When mobile payments or mobile wallet is considered, only 40% of the current population in China is using smartphones to pay. This suggests that scope of development of this technology in the country is huge.
One of the major reason for low penetration of mobile wallet in the country is lack of connected users or internet unavailability across many regions.
- Definition / Scope
- Market Overview
- Top Market Opportunities
- Market Trends
- Industry Challenges
- Technology Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Technology Roadmap
- Competitive Landscape
- Competitive Factors
- Key Market Players
- Strategic Conclusion
Definition / Scope
Mobile Wallet is also known as transactions which are processed via means of smartphone applications. The payment is usually made through smartphone with usage of internet and also physically via POS payments through NFC, QR code scanning or some wireless technology.
Some of the popular payment providers around the world include, Apple pay, Google Pay and Samsung Pay. In this case, payment is made via contactless interaction of smartphone app with apt payment terminal owned by the merchant.
The payment is made either by loading funds into the wallet through e or m-commerce or simply through the digitally stored debit/credit card in the wallet.
Mobile wallet excludes the payment transactions made with swiping physical debit/credit cards in POS systems or contactless terminals.
China has adopted digital wallets unlike other countries. China has leapfrogged in case of mobile wallets as the country people are smartphone lovers and have continued to adopt digital wallets. As a result, mobile wallet in China account almost 54% of total payment market in the country and continues to grow at CAGR of 34% till 2021.
China also ranks as number one in mobile commerce and also in payments made via smartphone. The method is most dominating in the e-commerce area in the country. Almost 75% of the e-commerce transactions are met via mobile device generating $873.3 billion sales annually.
The growth is also expected at a rapid pace at rate of almost 28.8% till 2021. By that time, the industry is expected to value at $2.4 trillion.
Although, the penetration of smartphone stands at only 56% in China, the ambition of m-commerce or m-wallet is huge and there is great potential for growth in the market.
Since past 5 years, China’s mobile payment market is growing in double digits every year. As of 2019, the penetration of mobile wallets in China stands at around 90% with 1 billion mobile internet users. Mobile wallet is also regarded as one among the four great inventions in the new era.
As of 2019, there were about 890 million mobile payment users where two major players that dominate more than 90% of the market include AliPay and Ten Pay.
In China, usage rates of four major types of payment include, 95% for personal use, 86% offline consumption, 82% online consumption and 20% for financing.
The user penetration rates around all areas (urban or rural) were the same in thr country. As of 2019, the penetration rates in first-, second- and third tier cities were 90.4%, 93.5% and 92.4% respectively. The economically backward regions have also been considering mobile wallet which is a factual trend in China.
The proportion of people’s daily expenses paid by third parties has increased by 3% in 2018 to 48% in 2019 respectively. This is the most growing business model in mobile wallets in China. In addition, the share of credit/debit cards as means of payment is also declining gradually.
As of 2019, the transaction of third-party mobile payments reached $15.3 trillion and the average transaction was $20. This suggests that consumers are more familiarized to using mobile payments to complete some large transactions.
Top Market Opportunities
In China, social media is offering fresh opportunities for mobile payments to thrive. Especially, social payments based on interpersonal relationships is an important factor for increasing more payment penetration in the market.
For instance, one of the major player in the market WeChat Pay is based on WeChat which is a messaging portal that enables third-party payment model among users by creating a socially-inclusive environment.
Thus, it is popular among users. It has mainly two application scenarios: Chinese lucky money (also known as Hongbao) and transfers. Once an amount has been saved, users have a desire to spend the credit. As a result, WeChat payments are often used offline.
The per capita running time of the social software such as WeChat is more than 30 minutes per day which helps promote payment habits via social dissemination.
WeChat also introduced a new feature that provides window to track mobile payment habits of elderly. Careful of new things, elderly people tend to view card-bound behavior with suspicion.
So children should bind the cards to enable their parents to consume. This can greatly reduce the inhibition and mistrust, and parents can easily become active users of mobile payments.
In addition, Wechat Pay also has recharging games which entices young adults to become a part of it. Thus, socially inclusive payment application & features such as that of WeChat Pay is an opportunity and one-stop solution for any mobile payment business looking to establish in the Chinese market.
Growth in e-commerce: The increase in mobile payments in China can be attributed to the growth of e-commerce and m-commerce in the country.
Although the share of e-commerce of online sales of goods may seem low, the market itself is increasing rapidly and consumers prefer mobile payment as means to purchase goods and services online.
For instance, mobile commerce in China is expected to be around $1.5 trillion in sales in 2019 representing almost 25% of the entire retail market in China. The reason for mobile payments to be so successful in the Chinese market is because they are reliable and fast.
High Availability: QR codes are the most common means of mobile payment in China and it is available across multiple locations. QR codes are everywhere in China, even street vendors have QR codes to collect money.
The method of payment so easy that customer simply scans seller’s QR code which is often printed and visible at the checkout on restaurant tables and even on products in some stores.
The money can be sent directly which is simple and faster way to process payments. Thus, this important feature of mobile wallet which has led to its quick adoption among consumers and vendors.
Even sellers don’t need to buy technology to receive payment, a piece of paper printed with QR code is enough.
Barriers to entry: Looking at the payment landscape of China, services are several and varied which creates a complex and confusing situation for companies that are new to the market.
In China, the domestic companies rule more than 90% of the market and existing players in the market are not friendly to foreign companies entering Chinese market. There are several issues that persist for the foreigners attempting to breach into Chinese online market and among them one important factor is documentation.
For instance, Chinese payment systems have documentation in Chinese language only which includes all rules, regulation and manuals on using the system, managing wallet and issues regarding money held in it etc.
- Thus, if any company is planning on establishing China website payment gateway integration, they might need to actually hire a translator.
- Another obstacle is the competition between AliPay and WeChat Pay which cover more than 90% of the Chinese online shoppers. Thus, being fierce competitors, these two systems forbid direct transferring between them. They also make it difficult for small players to survive in the landscape.
Regulatory Compliance: Digital wallets are businesses that are associated with huge pools of money, thus they need to maintain highest standards of security and also be regulated heavily.
There are extensive legal requirements under government for consumers as well as mobile wallet players which they have to comply. For novice business in the market, being compliant is a daunting task and requires lot of effort.
In addition, unauthorized use could create liabilities for the company. Also, due to increasing awareness among consumers data privacy and policy also needs to be considered in the best interest of consumers.
Fraud Risks: Another important challenge is to ensure that mobile payment systems are not vulnerable and ready to be exposed by hackers. This is a significant issue as it could break the reputation of mobile app in the global market.
Fraud risks also is one of the reason why customers are unwilling to use mobile wallets as means of payment. The fear of data leakage and malware attack is so intense that people would easily switch to hard cash in case they hear about such incidents.
Thus, enabling safe transactions via mobile wallet is imperative for the product makers.
Zero indulgence: Like cash back programs, mobile wallets also need to come with reward policies. This is an essential factor to attract consumers to use mobile wallets and also for their retention in long term.
However, such gratification needs to translate into real money as and when required by the customer, failure to do so could lead to serious repercussions for the mobile wallet producers such as, customers switching providers.
NFC (Near Field Communication) payment: The technology is a set of communication protocols that permit two electronic devices, one of which is usually a portable device such as a smartphone, to establish communication by bringing them within a close proximity.
In 2018, the payments via NFC totalled $68 million in China. Furthermore, due to popularity of QR technology and other advance technologies, NFC is growing at relatively lower rate i.e. around 2% annually.
Some of the commonplaces where NFC’s are used in China include, public transport, restaurants, small shops and life services sector. As of 2017, Apple Pay, launched large scale promotion of its mobile wallet in China.
Apple Pay leverages NFC technology whereby it uses chipset embedded in smartphones (iPhone) to make payment.
NFC enables data exchange between devices and POS terminals. In addition, transaction is completed when users hold their phone near POS portal. The technology and method of payment is proving more convenient than AliPay and WeChat Pay.
Also, 97% of the ApplePay users in China during the campaigning period cited high satisfaction with the service. In near future, Apple Pay aims to encourage iPhone users in China to use Apple Pay than any other payment service.
QR code Payment: A QR code is a barcode system which was initially developed by a Japanese automotive parts marker to keep track of components but contrastingly in China, the technology is being leveraged to enable mobile payments.
The QR code allows shoppers to make quick payment by scanning a black and white barcode provided by merchants or by requesting the business to scan a code generated by a mobile payment app. It is highly used method of mobile payment option in China from luxury hotels to street vendors.
Beijing Inspiry Technology is the QR code payment tech provider to some of the biggerst mobile wallets in the country such as WeChat, AlipPay, UnionPay and Meituan.
In 2006, the company developed Han Xin code which is the first national QR code standard in China. The ‘Smart Box’ which is also commonly referred as “little white box” in China is the mainstream offline payment option in China and holds almost 70% of the mobile payment device market in China.
In 2018, People’s Bank of China (POBC) issued a three-year plan to build regulatory framework to connect technology standards and promote interoperability of quick response code (QR code) payment service.
Under the plan the government aims to enable all merchants to use on universal barcode to facilitate transaction by 2021 through different payment service providers including, Alibaba’s AliPay and Tencent’s WeChat Pay.
At present, different payment providers in the market use different barcodes that can be used only for availing their services. If the framework is unified then, shop operators needn’t provide a range of barcodes for different payment options and customers can save time by not having to make choices.
If this regulation becomes successful, small mobile wallet providers and banks will benefit the most as it will give their services exposure to customers after years of losing market share to leading players. In contrast, for market leaders such as Tencent and Alibaba unified barcode means giving access to steal their shares and distort their duopoly.
The technical standards and industry norms for QR code payment is still developing in China and safety remains as one of the top issues to be addressed by the policies.
In line with that in 2018, the government imposed a new regulation with an aim to improve safety for the use of QR code by capping daily spending to $79. The limit applies to static QR code which in turn boosted to the demand for self-service QR code scanners.
The central bank has also made another major announcement that, all prepaid funds received from the consumers by the wallets must be deposited in the bank rather than private institutions themselves.
In addition, payment providers’ will also be unable to collect interest on their users’ pool fund deposit balances.
Furthermore, third-party payment providers are also required to connect with Wanglian, a state-backed clearing and settlement institution designed to replicate the role of China Union Pay, which performs the same function for card providers.
Other Key Market Trends
At present, public transport is at the front position of the mobile payment industry and more recently has also attracted resources from leading companies such as WeChat Pay, AliPay and Union Pay.
It was UnionPay that first authorized the e-payment for public transport. Later, Alipay’s electronic online bus card and Tencent’s Metro quick response (QR) code created a highly hyped competitive environment in the public transport space.
As of 2019, Tencent Metro QR code has been introduced in more than 70 cities most of which are situation on the southwest and Northeast China.
As the mobile wallet is receiving huge success in the public transport space with more consumer demand, players are constantly introducing new features and loyalty perks for people using mobile wallet for public transport.
Market Size and Forecast
As of 2019, market size of mobile payments or mobile wallets in China is expected to be around $5.8 trillion dollars. On global perspective, highest transaction value is reached in China which makes it top country market in the industry.
The number of users in mobile payments is expected to be around $1 billion in 2019 and average transaction amounted $1155.5 per user in the same time.
The total market size of mobile wallets in China is expected to grow at 29.3% during 2019-2024 period where market size is expected to reach $16.2 trillion by 2024 and also expected to rise three-fold by 2035 and reach $48.4 trillion.
In addition, the active number of mobile payment customers is expected to reach 1.5 billion by 2023 and this in turn will attract more investments from mobile payment market participants.
Pay with Face:
The mobile payment technology is maturing with AI technology in China where the payment is enabled with face- as a new option for young people across first and second tier cities.
The technology is at a very early stage and holds opportunity to bring in a whole new wave of less-tech savvy users such as the elderly or those who struggle to read and write. In addition, the facial recognition feature is also expected to improve efficiency.
AliPay was the very first player to introduce the system with particular focus on its Smile-to-pay feature which launched in December 2018 and has expanded to over 300 cities in over a year. After that WeChat pay also rolled out system that is capable of scanning both customers’ face as well as QR codes for payment.
Facial recognition is definitely convenient and frictionless mobile payment system as it doesn’t require smartphones for making payments and so far consumers are satisfied with the technology, however, in the long-term, success of facial recognition is yet to be decided.
China is leader in mobile payments as the technology has been successfully adopted in the country by both vendors and customers.
Considering the landscape of the market, China’s mobile payment industry is clearly dominated by two giant companies namely, Alibaba and Tencent.
Tencent’s WeChat Pay and Alibaba’s AliPay together account 90% of the mobile payment users in the country. Initially, AliPay was launched by the e-commerce giant Alibaba in 2004 creating a more convenient payment system for their customers and since then the company has hugely improved their infrastructure and grown to become leader in the industry.
On the other hand, WeChat Pay was launched in 2013 as a payment service for WeChat, the largest social media app in China. Thus, AliPay has more prominence in payment across e-commerce while WeChat has prominence in social media.
Both companies capture the value of emerging mobile payment segments in the country and are leaders in their respective segments.
The successes of two companies has also been driven by society’s transition to mobile payment as a whole. An average Chinese individual carry less than $16 in their wallet when outside.
In addition, cheques and cash is hassle for average consumer due to which they prefer mobile wallets. In line with that, both AliPay and WeChat have leveraged the increase in smartphone usage to their advantage whether it be in a taxi or cash counters in grocery stores.
AliPay and WeChat pay are successful in their own territories where AliPay dominates more than 90% of the payments made for online shopping and WeChat Pay accounts 80%of the transactions made with offline vendors respectively.
For small players in the market, they are acting as intermediaries and helping two leaders process transactions with merchants and earn commission in between and are not directly competing with the major players.
More lately, the government of China has introduced a new policy where QR codes interoperability will be enabled. Interoperability could also mean breaking the duopoly of two companies and allowing fair competition in the market.
As small companies and banks have their profit margins squeezed under shadow of AliPay and WeChat Pay, the new policy could benefit all parties to compete and increase their share in the market.
The internationalization of mobile payments has been enabled in China too. For instance, WeChat Pay is available in 40 country markets and regions, supporting direct billing of 13 foreign currencies. Another player, UnionPay has also extensive overseas cooperation network.
The payment network has been extended to over 168 countries and regions. Finally, AliPay has access to more than 200,000 offline merchants across 30 countries in region such as Southeast Asia, Europe and US.
In addition, the company has also collaborated with local brands in 9 countries to complete the layout of their local mobile payment wallet.
AliPay is also targeting companies across developing countries where mobile payment has just started.
Key Market Players
Top 3 players in the market include:
WeChat Pay: It is the youngest and top mobile payment application in China with most registered users. The reason for the popularity of WeChat in China is because it is based on social messaging however, the application is more than a messenger.
It consists of the whole ecosystem such as a messenger, social network, games and payment. The first option for businesses entering Chinese market is WeChat Pay and its integration across their operations as the application has huge user base and the convenience of use is also there as all that user needs to do is connect to bank account to use the service.
In addition, WeChat Pay supports all devices that work with WeChat i.e. 90% of mobile devices used by Chinese consumers. For users, WeChat Pay is largely fee-free. Fees are only charged for withdrawals over approximately $153 but even that fee is small compared to the fees banks take.
This is a huge incentive for Chinese consumers to use WeChat Pay and not credit cards. At the same time, the fee taken from merchants is also very low; WeChat’s merchant fee is 0.6%.
AliPay: As online commerce is considered in China, Alipay is usually the first payment gateway that people prefer mostly because it was a pioneer in this field, evolving along with Chinese e-commerce itself.
Although WeChat has the largest pool of registered memebers because of its social platform and messenger, it is not at par with Alipay’s number of actual customers using application to make payment. At present, Alipay is still the most popular online payment system in China.
Alipay only charges for withdrawals, however, the amount allowed without a fee is much higher approximately $2,900. The fee for merchants is similar to that of WeChat Pay at 0.55%.
UnionPay: The Company was It was initially a credit/debit card provider, unlike AliPay and WeChat Pay, which were both well-known primarily for online transactions and e-commerce.
China UnionPay is a new player in the online payment market, but it has differentiated itself compared to smaller companies. As the third-largest credit/debit card provider in the world (after Visa and Mastercard), it already has an extensive base of long-time clients.
Essentially, everyone in China who has a bank account is a UnionPay customer. The biggest benefit is that is supports all currencies and operates in foreign countries besides only China. For businesses looking to attract customers outside of China, Union Pay is the ideal payment gateway to incorporate.
Other notable players in the market include:
- Suning Finance
- Baidu Wallet
- Yee Pay
- 1 Quanbao
|WeChat Pay||AliPay||Union Pay|
|Number of Users||800 million||1000 million||160 million|
|Market Penetration Rate||84.3%||62.6%||11.6%|
|Number of supported currencies||13||27||Almost all|
|Supported devices||Devices that support WeChat||All phones tablet & Pc’s||All phones, tablets and PC’s|
China is the leader in mobile payment industry and continues to become so in the global mobile payment services market in near future too. In line with that, the mobile wallet providers in China will also shift their focus on improving and enhancing security on mobile payment platforms.
New functionalities and features will be available to the consumers in the market with technologies such as biometrics and facial recognition being more prominent in China than any other country.
- NFC- Near Field Communication
- QR- Quick Response