Explaining Chinese Payment Systems – What’s the fuss about?

Explaining Chinese Payment Systems – What’s the fuss about?

Chinese mobile payment systems are more than just a modern convenience – they have a considerable impact on China’s travel and tourism industry.

As we know, Chinese travellers enjoy travelling as conveniently as possible, and they dislike being overwhelmed by a destination’s cultural difference.

One way a destination can demonstrate a strong “China Welcome” is by allowing visitors to purchase goods and services using popular Chinese payment systems – in particular WeChat Pay and Alipay. Destinations which accept these payment systems are a step ahead of the rest in streamlining the shopping experience for Chinese visitors travelling abroad.

This article aims to explain developments undergone by different Chinese payment systems, their similarities and differences, and their importance to marketing a destination or attraction in the Chinese market.

Mobile payment systems are in-demand…

In a recent interview with our Beijing Director Vivienne Song, I asked her why mobile payment systems are so important to Chinese consumers. Vivienne told me that, ultimately, it comes down to the convenience and ease-of-use they provide.

Recent research conducted by Nielsen in partnership with Alipay found that if given the option, 90% of Chinese tourists would use mobile payment systems overseas. Most glaringly, 91% of Chinese tourists indicated that the widespread availability of mobile payments abroad would encourage them to spend more. This is certainly something destinations and venues should keep in mind when marketing to the Chinese.

Chinese tourists love using mobile apps to make holidays more convenient. Mafengwo recently conducted a report asking 3,500 Chinese tourists how they use Chinese apps during their travels. According to results, over 85% of the subjects constantly use their phone while travelling, averaging out at six hours a day. If the Chinese are this attached to their mobile phones, why draw them away to make payments?

…But they are not yet widely accommodated

In 2017, mobile payments yielded an extraordinary total sum of $32 trillion USD, according to the People’s Bank of China. However, since mobile payments are not yet widely accepted outside China, the usage rate of mobile payments by Chinese outbound tourists abroad is currently lower than that of cash and bank card payments at 65%. This is still significantly higher than the usage rate among non-Chinese tourists, which stands at 11%. All in all, destinations should look to accommodate Chinese mobile payment apps to ensure the widespread availability of Chinese tourists’ preferred payment method.

WeChat Pay and Alipay – what’s the difference?

A relative latecomer to the mobile payments market when compared with Alibaba’s Alipay, Tencent’s WeChat Pay launched in 2013, came to Europe in 2017 with a number of approved merchants, and has rapidly grown since. The service aims to be as convenient as possible, allowing users to pay for an endless variety of goods and services both on and offline. WeChat Pay borrows Alipay’s model for offline purchasing by using system generated QR codes – it’s common to see codes for both platforms at points of sale.

Conversely, with around 520 million users, Alipay is China’s most popular mobile payment system. The service launched in 2004 as the Chinese alternative to PayPal, over a decade before WeChat Pay. Alipay allows its users to make payments on China’s largest e-commerce marketplaces, Taobao and Tmall, by linking their bank card to the app. It shares much of the same functionality with WeChat, enabling users to make payments using QR codes, and both services offer no transactions fees except for large withdrawals. Both WeChat and Alipay control over 90% of China’s $5.5 trillion mobile payment market.

WeChat Pay’s most notable feature is ‘red envelope’, which allows users to virtually send money to family and friends on special occasions. Reportedly, 768 million people sent out red envelopes in celebration of the Lunar New Year back in February 2018, 55% of China’s billion-plus population.

A huge difference between the two mobile payment systems is WeChat Pay’s integration into China’s most popular social media platform, WeChat, which recently passed one billion monthly active users. WeChat’s popularity is bolstered by how it comes pre-installed on 90% of Chinese smartphones, and every WeChat user has access to WeChat Pay as long as their account is linked with their bank. This has had an evident effect on Alipay’s growth – Alibaba’s market share fell by nearly half at the end of 2017, while Tencent witnessed growth of more than a third.

So, in my opinion, the main reason WeChat Pay trumps Alipay is that people don’t want to leave the app they spend their life on, WeChat. They expect to do everything via WeChat – messaging, booking tickets, work communications, doctor appointments, and, of course, pay for things.

Similar developments

Some retailers have been adopting a variety of Chinese payment methods to ensure the needs of Chinese travellers are fully accommodated. Alongside their 200-plus Mandarin speaking staff, and the redevelopment of their jewellery department to align more with Chinese consumer interests, Harrods accepts both WeChat Pay and Alipay payments.

Furthermore, they both recently formed partnerships with tax refund companies, allowing for Chinese tourists to use either mobile payment method to receive rebates on their purchases. WeChat now offers instant tax refunds for Chinese tourists departing from Madrid airport, and Alipay introduced a similar service for Chinese tourists returning to Changi airport in Singapore.

Both payment methods have begun their expansion in Western markets. In 2017, WeChat Pay accounted for 29% of all Starbucks transactions, and back in November, Camden Market began to promote rollout of WeChat Pay across over 1,000 shops and restaurants to encourage Chinese shoppers. Following the successful integration of Alipay throughout Munich airport in 2016, WeChat Pay is now also accepted.

It was recently announced that the US hotel giant Marriott is preparing to accept Alipay mobile payments in around a quarter of its hotels globally. This complements their existing “Li Yu” loyalty initiative, which by introducing conveniences such as Mandarin speaking staff, hopes to make Chinese guests feel more comfortable staying in Marriott hotels.

More recently, Chinese visitors to the world’s largest shopping mall in Dubai can now use Alipay for their various shopping, dining, and leisure attractions. This development succeeds a continued effort by The Dubai Mall to accommodate the needs of Chinese visitors with Mandarin mall guides and Chinese helpdesk staff.

So… WeChat or Alipay?

Perhaps for some Western corporations, the fact WeChat Pay is fully integrated within one of the world’s most popular social media platforms has given it the edge over Alipay. It was recently announced that Walmart had dropped Alipay in favour of WeChat Pay for its 400-plus stores in western China. When asked to comment on the decision, Walmart simply remarked “WeChat Pay is widely accepted and trusted in China.”

By tapping into its social media influence, WeChat Pay is looking to rollout its platform internationally to feed the growing demand among Chinese outbound tourists. As Grace Yin, WeChat Pay Director for Overseas Operation, commented

“As mobile payment is increasingly welcomed by mainland Chinese outbound tourists, WeChat Pay plans to constantly invest in its cross-border business, with the aim of duplicating the domestic WeChat lifestyle overseas”.

This reinforcement of ‘domestic WeChat lifestyle overseas’ emphasises the urge among Chinese tourists to rely on familiar Chinese apps to help them vault over language and cultural barriers.

But we also have UnionPay – isn’t that enough?

UnionPay, the world’s largest bank card service, lags behind WeChat Pay and Alipay in terms of mobile payments, having first introduced their QR code-based payment method in 2017. While nowhere near as popular as WeChat Pay and Alipay, it still boasts a huge user base – in participating with 165 banks, every Chinese bank account is linked with UnionPay. UnionPay’s QR code-based payment method witnessed huge growth in volume over the Chinese New Year holiday period this year – specifically a 150% year-on-year increase.

UnionPay has issued over 5.4 billion credit or debit cards, however due to their magnetic strip and security pin system, they are considered less secure than WeChat Pay and Alipay. UnionPay is widely accepted internationally, from card purchases to ATM withdrawals, and it can process most world currencies.

However, at its heart, UnionPay is a credit card and the market has moved on to mobile payments, while UnionPay runs to keep up.

How does Apple Pay plan to compete?

While Apple’s products remain universally popular, its Apple Pay service, despite continued efforts, is having difficulties grabbing the attention of Chinese consumers. Due to WeChat Pay and Alipay’s market dominance, Apple Pay has seen limited success despite the estimated 243 million iPhone users in China. According to Bloomberg, a mere 1% of a Chinese bank’s 10 million online banking customers had the service activated.

Perhaps Chinese consumers are all too familiar with using WeChat Pay and Alipay’s QR code systems to consider other payment methods. To pay with Apple Pay, customers hold down their iPhone near a contactless reader and scan their fingerprint with Touch ID, which confirms the payment. This requires an expensive installation of a Near Field Communication (NFC) antenna – there is little incentive for Chinese shopfronts to install this when WeChat Pay and Alipay compatible QR codes can be cheaply displayed.

Submitting to the demand of Chinese payment systems, Apple recently rolled-out Alipay across mainland China’s 41 Apple retail stores, and WeChat Pay users can make purchases on Apple’s App Store.

Where does this leave us?

Mobile payment systems make the travel experience for Chinese outbound tourists far less daunting and more convenient. If widely implemented, they should result in increased revenue due to their ease-of-use and familiarity.

As China outbound tourism numbers continue to rise, displaying a “China Welcome” is becoming more important. A small merchant, restaurant or hotel accepting a Chinese payment method instantly gives the message that they welcome Chinese guests. For a small business, it’s a lot more realistic than employing Mandarin speaking staff. For larger retailers, there is the benefit of increase spend per transaction. The mobile payment apps show what the user is paying in RMB, and shoppers are more confident in spending more as they know exactly what they’ll be charged back home.

It’s also important to consider that technology like mobile payments can go out of date very quickly as the next best thing comes along. If you’re looking to enter this market, our advice is to find a middle man with an app that they will develop as things move along (so you don’t have to).

WeChat Pay and Alipay’s market dominance has meant Chinese consumers rely on them to make payments, whether domestic or abroad. Attractions or destinations hoping to attract more Chinese visitors should acknowledge this reality and carefully consider the benefits of accommodating these services.

 

If you are interested in Chinese mobile payment apps and how they could benefit your business, we can help you with this. Please feel free to contact us for advice.

Enjoyed this article? Then these may also be of interest to you:

How to set up a WeChat business account for your tourism brand

Watch and Go – How do TV and film influence Chinese travellers?

A Day in the Life of Vivienne Song

What will the EU-China Tourism Year bring?

 

Photo by Jonas Leupe on Unsplash


Brighton Office

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