Those who have visited China would notice immediately that everybody uses a QR code on their mobile phones for any kind of payment.
In China, this mobile payment behavior is truly widespread, as the shopper can use the smartphone for any purchase. Regardless if one buys a car or just some street food, the QR code works – even some beggars have upgraded the old plastic cup to a QR code, so they can receive digital alms. This widespread payment market is enormous, and of course, attracts attention. This includes China’s central bank People’s Bank of China (PBoC), and this interest can have a big impact for investors.
The central bank apparently regards it as a challenge that the market for mobile payments effectively is a duopoly. Alipay (belonging to Alibaba/Ant Financial, the finance division of Alibaba) in the first quarter of 2019 had 53 percent of the market, and WeChat Pay (belonging to Tencent/WeChat) in the same period controlled 39 percent of the market. In total, this duopoly has 92 percent of the market, which the Chinese central bank might prefer to be more fragmented.
Today, a retail client is typically linked-up to one payment solution, which is often either Alipay or WeChat Pay. Therefore, shops need to support more systems, so the shops can read QR codes from Alipay, WeChat Pay, etc.
Though, as more than 90 percent of the clients use one of these two payment systems, then the shops could, in many cases, only support these two providers, or even just one payment system depending on the sector.
This makes it difficult for other competitors to enter the market.
But, the solution from the central bank could be that by 2021, a unified QR code should be introduced. This means that all payment providers can access the unified QR code, and shops only need to support this one unified system, which opens-up the mobile payment market to all payment providers.
But strong companies do not just let clients go, which also is the case for WeChat Pay and Alipay. Looking into the future, one should not underestimate how smart Alipay is developing its payment apps, based on the latest artificial intelligence (AI).
For competitors, this alone is a challenge to compete with, and when competing with WeChat Pay, the marketplace is again very different.
WeChat Pay, is of course, based on around 900 million WeChat users that organize their whole lives by using WeChat; including paying bills, online shopping, etc. All consumer apps in China are built to be compatible with WeChat, meaning, WeChat users are fully aware of new smart apps they can use on their WeChat account. Surely, some mobile payment applications will find their way to WeChat users, though they will partially need to win the battle on the WeChat playground.
As the Chinese are increasingly traveling, then they also bring their payment habits with them outside China, including the wish to make QR code payments.
This is a main reason why the QR code payment market is growing across Asia, where
Alipay and WeChat Pay will take their fair share. In absolute terms, I expect that these two leading companies will have a good chance to win more outside China, compared to what they lose inside China.
Therefore, I am quite convinced that merchants and shoppers across Asia will meet QR payments more often in the future as Alibaba and Tencent will try to compensate for a potential loss in turnover in the domestic Chinese market.
Notice: The investment fund Lundgreen’s Capital-China holds positions in Alibaba and Tencent. These positions have not influenced the content nor the conclusions in this contribution.