What's So Different About China's Mobile Payments’ Ecosystem?

There's plenty of differences between the mobile commerce market in the U.S. and the mobile ecosystem seen in China.

Starting with the more than 520-plus million people estimated with smartphones in China versus the 160-plus million estimated in the U.S., numbers are the first major difference. But that’s not the only big difference. In the U.S., it's payments and technology companies vying for the top spot on mobile payment services. In China, it's the major third-party Internet and e-commerce companies leading the way.

In the U.S., most of the buzz about mobile payments is focused on Apple Pay and what it's done to re-energize the market. In addition to the payments networks like Visa and MasterCard and Discover, companies like Apple and Google and PayPal are hard at work convincing the American public that paying with their smartphones should be second nature. In China, the world's largest smartphone market, the pitch is being accepted by more consumers. Companies like Tencent and Alibaba are already developing innovative ways to drive mobile commerce to its platforms and they’re seeing significant growth. 

While Apple has focused on using Apple Pay to sell more iPhones, companies like Tencent have found a way to embed payments in services that consumers are already using. Messaging and social commerce, in particular, is one way the Chinese company has given the country's mobile ecosystem a new boost by providing new ways to make mobile transactions through its social network WeChat. The company has also used TenPay's open platform approach to help banking customers make mobile payments in ways banks haven't done. TenPay has a base of more than 650 million active users, making the case for it leading how Chinese companies are leading mobile payment services.

“We don’t take any cuts,” said Tenpay General Manager Jim Lai. “That’s a very strong way of showing that we take our open platform approach in a serious way so our partners and the whole ecosystem can benefit from it. We’re trying to do what banks are not doing efficiently.”

While third-party companies dominate mobile payments in China, Apple and Android still want their hands in the Chinese mobile payment ecosystem. In September 2014, it was announced that Apple and China's UnionPay agreed to partner on a mobile payment service that will bring the bank card organization’s app to iPhones nationwide. The system is designed to follow standards set for QuickPass by the People's Bank of China. Later in 2014, UnionPay announced it was also working on an Android payment app to join the Apple Pay implementation. That Apple-UnionPay move is expected to launch in early 2015. 

The mobile payment sector in China is a small, but it's a robust system that's dominated by UnionPay and TenPay. Those two companies alone make up 80 percent of the mobile payment market share in the country, according to China Internet Watch. Even with the Chinese government stepping on the toes of tech companies to control mobile payment options, China leads the U.S. in the mobile payment field, Lai said. And when companies like Alibaba and Tencent faced regulatory pressures about virtual credit cards from the Chinese government, TenPay looked at the leader of the U.S. mobile payments app: Starbucks. 

"It is very mature technology and very safe, and showing how it works to the government helped us,” Lai said. He said the Silicon Valley has the innovative ideas for developing these mobile technologies but China has the scale and the population willing to use the systems. Tencent predicted to have about 100 million mobile payment users by the end of 2014.

"It will be mutually beneficial for the U.S. and Chinese companies to have more talks and exchange ideas," Lai told Forbes in July 2014, just months before the launch of Apple Pay.

While companies in the U.S. continue to be the driving force behind the case for their own mobile payment platforms (Apple Pay versus Google Wallet versus PayPal), in China, the growth is attributed to the third-party providers. Third-party-mobile payment transactions in China began to take shape in 2013 when it hit $197.09 billion, which was a 707 percent increase from 2012 figures. The numbers are expected to be nearly triple that in 2015. Those figures do not include mobile payments through China's Union Pay.

"This data illustrates the massive growth of third-party mobile payments and their providers, which have swarmed to occupy a space that banks and telecoms in China have neither the consumer-facing experience nor the seemingly expertise to address properly," an eMarketer report stated. "Much of this growth is dependent on the ease with which companies like Alibaba’s Alipay, Tencent’s Tenpay and UnionPay’s Lakala facilitate a variety of payment options via smartphones, as well as consumers’ increasing willingness to shop online via mobile devices."

The willingness of consumers in China to pay by smartphone that also differs from the U.S. is that companies in China have focused on providing low-cost smartphones to help boost the smartphone penetration to match the growing number of users who want to use smartphones but otherwise wouldn't have the ability.

Low-cost smartphones with powerful processors have been created by manufacturers like Xiaomi, Oppo, and Meizu, and this has brought mobile connectivity to regions of China that haven't had prevalent access to the Internet. This has led to an uptick in mobile Web traffic, which only means growth in mobile payments is poised to grow with it. Alibaba, which is focusing its efforts on driving up its mobile e-commerce growth, relies on its own mobile payment system AliPay to help grow that number. In the end of 2014, Alibaba said that more than half of its transactions come from mobile devices using Alipay. It was also reported than Alipay's growth is stronger in smaller, remote towns than major Chinese cities.

According to a Digital Trends article: "The number of purchases made with Alipay skyrocketed from just 22 percent last year, to 54 percent in just the first 1o months of 2014. Alipay now has 300 million registered users and its mobile wallet app has been downloaded more than 190 million times. ...The rise of mobile e-commerce in China corresponds with the growing trend toward mobile device use.”

While the U.S. focuses on how to drive up mobile payments, China is focusing on how to drive up smartphone and Internet users that in turn have the capability to make mobile payments. It’s the chicken and egg philosophy: you can’t have one without the other. But which one needs to come first to drive up mobile payments? Certainly, as China has shown through its mobile payment growth, consumers need access to smartphones and apps and the Internet in order to make smart (mobile) payments really grow. And that’s exactly what Apple is trying to do with its iPhone 6: smartphones and apps and the Internet and ApplePay equals more consumers having the capability to make mobile payments.


Want to keep up to date about mobile payments, including trends across the U.S. and world? Check out PYMNTS Global Mobile Payments Transaction Tracker.



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