By 2017, China has undoubtedly become the world-leading mobile payment market. Whether it’s in the most developed countries such as the United States, Japan and European countries, it’s unlikely that you can pay almost any bills with your smartphones and QR codes as convenient as here China. To a degree, you can really live a no-cash life here. With the rapid development of mobile payment and high-speed rail, they have become the new name cards of modern China.
However, if you tell the Chinese and Chinese companies three decades ago that you could help China lead the world in mobile payment within three decades, people might think that you must be crazy. In 1987, China has not abolished “food stamp policy”, even RMB still couldn’t be considered a real currency, let alone the giant gap between China and developed countries in terms of the entire financial system (hardware and software).
Therefore, how exactly did China make such great achievement within three decades? Is it true that China manages to lead the world by being left alone by the government? Of course not. As a matter of fact, it is the result of concerted efforts of many enterprises.
In this article, I focused my attention on China Merchants Bank, Alipay and WeChat Pay, three representatives of China’s mobile payment service suppliers in different stages. Their competition is not only about defeating the other, but about expanding their business scale and contributing to industrial upgrading with great products.
As China leads the world in mobile payment, Chinese commercial banks continue to grow and expand.
As Alipay gives up on social-networking, it rises again with its tech & finance service subsidiary Ant Financial.
Although Apple Inc has abolished WeChat’s “Tipping” function, WeChat has already started its exploration over financial services based on its social network chains.
To learn from history, we can figure out how China manages to lead the world in mobile payment within three decades. With this in mind, we may figure out what the future might look like.
1. CMB’s “All-in-one Card” and “All-in-one Internet”
Founded in 1987 in Shekou, Shenzhen Industrial Zone, China Merchants Bank was at the same age with other major Chinese commercial banks, including Bank of Communications, CITIC Bank, Everbright Bank and Shenzhen Development Bank.
In the era of planned economy, the People's Bank of China is both a central bank and a commercial bank. At that time, the four major commercial banks were all operated as specialized banks. To a degree, China’s market-oriented financial system was built starting from zero. In an era of when RMB had to be used together with “food stamps”, how can you expect that China could lead the world in the global, which was still a new concept back then.
Nevertheless, the Chinese banking industry managed to start from scratch in the 1990s, though many people may not necessarily agree. “All-in-one Card” and “All-in-one Internet” have been two of the most symbolic products first launched by CMB. However, you may be surprised to find that the former was launched as early as 1995, while the latter was launched in 1999.
At that time, although the number of CMB’s outlets was still limited, it had already put a lot of energy and resources in the tech sector. In the 1990s, there weren’t any financial products in China. Since commercial banks’ deposit interest rates were still almost the same, it could be quite inconvenient for clients if a bank only had a limited number of outlets. To a degree, there wasn’t much difference between a deposit book and a magnetic strip card.
In this background, CMB was rather bold to replace deposit books with magnetic strip cards.
The logic behind the “All-in-one Card” was to replace client number with client account, so that clients’ various types of account information, including demand deposit, time deposit, RMB, foreign currencies, etc. can be managed under one unified account. After integrating all these financial accounts, clients can use some additional functions with the magnetic strip cards, such as depositing, withdrawal, POS payment, paying water and electricity bills, etc.
After the client transferred their money from paper-based deposit books to magnetic strip cards, the next technological innovation waiting for them was to achieve internet payment. I do not know if you still remember the sensational "internet survival experiment" back in 1999.
Basically, an “internet survival experiment” is about having somebody locked in a hotel room with only internet access and see if he or she could survive by purchasing food and other necessary materials via the internet. Back then, there were no such thing as Taobao and online takeaway booking platforms and China’s e-commerce business was still in the primary stage, so many people failed the experiment because they could not complete payment via the internet. Those who did pass the experiment, however, did so via CMB’s “All-in-one Card” service.
Due to the concerted efforts of China’s Central Bank and the Chinese banking industry, magnetic strip cards and internet banks have become standard in the Chinese banking industry. Since then, China had caught up with the world standard in the finance & payment sector. Although many people have been complaining about the user experience of these services, the harsh truth is that the degree of informationalization of Chinese commercial banks is the highest compared with its European, American and Japanese counterparts.
CMB’s boldness proved to be worthwhile on the market. Thanks to bold innovation such as “All-in-one Card” and “All-in-one Internet”, CMB managed to rise from Shenzhen into one of the six major commercial banks in China within a short time. During this period, Baidu, Alibaba and Tencent, which later became known as BAT, was just born.
Were China’s banking industry didn’t complete financial system construction during this period, Alipay wouldn’t be able to carry out internet-based payment and financial service such as Quick Pay and Yu’e Bao, and China wouldn’t be able to lead the world in mobile payment at all, indeed.
2. Alipay’s Quick Pay and Yu’e Bao
When Jack Ma founded Taobao in 2003, eBay already had developed a mature business model to learn from. Pettier's "PayPal" and Elon Musk's "X.com" were both online payment tools at that time. After a lasting competition between them, they finally merged and ended up being sold to eBay. Taobao learned from eBay and PayPal's ready-made experience, but soon came out of the blue. As a matter of fact, what Taobao and Alipay has achieved in China is quite incredible compared with that of eBay and PayPal.
Alipay was originally simply e-commerce platform Taobao’s cashier and security platform for consumers and sellers. Later in 2004, Alipay became an independent company. Back then, there was still no real credit card in China. It was not until 2003 that CMB gradually began to promote international standard credit cards.
Established in 2002, UnionPay focused its attention on offline channels at first. Before UnionPay was established, business owners had to provide POS machines from different commercial banks; however, after UnionPay unified the POS machine standard, consumers could complete payment with magnetic strip machines with the same POS machine. Regardless of these external restrictions, Alipay managed to surpass the era and become no longer simply Alibaba’s cashier platform. Instead, it gradually integrated the role of “commercial banks and UnionPay” and could provide consumers with integrated payment experience.
The most important and iconic product at this phase was Alipay’s Quick Pay service introduced in 2010. From the customers’ point of view, they could get rid of commercial banks’ online bank payment platforms as long as they add debit cards to Alipay accounts, which significantly increased not only customers’ experience, but also payment success rate and activity rate.
From the perspective of commercial banks and Alipay, Quick Pay made a good balance between risk and convenience. Within a short time, it had cooperated with over 100 commercial banks. Compared with PayPal, Alipay had completely gone beyond its American prototype and become an unshakable internet financial account management platform in China.
As a matter of fact, Alipay’s Quick Pay laid a new standard for the entire Chinese third-party payment industry. Next, other Chinese third-party payment platforms, including WeChat Walley, JD Wallet, Baidu Wallet, etc. established their respective quick and convenient capital flow channel in accordance with this new standard.
Were there no Alipay’s Quick Pay, there wouldn’t be other breath-taking internet financial products such as Yu’e Bao and QR code payment. In particular, Alipay launched Yu’e Bao in 2013 and made a miracle of currency fund, a landmark event in the rise of internet-based financial services.
Although Yu’e Bao has many copycats, none of them managed to repeat its success. Even in 2017, it made TH Fund, the very hero behind Yu’e Bao, the biggest currency fund in the world with an annual transaction volume of 1.2 trillion yuan.
As a matter of fact, Yu’e Bao’s success has to do with the comprehensive advantages of Alipay based on Taobao. This is also why its copycats never managed to copy its success. Therefore, when Alipay was upgraded into Ant Financial, JD Finance, with similar e-commerce background, followed suit. Although Baidu and Tencent are both listed as the three internet giants, it was hard for them to threaten Alipay’s dominant role on the market.
According to an iResearch’s report, Alipay still accounted for 9as high as 82.3 per cent stake in the Chinese mobile payment market in 2014, while the runner-up TenPay only accounted for 10.6 per cent. It seemed as if Alipay’s dominance was unshakable. However, then came WeChat Red Envelopes during that year’s Spring Festival.
3. WeChat Wallet’s Red Envelope and QR Code Payment
When Alipay was leading the online payment market, Tencent’s "TenPay" also had a third-party payment license. Although it ranked the second on the Chinese online payment market back then, its reputation and popularity could hardly be compared with Alipay.
In the competition between QR code payment and NFC, UnionPay once defeated China Mobile in determining NFC payment standards. However, nobody expected that QR code payment, the more backward method, managed to become the mainstream payment method.
Simply put, QR code payment won because it was easier and cheaper to be promoted. While consumers have to change into IC cards and distinguish swipe payment and NFC payment scenarios, business owners also have to upgrade their POS machines to NFC payment, though it’s safer and more advanced. In comparison, it’s a lot easier to promote QR code payment.
Starting from the 2014 Spring Festival, WeChat Wallet began to spread mobile payment to Chinese people’s lives to a degree never achieved before thanks to WeChat Red Envelope. For a large number of Chinese smartphone users who were willing to add their debit card to third-party mobile payment accounts, they were after all prompted to adapt to the trend and enjoy the convenience brought by mobile payment.
Without a giant social network, no company could never achieve so large-scale user education. Although Alipay is at an advantage when it comes to promoting to business owners, WeChat Wallet is more popular among the large groups of mid-aged smartphone users and the general public.
In January 2017, rumor had it that Pony Ma, founder and chairman of Tencent, said in an internal meeting that its WeChat Wallet team would be awarded 100 million yuan since WeChat Wallet had surpassed Alipay by then. After rounds of scandals and setbacks Alipay encountered in its attempt over social networks, Alipay officially announced this March that it would give up on social networking and re-focused its attention on business and finance.
Almost at the same period, China has led the world in terms of mobile payment. An interesting, or ironic example is Apple Inc’s decision to block “Tipping” function inside WeChat OA.
From the point of WeChat users, “Tipping” is obviously like an account transfer function. While Apple can draw dividend from paid APPs on App Store, it could benefit nothing from the “Tipping” function.
From the point of Apple, however, the function did violate iPhone’s internal purchase agreement over APPs. After all, only China’s mobile payment market reached a degree when it could support paid content entrepreneurship. So it’s natural that an American company couldn’t figure out what the function really meant and managed to regulate it.
In fact, Apple’s move, on the contrary, marked the leading position of Chinese mobile payment market.
Three decades ago, Chinese people still needed to use RMB and “food stamps” together; three decades later, however, China’s first and major second-tier cities are much more advanced than any other major cities around the world in terms of no-cash payment. Besides, mobile payment has created lots of new opportunities and even industries. From a large picture, the transition from Chinese commercial banks, Alipay to WeChat Wallet marks the evolution of the Chinese online payment market. With the former, the latter wouldn’t have occurred; without such evolution, China wouldn’t be able to lead the world online payment trend.
4. The Future Landscape of the Chinese Mobile Payment Market
The concept “internet finance” has gone through significant changes in recent years. As is mentioned above, the Chinese banking industry has started transforming its financial service through computing technology and internet in the 1990s, and China’s mobile payment history dates back much earlier than 2013, when the concept “internet finance” began to be more and more talked about.
However, as the Chinese government began to regulate P2P-related internet finance projects and startups, the craze for the concept gradually ebbed away. Instead, Chinese entrepreneurs preferred the concept “Fintech” though they were actually basically doing the same thing.
When we look back on the transition from CMB to Alipay and then the transition from Alipay to WeChat Wallet, we may find out that without CMB’s bold decisions, there wouldn’t be Alipay, and that without Alipay’s rapid development, there wouldn’t be WeChat Wallet. In other words, it’s not about the latter defeating the latter, since Alipay’s rise didn’t affect CMB’s credit card and retail business.
Likewise, WeChat’s spread to the general Chinese public didn’t affect Ant Financial’s financial management, credit reporting business. This rule will also apply in the future. For sure, it’s unlikely that a Chinese startup might defeat Tencent’s WeChat and QQ one day, but a new player will, after all, rise and transform the landscape of the Chinese mobile payment market.
Although China still has to rely on the Silicon Valley in many innovation sectors, it has already been setting the trend in the global mobile payment market. Therefore, Chinese entrepreneurs should be confident enough and roll up their sleeves and continue their attempt to release the full potential of the market.
Although the concept “ecosystem” has been used and misused, it is key to the future competition in the global mobile payment market. However, we’ve got to make it clear that such an ecosystem won’t create any magic effect. After all, it’s a strictly regulated market. What such an ecosystem can do, at most, is to cover as much user base and better connect supply and demand.
While CMB didn’t launch any other breath-taking products since “All-in-one Card” and “All-in-one Internet”, Communications Bank of China has again drawn the public’s attention in 2017 with a promising financial report.
During the past few years, CMB already gathered over 10 million users with its two recent APPs and achieved a total loan volume of 18.2 billion yuan and a net profit of 324 million yuan through its collaborative project with China Unicom. Although Alibaba and Tencent have both established their own internet banks, traditional commercial banks aren’t affected much and still live very well.
There remains huge potential for Alipay. Today, Ant Financial has already grown into a unicorn in the Chinese internet finance sector with its various products and subsidiaries. It has also been signaling to the outside it’s determination to make something big in the internet finance sector.
After giving up on social networks, Ant Financial has shifted its focus on open platforms. With a large user base, Alipay can still open its resources to various business and financial scenarios, as long as it becomes imaginative enough.
Although Yu’e Bao made it and became the biggest currency fund in the world, the logic behind it is not too complicated.
As long as Alipay is patient and insightful enough to expand new user scenarios, it will be able to transform the market landscape some day, as did CMB’s “All-in-one Card”, Alipay’s Quick Pay and WeChat Wallet’s QR code payment.
This is a story of how China caught up and lead the global mobile payment industry within a short time. Without the concerted efforts of Chinese enterprises for the past three decades, this wouldn’t have been possible. If the Chinese internet finance industry can gradually evolve and grow up with three decades as did the Chinese mobile payment industry, there may not be sudden ups and downs one day in the future.
[The article is published and edited with authorization from the author @Kang Ning please note source and hyperlink when reproduce.]
Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.