Fintech experts continue to express amazement at the pace with which Chinese consumers have adopted mobile payments. While US consumers remain skittish about mobile payments and largely confused by the myriad of options being offered to them, Chinese consumers have willingly adopted mobile payments not only for purchases at established retailers, but also for paying street vendors and accepting or giving out personal loans. While US businesses may think that what happens in China stays in China, a recent Wall Street Journal article tells a different story: One in which the resulting consumer insight derived from the mobile payments explosion helps Chinese tech giants lap their American counterparts.
By Rick Ferguson
The numbers tell the tale: While 2016 US mobile payment volume amounted to a paltry $112 billion, Chinese mobile payment volume totaled $9 trillion. The volume in China has been driven by concerted efforts on the part of the two main mobile payment players in the country—Alibaba Group Holding Ltd., whose Alipay platform holds 54 percent of the Chinese mobile payments market, and Tencent Holdings Ltd., whose WeChat payment app accounts for 40 percent—and by Chinese consumers themselves, who now even use mobile payments to tip panhandlers in Shanghai. It’s certainly true also that market conditions in China have favored the mobile payments revolution, given that banking regulations have largely prevented traditional credit cards from taking hold.
Given that reality, the temptation is for American banks and tech companies to say, “So what? Good for China, but we have our own market realities in the US, and our payment innovations are proceeding along just fine, thank you.” The danger with this line of thinking is to ignore two key points. First, mobile payments have been slow to reach critical mass in the US largely due to the self-inflicted wounds of banks, credit issuers, device manufacturers, and retailers all pushing their own proprietary mobile payments solutions, rather than working together to drive mobile payment adoption on a mass scale.
Second, our collective failure to do so creates a reality in which Alibaba and Tencent may soon lap US tech giants in both technology solutions and consumer insight—capabilities that they will export around the globe, potentially freezing out US companies in other markets. The data insight alone is already paying dividends for the Chinese companies, as this money quote from the Journal suggests:
“For Alibaba and Tencent, the payoff isn’t just the transaction fees they make from merchants, typically 0.6%. It’s also the consumer data collected, which can transform their apps into marketing platforms for an expanding array of services, from bike sharing to travel… The larger problem for banks might be that Alibaba and Tencent often know more about their customers than they do. If a Beijing car dealer uses a bank debit card for a business trip to Shanghai, the bank knows what airline he or she flew, as well as the hotel and restaurants patronized. ‘But if the “customer interface” is happening elsewhere, the bank has zero visibility over transactions,’ said James Lloyd, Asia-Pacific FinTech Leader at EY. ‘That’s not a good situation to find yourself in.’”
The danger, then, for US companies that tack of mobile payments adoption in the US stifles innovation, and that the more innovative Chinese companies win the tech race. Indeed, many experts already see US companies losing out. Money quote from Capital Group analyst David Cummins:
“[China’s] internet companies are developing cutting-edge mobile applications and leapfrogging the titans of U.S. technology in certain respects. China is no longer simply a tech copycat, and I expect increasing amounts of mobile innovation to start in the country… Tencent, Alibaba and search engine Baidu are at the forefront of this change. They dominate China’s internet ecosystem and represent a key growth engine in the Chinese economy.”
The Economist, meanwhile, points out that Chinese companies dominate not only mobile payments, but fintech in general:
“By just about any measure of size, China is the world’s leader in fintech. It is far and away the biggest market for digital payments, accounting for nearly half of the global total. It is dominant in online lending, occupying three-quarters of the global market. A ranking of the world’s most innovative fintech firms gave Chinese companies four of the top five slots last year. The largest Chinese fintech company, Ant Financial, has been valued at about $60bn, on a par with UBS, Switzerland’s biggest bank.”
The lack of urgency and innovation by US mobile payments providers are largely responsible for ceding the race to the Chinese. Chief among the culprits is Apple, which thus far has done little to drive Apple Pay adoption despite its potential to seize market share from Android device makers. As the Journal points out, while Apple Pay is now accepted at 50 percent of US retailers, only 19 percent of iPhone users have tried Apple Pay, and only 35 percent of new iPhones owners in 2017 have even bothered to activate the payment app.
Contrast this lackluster performance with Samsung, which launched Samsung Rewards to drive Samsung Pay adoption and saw daily use of the payments app double. Samsung Rewards has been so successful in driving adoption, in fact, that the company is now expanding the loyalty program across a broader swath of Samsung products. That’s the type of marketing innovation that will drive mobile payments adoption—and the companies who win this race will enjoy dividends in market share, consumer insight, and innovation.
Again, it’s easy to dismiss the race to mobile payment adoption as much ado about nothing. So what if the Chinese lead in payments innovation? Americans love their credit cards, so what needs to change? The Journal article provides a helpful glimpse into a future in which Chinese companies dominate fintech:
“WeChat Pay and Alipay are gaining attention in U.S. tourist centers after striking deals with hotels and resorts. A group of Chinese tourists recently dined at… at Caesars Palace in Las Vegas [and] settled their bill with a smartphone. ‘One couple stopped to watch the WeChat Pay transaction and asked for an explanation,’ said Bruce Bommarito, a Caesars executive. ‘They were surprised…and wanted to know if this payment method was available to Americans as well.’”
While both Alibaba and Tencent say they have no plans to push their payment apps into US markets, you may rest assured that, despite these denials, they very much have plans to export their technology to global markets. US mobile payment providers will need to learn to compete, and soon—or be left by the wayside.
Rick Ferguson is Editor in Chief of the Wise Marketer Group and a Certified Loyalty Marketing Professional (CLMP).
