A new landscape
With cross-platform barriers removed, Chinese mobile payment industry competes on new fronts
China now leads the world in mobile payments, but it was primarily a cash economy before the turn of the century. With credit card usage largely absent, consumers leapfrogged plastic entirely and moved directly from cash to mobile payments - a remarkable transformation spearheaded by technology giants Alibaba Group and Tencent Group.
As of June, 969 million people or 88% of mobile internet users in China, actively used mobile payments, and more than three billion payments were transacted every day, valued at over 1.4 trillion RMB (US$196.5 billion), according to data research firm Statista.
Until recently, Chinese mobile payment providers were operating in isolation, restricted from being used on rival online platforms. Regulatory crackdowns and changing industry dynamics have triggered a change and the mobile payment industry has now entered a new era where collaboration and competition co-exist.
The market is dominated by Hangzhou-based Alibaba and Shenzhen-based Tencent which together have a more than 90% share. Both companies offer users multi-dimensional services on a single platform, leveraging their unique strengths to create a cohesive and engaging experience.
In 2003, Alibaba launched Alipay, an online digital payment app which held funds in escrow until buyers confirmed receipt of their goods. Five years later, Alipay introduced its mobile e-wallet, sparking its meteoric growth.
Tencent entered the payments space as a leader in online messaging and gaming. In 2005, it launched Tenpay, an online payment app, followed by the smartphone-based social messaging app WeChat in 2011. Two years later, Tenpay was integrated into WeChat, creating WeChat Pay, which allows users to send money directly through the messaging platform.
Different demographics
Today, Alipay boasts over one billion users, while WeChat Pay has more than 900 million. Much of this growth has taken place on the back of quick-response or QR codes, a technology originally invented in Japan, but which did not gain significant traction there.
In late 2011, the two Chinese payment apps launched proprietary QR codes and quickly revolutionised payment methods by using mobile phones to simply scan, pay and go.
The apps attract different user demographics due to their origin. WeChat Pay is an added feature of a multifunctional social app, making it popular for everyday transactions such as sending money to friends, paying utility bills, or ordering takeouts.
Alipay, by contrast, is primarily used for online purchases, large transfers, and wealth management products from Alibaba’s Ant Financial. Together, they cater to the diverse payment needs of users in their daily lives.
A key factor in the remarkable success of Alipay and WeChat Pay is their integration within the larger WeChat and Alibaba ecosystems. By leveraging their payment solutions as the foundation, the tech titans provide users with seamless access to myriad online services embedded in their apps, eliminating the need to download and install separate native apps.
This concept of “an app within an app” sets them apart from services like PayPal in the US, which traditionally operated outside platforms such as Amazon.
WeChat currently hosts over four million mini-programmes, attracting 850 million active users who can easily swipe the app to access a list of saved or recently used mini-programmes for services like ride-hailing, utility payments, mobile top-ups, movie and train tickets, medical appointments and e-shopping.
Additionally, many key opinion leaders share sponsored content on their official WeChat accounts. These posts link directly to mini-programmes, guiding shoppers to product purchase pages.
Alipay, meanwhile, features more than 160,000 mini-programmes serving 661 million users. But its ecosystem has a higher barrier to entry, open only to corporate enterprises. It encompasses various sectors such as transportation, utilities, healthcare, financial services, real estate and e-commerce.
Regulatory crackdown
For years, Alibaba and Tencent were locked in fierce rivalry, often engaging in anti-competitive practices against each other.
For instance, users of the WeChat app could not click through to Alibaba’s e-commerce sites such as Taobao and Tmall. And users on those sites could not use WeChat Pay for transactions.
Other major platforms, including JD.Com, Meituan and Douyin, also created their own “walled gardens”, further fragmenting the industry landscape.
The State Administration for Market Regulation (SAMR) has since 2019 stepped up efforts to crack down on tech monopolies, placing Alibaba and Tencent under antitrust scrutiny.
In April 2021, Alibaba was fined a record 18.23 billion RMB for abusing its market position by coercing merchants to use its e-commerce platforms exclusively, restricting their freedom to collaborate with rivals.
Three months later, Alibaba and Tencent, along with 31 other major Chinese tech firms, signed a ‘self-discipline’ antitrust agreement aimed at promoting competition and protecting user rights. This marked the beginning of a more open industry.
In the same year, Alibaba integrated WeChat Pay as a payment option on its food delivery app Ele.me, its video-streaming platform Youku, and the ticketing site Damai. Alipay users with UnionPay’s Cloud QuickPass could also pay directly via the app after placing orders on Taobao.
In 2022, Tencent for the very first time allowed WeChat users to link to Alibaba’s content.
Landmark cooperation
This year, JD.Com’s JD Pay and WeChat Pay announced in May that their personal and merchant codes have become interoperable, enabling users to scan WeChat Pay codes directly through the JD Finance app.
The most significant development occurred on September 4, when Alibaba announced that Taobao and Tmall would accept WeChat Pay, marking a landmark cooperation deal. WeChat users can now directly click on Taobao links within the app to complete orders and make payments without switching back to the Taobao app.
Starting in October, shoppers on Taobao and Tmall will gain an additional delivery option through JD Logistics, alongside Alibaba’s Cainiao. In exchange, JD.Com now accepts Alipay and Cainiao as payment and delivery options on its platform.
These groundbreaking changes followed new SAMR regulations that took effect on September 1, aimed at curbing unfair competition among internet platforms and safeguarding the rights of operators and consumers.
Although these moves may seem dictated by regulatory demands, they are also driven by broader industry dynamics. After years of rapid growth, major e-commerce platforms are reaching their natural limits.
For instance, Taobao’s market share has been declining since 2019 as competitors like JD.Com and Pinduoduo offer lower prices. Concurrently, ByteDance’s Douyin has aggressively captured more market share with its social commerce model, further intensifying competition.
Consumers gain
The opening of ecosystems will enable the platforms to broaden their customer bases and deepen market penetration. Taobao shoppers who were previously required to use Alipay – which often led to users without the app abandoning their carts – can now complete transactions directly within the WeChat app, potentially boosting sales conversion rates and increasing the frequency of purchases.
Data from Tencent in 2020 showed that 83% of county-level users and 78% of rural users preferred WeChat Pay compared to 76% of urban users. Cross-platform interconnection allows Taobao to reach elderly consumers in less-developed regions who favour WeChat Pay over Alipay, while WeChat Pay can tap into Taobao’s larger shopping user base.
According to Chinese business intelligence firm QuestMobile, the number of users simultaneously signing up for Taobao and WeChat in September jumped by nearly 21 million or 2.6% after Alipay announced the cooperation deal in September. There was a notable month-on-month increase in users switching to WeChat while using Taobao. And Taobao’s active user base also grew 18.67 million or 2% in September alone.
Moving forward, players must focus on enhancing user loyalty and increasing sales revenues through improved user experience, convenience and accessibility. The removal of cross-platform barriers creates a more level playing field, prompting all players to innovate and compete on delivering compelling value propositions.
While it may be too soon to fully assess the outcomes of this interconnected environment, one thing is clear: consumers stand to gain significantly from greater choice and improved services.
*This article was published in Asia Asset Management’s November 2024 magazine under the same title.
