financial and Tencent, the parent companies of Alipay and WeChat, respectively, to begin sharing user transaction data with competing companies.

Key numbers

Social payments are set to increase China’s GDP by $236 billion by 2025
Mobile payments account for 12 percent of all payments in China (card payments account for 41 percent; cash payments, 30 percent; and online payments, 16 percent)
Alipay users sent $1.7 trillion last year compared to only $70 billion in 2012; WeChat users sent $1.2 trillion in the same year compared to $11.6 billion in 2012
In 2014, Alipay held 82.3 percent of the Chinese market for digital payments and WeChat Pay controlled 10.6 percent; by 2016, Alipay’s market share fell to 68.4 percent and WeChat Pay’s market share rose to 20.6 percent

The analyst view
David Sica, Nyca Partners, principal: “When earlier stage companies or private sector companies are able to find new types of behavior and commerce people are interested in, it gets to a certain point where it might be better suited as a utility. They’re saying let’s bring this back to the government level because it’s going to support this new type of behavior in commerce that’s interesting to people and that these private sector companies have proved out.”

Michelle Evans, Euromonitor International, global head of digital consumer research: “Tracking and monitoring the flow of such payments falls in line with the approach taken by many regulators in other nations that are attempting to eliminate money laundering and other such activity. This ruling, which will force these internet players to share more information about the transaction, could slow some of their unrestricted growth depending upon the amount of data shared with competitors.”

The bigger picture
Sometimes it takes private sector companies to demonstrate that consumers really want what they want. The struggle in most countries is existing systems don’t always support new behavioral changes and ways of transacting.

“It’s always positive to see governments being supportive of putting infrastructure and utility in place and policy that will enable and foster innovation and serve people with better products and better services that are hopefully lower in price and more transparent. This could be a really powerful thing,” Sica said.

Plus, China’s mobile payments market has become an obvious oligopoly and the PBOC probably wants to level the playing field so that new entrants and other players can compete. WeChat and Alipay have not only shown what consumers want, they’ve proved that in a world where commerce and financial services are digital, the most valuable asset is customer data. They know more about China’s consumers than any other (probably) business based on customer transaction data alone and can use that to extend other forms of financial services to them like credit lines and business loans.

May 9, 2017June 10, 2017

Chinese social payments apps enter US market

Alipay has landed in the U.S. following its do-everything social payments competitor WeChat, who moved in last week, signaling the start of a payments arms race here.

Alipay, China’s dominant mobile payments company under Ant Financial, signed a deal Monday with First Data, the U.S. card processing giant, that will allow Chinese tourists in the U.S. to make purchases at its 4 million merchant locations using Alipay.

The expansion stateside follows that of Tencent Holdings’ WeChat, which announced its plans in February and arrived in the U.S. on Thursday.

“These consumers love to shop in the U.S. because they find items here they would otherwise not be able to find in China, and pricing that is much more affordable,” said Souheil Badran, president of Alipay North America. “Our focus will continue to be on enabling the Chinese consumer to use Alipay at U.S. merchants.”

Mobile payments still lag behind China, but growth is expected to top the Asian country in the next year, according to estimates.

To some degree, that makes Alipay a threat to Apple Pay, which has been ahead of its peers in monthly active users, but is leading a race people generally aren’t interested in. And its mobile payments peers, Samsung Pay and Android Pay, aren’t far behind. Many point the finger at retailers, who have been slow to get any systems and incentives in place to encourage consumers to pull out their phone instead of their cards.

By contrast, Alipay, WeChat and the concept of mobile payments is common to Chinese consumes and by now, probably pretty natural to them. China is a mobile-first country. In addition to making online shopping payments, transferring money and paying utility bills, WeChat and Alipay users can hail taxis, book hotels, buy movie tickets, make doctors’ appointments and book karaoke sessions top up their mobile phones from within the apps.

“Alipay is a lifestyle application platform offering not only payment processing but also financial services, social and commerce use cases,” Badran said. “Alipay is part of our consumers’ daily life.”

But the bigger problem for Apple is the lack of widespread consumer-to-business mobile payments uptake, not Alipay, Samsung Pay or any of it’s competitors. Bringing millions of mobile payments users — even if its Alipay that makes that happen — into millions of stores could be the push that U.S. consumers need to break old habits — taking out the plastic — and creating a new one, tapping the phone that’s probably already in hand.

CEO Tim Cook boasted numbers in the “tens of millions” with 450 percent year-over-year growth last July, the last time he spoke publicly on the subject. There are 4.5 million merchants in the Apple Pay network.

Meanwhile. Alipay boasts 450 million monthly active users, who now have access to four million merchants through First Data. There are more than four million Chinese visitors to the U.S. each year, Badran said. WeChat boats 650 million monthly daily active users.

“When First Data moves in a business it’s not an experiment,” said Ashish Bahl, CEO of Acculynk, First Data’s recently-acquired technology company that provides innovative debit routing solutions. “A lot of work has been done to make sure it works, it’s scalable and adoption is ready. Merchants are open to delivering new payment types to existing consumers and if we can get in the flow of consumer brands, whether they’re issuers or wallets, that’s really a good thing.”

April 20, 2017April 22, 2017

5 charts on how mobile payments are growing in China

Social payments in China now reach almost $3 trillion, according to a United Nations report released Wednesday.

China has been a world leader in mobile and social payments while the U.S. and Europe have been slow to adopt them. Payments on messaging and e-commerce platforms like WeChat and Alibaba are set to increase China’s GDP by $236 billion by 2025.

Now, the United Nations’ Better Than Cash Alliance is hoping other countries can emulate China’s models as much as possible, if only to unlock economic opportunities for people and small businesses the way China has.

“While China is a very specific country study, it does give us insight into some changes in behavior starting to happen across the global consumer segment, specifically regarding how people make payments,” said Camilo Tellez, head of research for Better Than Cash Alliance. “This ecosystem that has grown in China in an insular way has shown how we can take advantage of these social platforms and really use them to reach economics of scale.”

China learned early on what many financial startups and institutions are just starting to integrate into its own financial system: the keys to success include building payments services existing e-commerce platforms and social networks to draw new customers, making platform tools like application programming interfaces openly available to innovators for seamless integration and enabling universal access for users and businesses by developing ecosystems that function across various platforms, according to the report.

Here are five charts from the report that show the success of WeChat, Alipay and China’s payments market.

Alipay and WeChat absolutely dominate mobile payments. WeChat payments rose to $1.2 trillion in 2016 from less than $11.6 billion in 2012. That’s an 85-fold increase in four years. Combined, Alipay and WeChat payments rose to about $2.9 trillion in 2016 from less than $81 billion in 2012.

WeChat payments are growing faster than its original messaging service. The Tencent subsidiary launched in 2011 and introduced its payments functionality in 2013. WeChat grew its active daily user base 43 percent to 806 million in 2016 from 195 million in 2012.

The rise of Internet and mobile phone use in China has had a lot to do with this. China’s shift to smart phones took place over the course of the last five years, according to the report. Mobile payments capabilities existed for most of that time, whereas in the U.S. and Europe, customers became heavily dependent on their phones before being introduced to that function.

Integrating payments into WeChat has fueled its growth. In 2015, Alipay had 450 million monthly active users each spending $2,921 on average. In the same year, WeChat had 697 million users whose average spend was $568 on average and grew 168% to $1,526 in 2016.

Tencent’s partnership strategy allowed WeChat users to pay for basically anything – beyond just peer-to-peer payments – by establishing relationships with vendors and merchants which sometimes offer promotions for WeChat users in physical stores. Customers can use WeChat to top up their mobile phones, pay utility bills and book plane, train and movie tickets. You can even book a karaoke session with WeChat.

Cards are still king. Despite impressive growth over a short period, just 12 percent of payments are done on mobile devices in China compared to 16 percent online, 30 percent in cash and 41 percent with cards. The sheer scale of the Chinese market, however, means these numbers get pretty big.

China UnionPay, the main domestic payment card clearing and settlement system, as 26.7 million merchants with electronic point of sale devices installed for card payments. Debit card penetration stands at 3.1 cards per person – and is increasing, according to the report. Although, every new POS device sold in China is required to come equipped with near field communication technology for mobile payments. Meanwhile, the U.S. has been in a chip versus stripe cards debate when most of Europe implemented chips a decade ago.

October 26, 2016

Ant Financial’s Alipay pursues a tourist-centric payments strategy

It’s not everyday that a Goldman Sachs partner jumps ship to join a startup. It’s also not everyday that said startup has 450 million users. That’s exactly the situation Douglas Feagin found himself in when he joined Ant Financial earlier in 2016 as head of the firm’s international operations.

China’s Ant Financial, the financial arm of Alibaba, powers payments for the online retailer and other internet properties it owns. It currently processes 180 million transactions every day. As more Chinese consumers travel abroad, Ant Financial wants to support them wherever they go and that’s what Feagin intends to do.

“We started by looking at what we do with Alipay in China,” Feagin said to a packed room at the Money 20/20 conference held this week in Las Vegas. “We see payments for online services evolving to support a global lifestyle.”

That global lifestyle is codeword for lots of travel. So, Ant isn’t going after global customers. Yet. But it is pursuing a tourist-centric payments strategy that makes it easier for Chinese consumers traveling abroad to buy things. Feagin and Ant Financial are quickly growing its merchant network stateside, working with a variety of merchant acquirers to get there. Chinese tourists can use their Alipay accounts to shop at Duty Free Stores in San Francisco, for example.

The company also just announced partnerships with Verifone and First Data, a move it believes will help it to expand its retail presence in the U.S. Ant Financial is working with Ingenico and Wirecard in Europe to execute its expansion strategy.

The Chinese tourism industry is booming as 120 million people traveled outside the mainland, a 17 percent increase over 2015. Chinese tourists’ average spend is among the highest in the world. “Luxury tax is pretty high in China, so you get people buying things abroad that they wouldn’t normally buy at home,” he said.

Domestically, Ant Financial keeps rolling out new services. Consumers can use Alipay to split bills at restaurants, order and pay for healthcare, and even to make an appointment to get married. Ant’s Alipay was also behind turning an obscure holiday, Singles Day, into an ecommerce bonanza. 11/11 easily surpassed the Black Friday in the U.S., and Alipay alone processed $14.3 billion just on that day in 2015.

Feagin’s ambitions are also large in scale. The Ant Financial executive set a high-water mark of expanding his firm’s merchant network to 1 million over the next few years. He also intends to increase Ant’s 450 million users to 2 billion worldwide. Globalization should play a big role in that through an in-country partnership strategy.

“In India, Paytm went from serving 35 million customers to 150 million over the course of our partnership in 1 year,” he admitted.