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.
- 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.
- 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.