Illustration: Luo Xuan/GT
According to a recent report by the Financial Times, mobile payments in China were almost 50 times larger than those in the US in 2016. While many people are surprised by China's "late mover advantage," to me, the most important ingredient for the success of Chinese mobile payments is its inclusiveness.
The biggest players in the Chinese mobile payment market are Alipay and WeChat Pay. Alipay was first used to settle transactions on Alibaba and Taobao, and WeChat is the most popular social network-social media application in China as well as a large platform for mobile Internet shoppers (WeChat business or Weishang in Chinese). These are both platforms where hundreds of millions of users meet each other, which fosters vast opportunities for small business owners to find and reach their customers. Notably, WeChat business or Weishang is a special type of Internet business in that shop owners share information about their products in their "Moments" feed to friends in their social network. While some users complain about being bombarded by commercial postings, "Moment marketing" provides opportunities for small owners to get their first customers via these messages as well as repeated postings by friends. Unlike other Internet shopping platforms where owners have to maintain stock and sales volume in order to secure their page and ranking, WeChat business owners do not need to maintain anything, which saves a lot in inventory and maintenance costs. In this case, WeChat provides the possibility of transforming individual social networks into commercial networks, and lowers the entry barrier for doing business. And naturally, owners and customers of WeChat business generate demand for an in-house payment system. Alipay and WeChat Pay are both third party payment platforms, and thus are available to all types of shops and on all mobile devices.
The US mobile payment market is primarily dominated by large hardware producers like Apple, Samsung and Google. The incompatibility between iOS and Android makes it difficult to develop a payment platform that can serve both types of phones. Large social network and social media companies like Facebook or Twitter mainly focus on advertising, and have not entered the payment industry. Facebook can generate a lot of business opportunities similar to WeChat business, but the lack of an in-house payment system limits the transactions to cash or credit card payments. PayPal is an open platform that supports various Internet shops including Amazon and eBay, but it has not managed to replace credit card as the dominant payment method on those platforms.
For offline retailers, a big advantage of Alipay and WeChat Pay is that they only require the buyer to scan a QR code, which is simple and can be implemented without the installation of a specialized device. Compared to other mobile payment systems developed by smartphone companies and banks, this saves a lot of cost and trouble for shoppers and especially for small business owners. Admittedly, the fast growth of China's mobile payment market is partially due to the slow development of a credit card market. The third-party platform nature of Alipay and WeChat Pay means customers can complete their payments instantly, which frees them from the risk of defaulting on payments with credit cards.
Finally, Alipay and WeChat Pay are not only used for shopping, but can also be used for transfers between individuals, like holiday red envelopes, and even mutual fund investments. These cannot be achieved by their US counterparts. While some regulations may be needed, in particular for the use of mobile payments for investments, this is another example of the openness and inclusiveness of the Chinese mobile payment system, whose success and popularity lies in meeting the needs of hundreds of millions of individuals and small players in the economy.
The author is assistant professor of economics at the Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University. email@example.com