Cashless future rapidly emerging as the most bankable option
China’s three internet giants have ambitious plans to make mobile payments part of everyday life around the globe
There was a time, not so long ago, when losing your wallet meant panic, inconvenience and most likely huge annoyance at losing the banknotes you had in it. But those days are numbered,
Using hard currency for shopping in mainland China is a dying practice, say experts, with e-payments now very much the norm rather than the exception.
The country is rapidly becoming a cashless society, as are many countries around the world, and it’s Chinese internet giants that are among the most ambitions in making mobile payment services part of everyday life for many.
For Zhao Lirong, a frequent traveller who has made around a dozen trips to various Southeast Asian countries over the past year, using digital payment services at airports and tourist spots has become second nature.
“In the past, travelling to a foreign city meant spending time buying local currency. And of course, you never managed to spend it all, and you were then left with amounts probably too little to exchange back into US dollars – it was a real waste of money,” said Zhao.
She’s visited Thailand, Cambodia, Vietnam and Myanmar on business and on holiday in the past year, and now pays for everything using mobile payment apps, such as Alipay, WeChat Pay and Baidu Wallet, all of which are Chinese developed.
“The first time I tried abroad, was at a 7-Eleven store in Bangkok – it was easy, all the procedures were just the same as I do on the mainland,” Zhao said.
Thousands of companies, big and small, gladly accept Alipay and WeChat Pay, she said, from Thailand’s duty-free retail chain King Power, to restaurants and shops in Cambodia’s Siem Reap.
Anyone wanting to make a payment in yuan, simply scan a QR codes provided by the mobile payment app’s partner merchant. They enter the amount of their purchase and the app shows a yuan conversion based on a real-time exchange rate. The payments are free of any fees, and charged to the merchant.
“I wouldn’t be all surprised if within two or three years, I’ll be travelling to anywhere in Southeast Asian countries without bringing any cash, just my smartphone,” adds Zhao.
A study by internet consultancy iResearch reveals the value of mainland mobile payments more than tripled in the first half of this year to 15.6 trillion yuan.
But payment by bank card still remains the most popular choice for many.
The country’s longstanding dominant player, UnionPay, said transactions processed on its network last year were worth 53.9 trillion yuan, annual growth of 31.2 per cent.
Foreign card companies, including Visa and Mastercard, however, continue to struggle to gain traction in the market as they were barred from handling yuan-denominated transactions until June when the central bank, the People’s Bank of China, agreed to open up the credit card clearing market to foreign players.
China’s mobile payment market is dominated by Alibaba and Tencent, but along with newcomer to the sector Baidu, the mainland’s three largest internet giants are now firmly setting their sights on the rest of the world.
Ant Financial Services, the Alibaba affiliate that operates Alipay and other financial services, has been the most aggressive of the three, following a series-B round of financing in April which made it a business worth US$60 billion. Alibaba is the owner of South China Morning Post.
After taking its first steps to expand outside its own shores only last summer, in Southeast Asia, Ant Financial claimed in July that 70,000 overseas offline retailers, including restaurants, shopping malls, duty free shops and convenient stores, were now accepting Alipay.
Already in partnership with companies including car hailing apps Uber and Grab, Singapore’s Resorts World Sentosa, and the ubiquitous 7-Eleven convenience-store chain, it targets having more than a million local merchants worldwide accepting its payment services, within three years.
Douglas Feagin, Ant Financial’s senior vice-president, said the growth in merchants accepting Alipay has been exceptional in the destinations most popular with mainland travellers: Japan, South Korea, Hong Kong.
But its attention is now turning to Europe, as record numbers of Chinese travel to Britain, Germany and France.
“Alipay aims to provide seamless payment and lifestyle services for users when they travel abroad,” said Feagin, who is also heading Ant Financial’s international expansion.
“Our plan it to track the footsteps of 150 million Chinese tourists a year.”
Alipay recently expanded its presence in the US, too, with a number of popular restaurants in New York city and California accepting it as a payment option, he added.
The company also hit a milestone moment this week in Hong Kong, with the launch of a Hong Kong dollar service. Alipay’s Hong Kong service had been limited to payments made in yuan.
According to iResearch, Alipay is now the mainland’s largest mobile payment service provider with a 51.8 per cent market share in the first quarter, followed by its biggest rival Tenpay, at 38.3 per cent.
Tenpay, Tencent’s mobile payment technology that powers WeChat Pay, also rolled out its own overseas payments network last year.
The e-wallet, built into the mainland’s most popular messaging app WeChat, allows users to make payments in more than 20 countries in currencies including the Japanese yen, New Zealand dollar, Korean won and Thai baht.
Baidu, as a late comer with a market share of less than 1 per cent in China, launched its mobile payment service in Thailand in April.
Users of Baidu Wallet can make digital payments at more than 400 merchants in Bangkok, Phuket, Chiang Mai and Pattaya, the company revealed in April, and it has plans to extend that service to South Korea and Japan, then Hong Kong, Macau and Taiwan.
All three of those company’s global ambitions, however, are largely reliant on rapid and continued growth in one sector: overseas travel by Chinese.
A recent broker’s note from CLSA predicted in January that Chinese outbound tourist will rise a massive 9 per cent annually for the next five year, with the number of individual trips reaching reach 200 million by 2020.
Official data showed that the number of Chinese travelling overseas soared 12 per cent last year to 120 million.
Zhou Rongbo, an industry veteran who runs a Beijing-based cross-border financial services company, said the sophistication and efficiency of the mainland’s mobile payment tools and technology already outstrip anything abroad, driven by a huge number of domestic users and constant innovation.
“Chinese people have very quickly adopted the habit of making mobile payments, and any overseas merchants who want to attract Chinese tourists in future will have to make sure they improve the efficiency of their transactions, and accept digital payments,” Zhou said.
It has so far proved hard for foreign payment services such as Apple Pay to compete here, as the Chinese players know domestic users’ habit and the market so much better, he added.
“Many more Chinese travellers will be bringing their smartphones and leaving their wallets at home when travelling overseas within three years,” Zhou said.
Two major hurdles, however, still exist for the burgeoning Chinese mobile payment firms as they expand overseas: raising awareness, and compliance.
The Bank of Thailand, for instance, the country’s central bank already warned its local merchants in May of what it saw were the risks of using Chinese payment services, which are not regulated by the Thai authorities.
Feagin underlines Alipay’s services are compliant with the regulations in many overseas markets, and says he has been working with many government and regulatory officials in its global push.
But he says it is equally important that they match and understand the needs and expectations of local merchants too.
Kang Yaqin, a client manager at Jimutour, a travel agency developing smartphone apps for Chinese tourists in Thailand, said it was tough at first to convince local merchants to accept e-payments with Chinese mobile apps.
But he has been working with all three of China’s large players to promote the use of their mobile payment services.
“Some of the merchants were worried about whether they would really get the money back, and it took time to educate them in the benefits,” Kang said.
But in the end, he added, the merchants gradually became more willing to accept Chinese e-payments, simply because they realised that would help them attract more Chinese tourist business.