By Sharon Rosa-Bohrer
As consumers, it is clear that mobile devices are a mainstay in our daily social lives- from connecting with friends over social media, making dinner reservations, or researching and sharing product recommendations or reviews online. Now, it is the explosive growth of mobile payments that is transforming our financial lives- and China is leading the way! With a record $12.8 trillion in mobile payment transactions from January – October 2017, China far surpasses the U.S. at only $49.3 billion. But why?
Chinese Consumers Embrace Mobile Payments
Unlike the U.S. market where consumers have been hesitant to abandon their credit and debit cards, Chinese consumers are adopting cashless and e-commerce methods at a faster rate than the rest of the world. They have been fast adopters of online retail, financial and on-demand services and prefer the convenience of mobile payments to do it.
In 2016, China had 731 million Internet users- more than the European Union and the United States combined! Nearly one in five Internet users (20%) in China relies on mobile only, compared with just 5% in the United States. The share of Internet users in China making mobile digital payments is around 68%, compared with only around 15% in the United States.
Whereas U.S consumers are concerned about mobile security and even many merchants seem confused about accepting mobile wallets, China’s e-commerce market is driven by its mobile-first consumer behavior. According to a PWC report 31% of Chinese consumers will click on an ad that is relevant to them versus 16% globally. Chinese people appreciate the convenience and ease of payment that come with mobile wallets more than Americans do.
China’s Digital Infrastructure Supports Mobile Payments
China is now the largest e-commerce market in the world. It accounts for more than 40% of the value of worldwide e-commerce transactions, up from less than 1% about a decade ago. China has also become a major global force in mobile payments with 11 times the transaction value of the United States.
The Chinese government is playing an active role in building a world-class infrastructure to support digitization as an investor, developer, and consumer. China is being transformed into a world digital leader according to the McKinsey Global Institute.
Led by the popular mobile apps, AliPay and WeChat Pay, Chinese consumers go straight from cash to smartphones, skipping the use of credit and debit cards. Run by two of the world’s most valuable companies, Alibaba Group Holding, Ltd and Tencent Holdings, Ltd respectively, money in China flows through a digital system that combines social media, commerce, and banking.
In contrast, the United States depends on banks for most non-cash payments, and all are tied to consumer bank accounts. With multiple firms involved in the process, from banks to credit card companies to payment processors, the cost of transactions goes up with their handling and processing fees. Wallets and payments systems like PayPal, Apple Pay, and Google Pay are also connected to this system, but neither commands the market that AliPay and WeChat Pay do in China. As a result, U.S. merchants lose substantial amounts of money to these fees on purchases made with cards or mobile payments in the U.S.
If third party apps were to take hold in the U.S. at the same rate as in China, banks stand to lose $43 billion dollars. It’s no wonder, Bloomberg reported “China’s Payment Apps Give U.S. Bankers Nightmares.”
U.S. Mobile Payments Opportunity
The U.S. received some 2.6 million Chinese visitors in 2015, according to National Travel and Tourism Office. The number is expected to reach 6 million by 2021, according to the US Travel Association. Chinese tourists and students in the U.S. represent a significant market opportunity for China’s major mobile payment apps.
It is estimated that 61% of global mobile payments users this year will be from China, according to eMarketer; with AliPay and WeChat Pay having 520 million and 1 billion monthly users, respectively. Mobile payment accounts for about 41% of all transactions abroad. Nielsen found that over 90% Chinese tourists would use mobile payment overseas given the option and that if overseas merchants supported the use of Chinese mobile payment brands, it would further increase their desire to shop. This, along with the significant growth in per capita income of residents in China and the increasing number of Chinese citizens traveling overseas makes accepting China’s mobile payments smart business for U.S. merchants.
AliPay Targets U.S. Market
Alipay entered the U.S. market in 2016. They announced a deal on May 8, 2018 with Atlanta-based payments processor First Data under which more than 4 million US merchants will accept payment via the service. That puts AliPay in the same league as Apple Pay, which is at 4.5 million. However, the primary target is not Americans. It’s the growing number of Chinese tourists and students in the US.
AliPay also recently partnered with FreedomPay, a global leader in protected commerce technology and a keynote speaker at this year’s Mobile Payments Conference 2018. The partnership will provide Alipay with new customers focusing on the travel and hospitality sector and an ability to capitalize on Chinese tourists. Meanwhile, China’s other mobile wallet giant — Tencent’s WeChat Pay — will fight Alipay furiously for the American market.
Mobile Payments Conference 2018
REGISTER NOW for Mobile Payments Conference 2018, August 22-24, 2018 to learn about the latest, innovative technologies in FinTech, Mobile Payments and Digital Technology that impact e-commerce, retailers and banking. You can’t afford to miss this!