China Leads In Mobile Payments
Summary
- China's mobile payment market dwarfs that of the U.S.
- Consumer comfortable with online shopping and mobile payments driving growth.
- Mobile payment market dominated by Alibaba and Tencent.
In 2016, China’s mobile payments hit $5.5 trillion, roughly 50 times the size of America’s $112 billion market, according to consulting firm iResearch. I have one word to describe this stat - WOW! Chinese consumers are adopting cashless and e-commerce methods at a rate significantly faster than the rest of the world. From a population standpoint, China's population is 6 times the size of the U.S.
One behavioral statistic or fundamental reason for some of the growth is that 31% of Chinese consumers will click on an advertisement that is relevant to them vs. 16% globally, almost 2 to 1 more likely to respond to targeted ads according to a PWC report on ecommerce in China.
Another fundamental factor is that China has a younger population and younger consumers are more trusting of cashless and e-commerce transactions.
China’s ecommerce market is set for continued growth thanks to the proliferation of mobile buying and the dominance of marketplaces such as Alibaba (BABA), JD.com (JD) and Tmall. Growth in online purchasing is being spurred along by a growing comfort with mobile shopping, greater spending by consumers in smaller cities, and the expansion in the variety of goods being purchased. The popularity of shopping on a mobile phone is expected to continue.
China, the largest E-commerce market in the world, is now setting the benchmark for present and future global retailing. This is driven by its mobile-first consumer behavior, innovative social commerce model, and a trusted digital payments infrastructure. E-commerce is a clear growth story, says PWC’s Michael Cheng in a report eCommerce in China – the future is already here. He also breaks out the “9 trends shaping retail and consumer products sector in China”.
Online payments in China is dominated two main players, Alipay owned by Alibaba and WeChat Payment, owned by Tencent (OTCPK:TCTZF, OTCPK:TCEHY). The following statistics reported by iResearch highlight the dominance of these two players.
Alipay and TenPay (WeChat Payment) together make up for 92% of the mobile payment market.
Alipay makes up for the majority (61.5%) of business-related transactions.
Mobile payment transaction increased 381% to RMB58.8 trillion in 2016 and are expected to grow at a 68% growth rate in the next 2 years.
Mobile payment amount for 74% of all online payments.
42.4% of in-store purchase is done via non-cash payment.
It’s no doubt that China is leading the mobile payment revolution. It’s a simpler life not to deal with cash and credit cards. While, in year 2016, mobile payments reached RMB58.8tn (USD8.6 tn), a 381.9% year-over-year growth, transaction volume is expected to grow at a 68% rate over the next 2 years, according to the same iResearch report.
In comparison, US is expected to see a mere volume of USD62.49 billion in mobile payment value in 2017 according to eMarketer, which was quoted in the iResearch report. When comparing the two countries, U.S data is barely visible on the graph.
Users are moving away from desktop to mobile devices. Mobile payment amount for 74.6% of total online payments in China, according to the same study.
Where's Paypal in China?
PayPal (PYPL) has formed a partnership with Chinese tech giant Baidu (BIDU) in a drive to compete in the world’s biggest mobile payments market, which is dominated by domestic titans Ant Financial and Tencent.
The partnership allows Baidu Wallet users to make online purchases outside China by linking their Baidu Wallets to PayPal. Foreign merchants that accept PayPal will automatically accept Baidu Wallet as a result. “With Baidu, PayPal will be able to offer millions of international merchants increased access to millions of consumers in China who can search, shop and discover the world through Baidu and Baidu Wallet,” said Dan Schulman, president and chief executive of PayPal.
However, the two providers lag far behind Alipay, the online payment app offered by Alibaba’s affiliate Ant Financial, as well as WeChat Pay, which is integrated into Tencent’s social messaging “killer app” WeChat. “Alipay and WeChat Pay are unshakably dominating the Chinese payment market, while Baidu’s status has been a little awkward,” said Xue Yu, an analyst at IDC, quoted in the Financial Times. All these companies are in fierce competition for the ballooning payment flows generated by the 20m Chinese middle-class consumers who have taken to shopping overseas on their mobiles.
China is the world’s largest driver of growth in cross-border ecommerce, and the market is expected to grow at 15 per cent annually from Rmb626bn ($92.7bn) in 2016 to hit Rmb1.3tn in 2021, according to Mintel, a market research group, quoted in the Financial Times. “PayPal’s move empowers Baidu with its developed advantage in the international market,” added Mr Xue. PayPal said that cross-border ecommerce in 2016 accounted for 22 per cent of its payment volume, a figure that has grown thanks to its acquisition of cross-border payments company Xoom in 2015.
Baidu Wallet is only the 10th-biggest third-party payment platform in China, but still lays claim to over 100m users with activated accounts. Baidu took up 0.4 per cent of the Chinese third-party mobile payments market at the end of 2016, while the top two players — Ant Financial and Tencent — had 54 and 37 per cent, respectively, according to market research firm Analysys, quoted in the Financial Times. PayPal has long had its eye on the purchasing power of Chinese shoppers abroad. In 2010, PayPal partnered with UnionPay, China’s dominant bank card issuer, to enable Chinese consumers to make overseas online purchases by linking UnionPay credit cards and debit cards to their PayPal accounts. However, uptake was minimal.
Summary
Mobile payments are growing rapidly in China and easily dwarf those in the U.S. A consumer more trusting and comfortable with mobile payments along with a retail market more oriented toward online shopping should continue to support this trend. The market for mobile payments is dominated by two players – Alipay and TenPay, owned by Alibaba and Tencent, respectively. Other firms, such as Baidu strive to penetrate this market.
EMQQ invests in emerging markets internet and ecommerce companies. EMQQ holds Alibaba, Baidu and Tencent. Investing in EMQQ provides exposure to the rapidly growing mobile payments industry in China.
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Comments (12)
If Chinese mobile payment grew by 30% in 2017, it would be about $1.2 Trillion
5.5 T is correct, in Yuan, not in $.