East Meets West: key learnings from the rapid rise of mobile payments in mainland China
There is no single answer to how mainland China became a global hotbed for mobile payments. A combination of a nascent payments system and an expanding consumer class against the backdrop of significant e-commerce and GDP growth all played a role, as did a healthy dose of good timing.
These market factors have driven the country’s two most popular mobile payment systems—Ant Financial’s Alipay and Tencent’s WeChat Pay—to a level of scale, pervasiveness and success that is difficult for most outside of mainland China to fathom.
To put this into perspective, consider that Alipay counts more than 700 million active users and WeChat Pay more than 800 million – userbases that more than double and triple PayPal’s1 (Figure 1).
Figure 1: Alipay and WeChat Pay’s userbases have far surpassed PayPal’s
Source(s): Alibaba September 2018 Investor Presentation, PayPal Q3 2018 Earnings, WeChat Pay February 2018 Press Release
In Europe—and most other markets around the world—it’s challenging to draw comparisons to the unique payments and commerce ecosystem that exists in mainland China. But while the market dynamics may be dissimilar, European financial institutions, merchants, fintechs and technology providers can still benefit by understanding the attributes that have driven Alipay and WeChat Pay to cultural icon-status in mainland China.
Below, we unpack five of the core components of their strategies that market participants in Europe should be aware of:
A value-proposition greater than payments To refer to Alipay and WeChat Pay simply as ‘mobile payment apps’ is somewhat unfair. While payment is an important enabling feature embedded within each, they are best described as lifestyle applications, used to accomplish a wide range of tasks. According to Alipay, 55% of users utilise the various ‘lifestyle services’ it offers within the app2, which range from hailing taxis to scheduling doctor’s appointments to purchasing movie tickets to making charity donations. This far-reaching value proposition is at the root of Alipay and WeChat Pay’s success, helping implant them deeply within the lives of well over a billion Chinese consumers.
User engagement Facilitating ongoing and persistent interaction between users and the app, as well as between users themselves, is a core tenet of both Alipay and WeChat Pay. One example both employ is enabling users to exchange a digital version of cash-filled red envelopes during Chinese New Year, a long-running custom in the country. Alipay also periodically runs ‘lucky draw’ campaigns in which users can win prizes and money, while WeChat enables businesses to create accounts where they can run campaigns and generate content. Importantly, both apps serve as communication platforms, enabling C2C (e.g. P2P payments, social networking) and B2C interaction.
Data-driven personalisation Contextual and custom-tailored experiences predicated on user information has been heralded as the future of commerce and financial services. Through Alipay Discover, users that book a trip through Alibaba’s travel business, Fliggy, begin receiving merchant promotions and travel recommendations specific to their destination. Once their trip has begun, based on geolocation, users can then locate nearby merchants and receive offers and rewards. Outside of travel, Alipay utilises its window into user’s financial history to serve up short-term purchase credit at checkout. These features are all brought to life through data and serve to deliver a more personalised experience.
Rapid innovation Even with dominant market positions, Alipay and WeChat Pay are not ones to rest on their laurels. Through constant iteration and ongoing development, these apps work to continuously deepen their value propositions and relevance for users. This year, both providers have made strides in bringing government-issued digital ID cards into their apps by using facial recognition. They have also been quick to experiment with emerging technology. Alipay, for instance, has run several augmented reality-based marketing campaigns with global brands like Coca-Cola over the past 12 months, while WeChat is building an AR platform for third-party developers to create new shopping experiences.
Openness and collaboration The success of Alipay and WeChat Pay was not built single-handedly. These players owe their rise in large part to the vast partner networks that have provided the reach and enhanced functionality underpinning their platforms. While both apps have become natural partnership candidates thanks to their size and scale, Alipay and WeChat Pay have made strides in easing partner onboarding and integration. Through ‘WeChat Pay beta’ and ‘Alipay For Business’, developers can apply for, download and test their APIs in a self-service environment online. Both players are also aggressive in seeking out strong partners to fuel international expansion, as illustrated by Alipay’s partnerships with Adyen and Ingenico to better serve Chinese tourists in Europe.
Insight to Action
Drawing on the success factors described above, we believe financial institutions and their partners should make the following three initiatives near-term priorities:
Powering data-driven interactions
Financial intuitions are already in possession of an essential ingredient required to craft an engaging and value-added customer experience: data. With a rich view into areas like purchasing behaviour, identity and financial health, this proverbial gold mine can be leveraged to serve up personalised content, offers and insight to customers in digital banking channels. While GDPR surely raises the stakes for execution, business that clearly and transparently explain to customers how their data is—and isn’t—being utilised will have an execution advantage.
Of particular interest to consumers are location-based communications. According to a 2018 survey conducted by 451 Research and commissioned by Adyen3, more than half of European consumers would like to receive personalised information and offers based on their immediate location. This could range from a fraud alert triggered by a transaction that occurs outside the proximity of a customer’s smartphone, to a personalised merchant-funded offer based on purchase history and delivered when a customer enters a geofence.
Becoming partner centric
Financial institutions should take notice of Alipay and WeChat Pay’s collaboration-centric strategy as examples of how to remain relevant in their customers’ lives. With this is mind, Open Banking regulation in Europe should be viewed not as a burden or threat, but as an opportunity to partner widely and creatively. Owning a customer’s full commerce or payment experience is neither essential nor realistic. The most successful banks of the future will assume the role of an ecosystem orchestrator, adding value by connecting customers to the commerce and banking experiences they desire.
* https://www.adyen.com/blog/the-age-of-experience-2018-european-retail-trends
To execute, financial institutions must work to improve their approachability by making themselves easier to collaborate with. A digital partner strategy, and a scalable and interoperable framework for engaging with those partners is a critical success factor. Capital One, for instance, streamlines partner enrolment and API access via its DevExchange online developer portal in a way similar to how Alipay’s partner platform, Alipay for Business, operates.
Facilitating trusted exchanges
Financial institutions’ trusted position in the value chain is a critical asset. With unrivaled backgrounds in risk management and identity verification, banks should look to position these competencies as value-drivers for their customers and partners. These efforts can be supported by global payment networks, which bring to the table a variety of federated risk, ID, authentication and transaction control capabilities.
One approach is to offer card control services from within the mobile banking app, allowing customers to temporarily disable their stored payment credentials located in a partner’s app or wallet. This empowers the customer to instantaneously act on potential fraud or a lost card, benefiting the value chain in its entirety by thwarting potential fraud losses. Banks can also leverage their their ‘Know Your Customer (KYC)’ competencies to streamline the digital wallet onboarding processes for their customers, such as by enabling provisioning for the likes of PayPal and Apple Pay directly from within their mobile-banking app.
Longer-term, financial institutions should consider the role they could play as a digital identity service provider, as Barclays currently does with GOV.UK. The more financial institutions can do to position themselves as facilitators of trusted exchanges in the digital world, the greater their value will be.
A Look Ahead
While the European and Chinese payment landscapes have their differences, the underlying customer demands in both markets remain the same. Consumers want to engage in experiences that are fast, frictionless and tailored to them and delivered on their terms. These demands are apparent on a global scale and are what 451 Research refers to as ‘The Three C’s of Customer Success’ – convenience, context and control. Through the creation of rich partner ecosystems and data prowess, Alipay and WeChat Pay serve as shining examples of what a commitment to The Three C’s of Customer Success looks like.
Market participants must realise that a growing thirst for experiences means consumers no longer just want to ‘shop’ with a retailer or ‘bank’ with a financial institution. They want to be engaged on a deeper level, requiring all commerce stakeholders to reassess their value propositions.
While we believe banks will continue to play an important role in consumers’ financial lives, they must evolve to deepen their value. By playing to their strengths and committing to innovation for the sake of customers, not for the sake of technology, financial institutions and their partners will be in a strong position to deepen their role in the future of commerce.
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1 Alipay and WeChat Pay’s userbases have far surpassed PayPal’s: Alibaba September 2018 Investor Presentation, PayPal Q3 2018 Earnings, WeChat Pay February 2018 Press Release
2 https://www.alibabagroup.com/en/ir/presentations/Investor_Day_2018_AntFinancial.pdf
3 https://www.adyen.com/blog/the-age-of-experience-2018-european-retail-trends
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