Can TikTok owner ByteDance break the mobile payments duopoly of Alipay, WeChat Pay?

The stakes are high for Douyin Pay, as Alipay and WeChat Pay continue to dominate China’s mobile payments industry
Other Chinese hi-tech giants, including Meituan and Pinduoduo, are also expected to compete in mobile payments

Mobile payments

Tracy Quin ShanghaiandChe Panin Beijing

Published: 8:00am, 21 Jan 2021

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The new mobile payments service launched by tech unicorn ByteDance on its video-sharing platform Douyin, the sister app of TikTok, brings a major challenger in a market long dominated by Ant Group’s Alipay and Tencent Holdings’ WeChat Pay, industry analysts said.

Douyin, which had 600 million daily active users as of August 2020, is expected to promote its Douyin Pay service in this year’s Spring Festival Gala, according to people familiar with the matter, under an exclusive advertising partnership with state broadcaster China Central Television (CCTV).

Taking part in the Spring Festival Gala – the world’s most-watched national TV broadcast, which had an audience of more than 1.2 billion last year – would follow Tencent’s approach to growing the user base of WeChat Pay, which launched virtual red packets in 2014 and partnered with CCTV in 2015 to promote these digital hongbao at the annual event.

Alibaba Group Holding founder Jack Ma had described WeChat Pay’s launch in 2014 as Tencent’s “Pearl Harbour” attack on Alipay’s then-dominant position in mobile payment services in China. Alipay operator Ant Group is an affiliate of Alibaba, which is the parent company of the South China Morning Post.

The stakes are high for Douyin Pay, as Alipay and WeChat Pay continue to lead China’s mobile payments industry. There were 801.7 million mobile payment users in mainland China at the end of June last year, according to data from Statista.

Douyin Pay was launched days before the People’s Bank of China, the country’s central bank, published its draft regulation on payment services. The new regulation, which is expected to come into effect soon, said that a non-bank payment institution with a share of more than half of the market – or two such institutions with a combined market share of over two-thirds – will be regarded as a monopoly and could be carved up as a result.

Alipay and WeChat Pay had a 55.4 per cent share and 38.5 per cent share, respectively, in China’s mobile third-party payment market at the end of June last year, according to data provided by research firm Analysys.

ByteDance-owned short video-sharing platform Douyin, the sister app of TikTok, is displayed on a smartphone. Photo: Weibo

With its new payment service, ByteDance can transform Douyin, which is primarily an entertainment app, into a major domestic social-networking platform to rival WeChat, according to Zhang Yi, chief executive and head analyst at iiMedia Research.

“As long as someone sends and receives [digital] red envelopes, and friends around them grab red envelopes, this product will become more like a social-networking app like WeChat,” Zhang said.

ByteDance, which has a valuation of US$140 billion, obtained a domestic online payment licence through an acquisition in September last year. Chinese authorities granted about 238 such online payment licenses as of August 2019, according to data from Shenzhen-based Qianzhan Industry Research Institute.

“Even with a very small percentage of the [mobile payments] market, [Douyin Pay] could still be very profitable,” said Zennon Kapron, director of financial technology research and consultancy Kapronasia. “ByteDance doesn’t need to be wildly successful [in mobile payments]. It doesn’t need to have 90 per cent of the market like Alipay and WeChat Pay combined.”

Other Chinese hi-tech giants are expected to compete in the same market. These include e-commerce giant Pinduoduo, on-demand delivery market leader Meituan and ride-hailing services provider Didi Chuxing.

ByteDance, Meituan and Pinduoduo: China’s second tier tech giants poised to challenge payments duopoly

On Tuesday, Douyin said its new mobile payments service, which supports a group of banks including state-owned Bank of China, would “ultimately enhance user experience” on the short video platform.

“The most direct link is e-commerce,” said Zhang Dingding, the former head of Beijing-based research firm Sootoo Institute. “ByteDance could also use its new service to link any other business that its users may need to make payments to.”

ByteDance has been strengthening its operations in the e-commerce and payment fields, forming a department dedicated to online sales in June last year. It also banned links to third-party websites on Douyin’s live-streaming channels, preventing merchants from directing traffic to popular e-commerce platforms like Alibaba’s Taobao Marketplace and JD.com.

“If the company owns millions of people’s transaction data, they would also know their hometown, salary and consumption habits – allowing the recommendation of products and information [based on payment data analysis],” Zhang said.

In a test conducted by the Post, Douyin Pay users need to provide their name and identification card number, and link this to their bank account. The service does not charge users for any fees for withdrawal or topping up, which is a big advantage when compared to other payment services that charge a small commission fee. Douyin still supports Alipay and WeChat Pay.

Still, other analysts predict Douyin Pay will find it difficult competing against China’s mobile payments leaders. ByteDance will find it tough against WeChat Pay, for example, because it has no clear advantages, according to Zhao Xiaofeng, an assistant professor at Lingnan University’s department of finance and insurance.

“The only opportunity for Douyin lies with young people, but this is a group of people who have little money,” Zhao said.

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