The Chinese Payment Companies Are Colossal Can you imagine what the US payments industry would look like today if, 15 years ago, Bank of America, Chase, Citibank and Wells Fargo.

Much has been written about the Chinese authorities The Chinese Payment Companies Are Colossal:

along with Visa and MasterCard, had managed to convince the relevant authorities to severely limit PayPal’s ability to facilitate in-person payments? Me neither, but I’m definitely glad I was spared this knowledge. However, the Chinese may not be so lucky

‘ crackdown on electronic payments in the country in mid-March. The blow came in two installments: first came the suspension of Starbucks-style 2D barcode payments and virtual credit cards, and the following day very low limits were imposed on transactions to and from PayPal-like electronic payments. accounts.

There has been a fair amount of speculation about the cause of the strike, but until this morning I had not come across a serious attempt to understand what happened .

Standard Chartered, a British bank that does most of its business in Africa, Asia and the Middle East (and has no retail operations in its home country), released a report that tells the story of a power struggle among the Chinese.

banking lobbies and payment start-ups that operate electronic payment platforms that have been affected by the new regulations The Chinese Payment Companies Are Colossal .

The wheel went to the banks, which by the way are the biggest in the world, and Standard Chartered suggests they may have won the war. Either way, the tough new rules will slow China’s rapid growth in electronic payments, researchers tell us. But let’s take a closer look at the report The Chinese Payment Companies Are Colossal.

Coming Down Heavy The rise of online payments in China:

So here’s what happened. First, on March 13, the People’s Bank of China (PBoC)—China’s central bank—suspended all payments using mobile phones and two-dimensional (2-D) codes, as well as virtual credit cards. This, the authors tell us, was a new business line that CITIC Bank had announced just days before, after the bank signed a strategic alliance with Tencent and Alibaba, China’s leading Internet firms.

Explaining its action, the PBoC said that payments using mobile 2D codes and virtual credit cards violate information and financial asset security requirements for customers and also exceed the existing regulatory banking framework. Companies involved in these deals were to suspend their operations immediately and could not resume until they satisfied the regulator that adequate risk controls were in place.

On March 14, the PBoC went much further, issuing a “final draft regulation” that reportedly contained “unexpectedly stringent requirements for electronic payment companies.” This proposal states that the PBoC has introduced a limit of ?Ñ1,000 ($161) on money transfers from a bank account to an electronic payment account, with an annual aggregate transfer limit of 10,000Ñ ($1,610) per account. In addition, the PBoC has set a limit of ?5,000 ($805) on spending through e-payment accounts, with the annual aggregate purchase value again limited to ?10,000 per account. And here’s the thing: any spending or money transfer above those limits would have to go through a bank account. Who do you think is the beneficiary here The Chinese Payment Companies Are Colossal?

Now, it should be noted, as the authors do, that 2D code payments are a new business in China and virtual credit cards have just been launched, so the suspension of these two channels will have virtually no effect on current users of online and mobile payments. . However, the electronic payment channel (where Alibaba’s Alipay rules) has hundreds of millions of users. The introduction of such low limits on money transfer and spending amounts will have a major impact on the day-to-day business of electronic payment companies, small businesses using e-commerce platforms and online shoppers The Chinese Payment Companies Are Colossal.

 

We were told that regulation of the electronic payments industry was relaxed early on “because it was seen as a new force driving the economy that could only flourish in a relaxed regulatory environment”. And indeed, it has flourished: more than 200 electronic payment companies have been licensed by the PBoC for activities including online payments, mobile payments, prepaid card payments, digital TV payments, etc The Chinese Payment Companies Are Colossal.

Alipay is the distant leader. Because it is built into Alibaba’s parent e-commerce platform, online shoppers don’t need to be redirected to a separate website to make payments. This has helped fuel Alipay’s tremendous growth over the past few years. As you can see in the table below, Alipay’s transaction volume is now much larger than that of its American counterparts, including PayPal The Chinese Payment Companies Are Colossal.

The rise of online payments in China

Here’s how China’s online shopping volumes have grown over the past half-decade, with projections heading into 2016:

The rise of online payments in China

And here’s a breakdown of China’s payment processing market:

The rise of online payments in China

What is eating Chinese banks?

The problem for China’s big banks has been that they haven’t shared in that growth, at least not as much as they might have liked. This, Standard Chartered believes, prompted the banks and UnionPay (a Chinese payment card network co-owned by about 80 financial institutions) to lobby the PBoC on the matter The Chinese Payment Companies Are Colossal.

Initially, we were told that the relationship between Chinese banks and electronic payment companies “was generally harmonious”. Then the outbreak of severe acute respiratory syndrome (SARS) in 2003 helped trigger the explosive growth of online shopping and electronic payments.

Third-party online payment platforms, led by Alipay, have taken over the small amount of C2C (P2P) retail transactions that banks did not cover, bringing in additional fee income for banks without compromising their control over depositors The Chinese Payment Companies Are Colossal.

However, over time, an increasing number of shoppers handled their online payments through e-payment accounts, rather than online bank accounts, simply because it was convenient. Some electronic payment companies then began to obtain information from banks about their retail customers and use it to offer them more advanced products, which helped to increase their loyalty.

The most unpleasant feature of these products from the banks’ point of view was that they could be offered without any involvement of the banks. We are told that it was at this point that the relationship between e-payment companies and banks and UnionPay began to deteriorate. But it got worse The Chinese Payment Companies Are Colossal.

In the second half of last year, electronic payment platforms began cross-selling financial products to their users and expanded into the core territory of banks. One example is Yu E Bao, a web-based money market fund distributed through Alipay, which pooled many small retail deposits and packaged them into a large interbank deposit. The rate for these larger interbank deposits followed the interbank market rate and was much higher.

As Ant Group captures the world’s attention with its record-breaking initial public offering, which Beijing abruptly called off, investors and analysts are reassessing the fintech interests of Tencent, Ant’s main rival in China.

It’s somewhat complicated, not least because they’re spread across a number of Tencent properties and, unlike Ant, don’t follow a single brand or operating structure — at least not one that’s obvious to the outside world.

However, when you break down Tencent’s fintech activities across its broader footprint — from direct operations like WeChat Pay to its significant strategic investments and third-party marketplaces — you have something comparable in size to Ant, and in some services even bigger The Chinese Payment Companies Are Colossal.

Hidden business
Ant refuted comparisons to Tencent or anyone else. In a response to China’s securities regulator in September, the Jack Ma-controlled and Alibaba-backed fintech giant said it was not “comparable” to WeChat Pay, the fintech tool on Tencent’s flagship WeChat.

“There are many players around the world in digital payments and business services, including Tencent’s WeChat Pay. However, the payment services offered by these companies are different from our digital payments and business services. They are not comparable The Chinese Payment Companies Are Colossal. When it comes to digital finance, our way of working with and serving financial institutions, as well as our revenue model, is new and unprecedented,” the company noted in a somewhat arrogant response The Chinese Payment Companies Are Colossal The Chinese Payment Companies Are Colossal.

There is no denying that Ant is a pioneer in expanding financial inclusion in China,

where millions remain outside the formal banking system. But Tencent has caught up in digital finance and made great strides, especially in electronic payments.

Both companies got into fintech by first offering consumers a way to pay digitally, though the “Alipay” and “WeChat Pay” brands don’t reflect the breadth of services offered by today’s platforms. Alipay, Ant’s flagship app, is now a one-stop marketplace selling Ant’s own products and a myriad of third-party products such as microloans and insurance. The app, like WeChat Pay, also facilitates a growing list of public services, allowing users to see their taxes, pay utility bills, book a hospital visit and more The Chinese Payment Companies Are Colossal.

Screenshots of Alipay app. Source: iOS App Store

Tencent, on the other hand, embeds its financial services into the payment functions of WeChat (WeChat Pay) and the giant’s other popular chat app, QQ. So it has historically been difficult to figure out how much Tencent is making from fintech, which the giant doesn’t disclose in its earnings reports. This is a reflection of Tencent’s internal “horse racing” competition, in which departments and teams often compete fiercely against each other rather than actively collaborat The Chinese Payment Companies Are Colossal.

Screenshots of WeChat Pay inside Tencent’s WeChat messenger

That’s why we’ve collected estimates of Tencent’s fintech businesses ourselves using a mix of quarterly reports and third-party surveys — a sign of how non-transparent some of them really are — but it raises some interesting questions. Will (should?) Tencent at some point follow in Alibaba’s footsteps and unify its own fintech operations under one umbrella The Chinese Payment Companies Are Colossal?

User number
When it comes to user size, the rivals are neck and neck.

Alipay saw 711 monthly active users and 80 million monthly merchants in June. Among its 1 billion annual users, 729 million have transacted in at least one “financial service” through the platform. As with the PayPal-eBay relationship, Alipay has tremendous advantages in being the default payment processor for Alibaba marketplaces such as Taobao.

As of 2019, more than 800 million users and 50 million merchants used WeChat for monthly payment, a large portion of the messenger’s 1.2 billion active users. It’s unclear how many people have tried Tencent’s other fintech products, though the company said about 200 million people used its wealth management service in 2019.

Revenues
Ant reported total revenue of 121 billion yuan, or $17 billion, last year, nearly doubling from 2017 and matching PayPal’s $17.8 billion The Chinese Payment Companies Are Colossal.

In 2019, Tencent generated 101 billion yuan in revenue from its “fintech and business services. The segment consisted mainly of fintech and cloud products, analysts told TechCrunch. With its cloud unit ending the year on revenue of 17 billion yuan, it’s a safe bet that Tencent’s fintech products earned roughly or no more than 84 billion yuan ($12 billion) in the period — pales in comparison to Ant’s number, but not bad for a relative laggard .

 

The sheer size of fintech giants has made them highly attractive targets for regulation. Ant is increasingly downplaying its “financial” angle, billing itself as a “technological” ally of traditional institutions rather than a challenger. These days, Alipay relies less on selling proprietary financial products and bills itself as an intermediary that helps state-owned banks, wealth managers and insurance companies reach customers. In return for facilitating the process, Ant charges administrative fees from transactions on the platform The Chinese Payment Companies Are Colossal.

Now let’s look at the four main business lines of the rivals: payments, microloans, asset management and insurance.

Ant vs. Tencent’s fintech business. Figures are sourced from quarterly company reports, third-party surveys and TechCrunch estimates The Chinese Payment Companies Are Colossal.

Digital payments
In the year ending June, Alipay processed a whopping 118 trillion yuan worth of payment transactions in China. That’s about $17 trillion and surpasses the $172 billion that PayPal processed in 2019.

Tencent does not disclose its payment transaction volume, but data from third-party research firms offers an indication of its scale. Industry consensus is that the two together control more than 90% of China’s trillion-dollar electronic payments market, where Alipay has a slight edge The Chinese Payment Companies Are Colossal.

Alipay processed 55.4% of China’s third-party payment transactions in the first quarter of 2020, according to market research firm iResearch, while another researcher, Analysys, said the firm’s share was 48.44% in the period. By comparison, Tenpay (the brand assigned to the enterprise-wide infrastructure that powers WeChat Pay and the lesser-known QQ Wallet, another name to confuse people) trailed with 38.8% on iResearch data and 34% according to Analysys.

At the end of the day, the two services have different user scenarios. The fact that WeChat Pay sits inside the messenger makes it a tool for social, often small, payments, such as splitting bills and exchanging lucky money, a custom in China. Alipay, on the other hand, is associated with online shopping The Chinese Payment Companies Are Colossal.

This is changing as Tencent looks to increase its ticket size through alliances. WeChat Pay is associated with e-commerce portfolio companies such as JD.com, Pinduoduo and Meituan – all competitors of Alibaba The Chinese Payment Companies Are Colossal.

Paying via mobile phones has become second nature to most Chinese. By the end of 2021, approximately 903.6 million people were using mobile payments in China, which is roughly 64% of the total population. In China’s largest cities, residents pay an average of 80% of their monthly expenses (roughly 5,000 yuan) through mobile payment services, while residents of the fourth and fifth cities use the means for 90% (3,000 yuan) of their monthly expenses, according to a China UnionPay report from in 2021.

By the end of 2022, the cumulative value of digital payments in China is expected to reach US$3.5 trillion, making the country the clear global leader in digital payments, followed by the United States with US$1.8 trillion.

According to statistics at the end of 2021, the People’s Bank of China (PBOC) processed 275 billion electronic payment transactions this year, up 16.9% from 2020. 151.22 billion mobile payment transactions were registered, representing a year-on-year an increase of 22.7% The Chinese Payment Companies Are Colossal.

daxue-consulting-china-digital-payments-day-use-frequency
Source: iiMedia, designed by Daxue Consulting, Daily frequency of mobile payments in China 2022.
COVID-19 boosted online and mobile payments in China
While mobile payments were already ubiquitous in China before COVID-19, the pandemic accelerated the mobile payment trend even more dramatically. In February 2020, the Payment & Clearing Association of China (PCAC) launched an action to promote the use of mobile payments, online payments and QR payments to reduce the risk of infection. The huge shift was visible in the payment statistics of all major Chinese mobile payment platforms released in March 2020 The Chinese Payment Companies Are Colossal. According to Zhuanlan, UnionPay processed transactions worth 1.4 billion yuan per day, a year-on-year increase of 54.6%. Alipay reported that the frequency of payments around sightseeing spots increased by 120%. Similarly, the use of WeChat payments in restaurants increased by 447% compared to March 2019 The Chinese Payment Companies Are Colossal.

Transaction growth has been stable throughout 2021 and continues to develop in 2022. During the 2022 Spring Festival, 20.8 billion transactions worth 14.9 trillion yuan were reported to the PBOC. This represents an increase of 10.0% and 16.2% over the same period last year The Chinese Payment Companies Are Colossal.

The history of mobile payments in China
In 2018, around 83% of all payments were made via mobile payment methods. China has evolved differently in terms of payment methods: while most countries have moved from cash to credit cards and are now moving to mobile phones, China has skipped this step.

Credit card use is sporadic, if not non-existent, in China. Although mobile payments are growing globally, China leads the world by a large margin in terms of mobile payment penetration, with a total penetration rate of all forms of mobile payments in 2021 at 87.6%. The penetration rate of mobile payments processed through smartphone apps is 40.4% in China in 2022.

daxue-consulting-china-digital-payments-market-share-electronic The Chinese Payment Companies Are Colossal
Source: People’s Bank of China, Zhiyan Consulting, Daxue Consulting Chart, Share of Mobile Payments in Total Electronic Payments in China 2014-2021.
daxue-consulting-china-digital-payments-penetration-rate
Source: Statista Digital Market Outlook, chart by Daxue Consulting, rate of penetration of mobile payments via smartphone apps 2022
How do mobile payments work in China?
This increase in the use of smartphone payments in China is related to the growth of e-commerce and m-commerce. In 2020, China’s e-commerce market boasted roughly US$2.2 trillion in sales, with 24.5% of total consumer goods retail sales in 2020 coming from e-commerce The Chinese Payment Companies Are Colossal.

daxue-consulting-china-digital-payments-ecommerce-market-size
Source: Statista Digital Market Outlook, Statista, designed by Daxue Consulting, China e-commerce market size 2018-2021
In China, QR codes for paying and withdrawing money are prevalent in China; even street musicians use QR codes to collect money. There are two ways to pay with QR codes in China:

The customer scans the retailer’s QR code, which is often printed and visible at the cash register, on restaurant tables and even on products in stores. The customer then chooses an amount and can send the money directly to the seller and then shows the seller a confirmation of the transaction.
The customer shows his own QR code displayed on his smartphone, the seller selects the amount to be deducted and scans the QR code. This method is even easier and faster because it removes the extra step of confirming the transaction The Chinese Payment Companies Are Colossal.
Unlike Apple Pay, which requires merchants to purchase hardware to accept payments, in China a simple piece of paper printed with a QR code is sufficient. Thus, mobile payments have gained such momentum in China because they are easy, fast and accessible to every customer who owns a mobile device The Chinese Payment Companies Are Colossal.

Where are mobile payment services used in China?

From convenience stores to large shopping malls, from buying subway tickets to paying for airline tickets, mobile payments can be used everywhere in China.

daxue-consulting-china-digital-payments-situation
Data source: iiMedia.com, designed by Daxue Consulting, Top Payment Scenarios of Mobile Payment Platform Users in China 2020H1
With the popularity of e-commerce, online mobile payment has become the main payment method on e-commerce websites in China. Consumers can directly use payment platforms to complete online orders, as well as scan the QR code provided by online retailers through payment applications. Consumers can also pay for their household water, gas and other utility bills through mobile payment apps The Chinese Payment Companies Are Colossal.

Offline mobile payments are related to NFC (Near-field Communication), QR codes, facial recognition and so on. Offline mobile payments are widely used for small and high-frequency purchases such as shops and restaurants. It mainly relies on devices such as code readers, POS machines and smartphones. In addition, offline mobile payments in China are widely used in public transportation, hospital appointments, and parking lots The Chinese Payment Companies Are Colossal.

What is the state of China’s payment systems in 2023
In 2021, WeChat Pay and Alipay accounted for 91% of all digital payments made in China. In order to improve financial supervision, the Ministry of Industry and Information Technology (MIIT) has unveiled a 2021 policy to create interoperability among all mobile payment platforms, particularly focusing on opening up the payment systems of two industry leaders to China UnionPay’s state-owned cloud-based QuickPass The Chinese Payment Companies Are Colossal.

. This means that QR codes generated within each mobile payment platform can now be used and used in other Chinese mobile payment applications. Additionally, after trials began in 2020, all three platforms also included the ability to use China’s e-RMB digital currency in 2022, although consumer adoption has been slow The Chinese Payment Companies Are Colossal.

  Sources