the mobile payment market in china

Copyright © 2016, Mobiquity, Inc

The Mobile Payment Market in China This report gives an overview on the general landscape, the latest market trends and competition as well as the possible market growth for the mobile payment industry in China.

Chapter One: The general landscape of mobile payments in China Mobile payment is very popular in China. Questions about received discounts or benefits due to practical payment methods are very common in China these days, not only in shopping malls and supermarkets but also in restaurants, for example. Since 2013 the mobile payment market has increased extensively (see Chart 1). Following the steady growth it has experienced so far, a further increase in the near future is to be expected. The abundance of mobile payment providers in China can be divided into four categories: 1) Third party payment platforms: Alipay, WeChat Wallet and Baidu Wallet; 2) Traditional financial institutions: China UnionPay and commercial banks; 3) Mobile operators: China Mobile and China Unicom; 4) Hardware manufacturers: represented by Huawei and Xiaomi. These providers all use aggressive strategies to expand their business; users are attracted with a wide variety of benefits and opportunities, giving consumers access to a vast quantity and choice of coupons. However, technology divides the payment market into two groups in which one segment relies on QR codes, as used by the third party platforms, while the other half is NFC-HCE supported and led by China UnionPay. Notable is that the competition between these two groups is less intense than competition within the third party payment platform.

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11,3Chart 1: 2013 Q1-2015 Q3 third party payment trading volume in trillions


Chart 2 displays the distribution of payment methods in which offline payment remains the most used payment method with a share of 47.1% in Q3 2015. However, online payments are winning share at the expense of offline payment: internet payments increased to 33.6% and a mobile payments soared to a 18.8% share in Q3 2015.

Based on this analysis, we strongly expect mobile payment to be increasingly accepted by customers and to become mainstream in the market as the internet economy gradually matures and O2O business models are perfected. From Chart 3 we can conclude that Alipay Wallet has the overwhelming majority of market share; taken together with runner-up competitor Caifuthong they have 75% of the market. Traditional China UnionPay has a mere 9.3% market share, feeling competitive pressure from Alipay and WeChat. As a countermeasure China UnionPay recently put in effort to extend their mobile payment business with partnerships covering almost the entire mobile payment supply chain, including Apple Pay, Samsung Pay, commercial banks, WangPOS, Powa, local governments and various retailers. However, it will be a huge challenge for China UnionPay to win market share at the cost of Alipay and WeChat Wallet.

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100%Chart 2: 2013 Q3-2015 Q3 trading structure of payment

offline payment internet payment mobile payment prepaid cards


Table 1: Market shares and volumes of third party platform Apps 2014 VOLUME 2014 MARKETSHARE 2015 VOLUME 2015 MARKETSHARE

Alipay Wallet 48,778.1 81.4% 66,626.0 72.4%

qq+WeChat 6,891.3 11.5% 17,024.6 18.5%

lakala 2,456.9 4.1% 2,760.7 3.0%

baidu wallet 599.2 1.0% 2,208.6 2.4%

kuaiqian 179.8 0.3% 552.1 0.6%

yibao pay 119.8 0.2% 552.1 0.6%

jingdong pay 59.9 0.1% 644.2 0.7%

lianlian pay 59.9 0.1% 276.1 0.3%

others 779.0 1.3% 1,380.4 1.5% In Table 1 an overview is given of the market shares and absolute volumes in 2014 and 2015 within the third party platform category. As in Chart 4 Alipay and Caifutong (QQ + WeChat) are again in the lead. Nonetheless, the area of competition is remarkably transferring from online to offline, with Alipay strongly supporting Koubei and WeChat supporting Meituan. The reason for this transformation is an attempt to enlarge market share by creating new ‘payment possibilities’. Baidu Wallet and Jingdong Wallet are gaining ground whilst relying on their own resources; Baidu is the biggest search engine in China and Jingdong is the largest B2C online retailer. Another provider is Lakala, a community O2O retailer whose market share is decreasing because its offline benefits have been compromised by the upcoming services of Alipay and Caifutong. In contrast,

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Chart 3: 2015 Q3 third party payment marketshare

AlipayCaifutong(qq+wechat)UnionPay OnlineKuaiqianbaidu walletyibao paypaypalyi payhuifutianxia


Yibao Pay and Lianlian Pay have a small market share, but as they offer specific creative solutions their market shares could rise as a result. There is no doubt that Alipay is the all-round market leader with a tremendous trading volume coming mainly from online retail (Taobao). In the last two years Alipay engaged in setting up different payment scenarios and cultivating mobile user habits as well as reaching leading position in mobile payment terminals. Alipay is no longer a mobile payment platform; it has evolved into a financial service platform offering a complete customer experience. This is reflected in improved social media functions and an optimized sellers’ entry access point in Alipay Wallet. In the latest version of Alipay Wallet two new primary tabs are added: ‘Friends’ and ‘Merchants’ for Koubei. In Koubei users can search for local comprehensive information and recommendations on restaurants, travel or entertainment as well as discounts and e-coupons. In Friends users can chat with friends or set up a chat group, but it is also possible to transfer money direct to a friend or keep track of a ‘friendly loan’. Next to this, Alipay also extended their offline payment opportunities. This year Alipay invested in Suning, one of the largest consumer electronics retail chains in China, integrating digital and offline retail by connecting its payment services to the 1,600 physical stores of Suning. This strategic collaboration will bring benefits to consumers by creating better and more convenient shopping experiences and customer service to users looking to purchase online and through mobile devices. Meanwhile, Caifutong (QQ Wallet and WeChat Pay) is focused on creating more functions for the hugely popular WeChat Red Envelope app and integration with one of China’s top taxi apps Didi Dache. In the first nine days of integration with the Didi 100,000 taxi rides were taken via WeChat. Offline Caifutong cooperates with large supermarkets, such as Wal-Mart. Caifutong connects social media platforms with traditional industries through its mobile payment services, establishing links between users, users and products, and between users and services. August 8th was even declared ‘WeChat Payment Day’, after providing WeChat payment networks in shopping malls, convenience stores and the taxi industry. Moreover, services are extended to the O2O field as well, such as gas stations, laundromats and nail salons. According to the People’s Bank of China, in the 3rd quarter of 2015 CNY875 trillion was processed in the non-cash payment market, of which CNY173.13 trillion came from bank cards. Bank card payments include deposit transactions with a value of CNY16.75 trillion; withdrawal transactions providing CNY17.02 trillion, consumption worth CNY14.26 trillion and transfer transactions accounting for CNY125.10 trillion. The interbank transaction amount of domestic bank cards reached CNY11.01 trillion, providing 77.21% of the total bank card consumption with a bank card penetration rate of 48.01%. CNY553.07 trillion was processed through e-payment, including internet payments worth CNY432.81 trillion, fixed-line phone payments accounting for CNY4.76 trillion and mobile payments providing another CNY18.17 trillion. Non-financial payment institutions processed a payment value of CNY12.80 trillion.


Domestic interbank transactions are handled mainly by China UnionPay, which means that it processed the above-mentioned CNY11.01 trillion in the third quarter. Currently, there are 268 non-financial payment organizations with a payment business license, including Alipay and WeChat Wallet, processing the aforementioned CNY12.80 trillion.

Chapter Two: Performance of Third Party Payment Platforms The picture on the left shows a peddler on the street selling roasted potatoes. Most interesting are the Chinese characters on his barrel meaning ‘payment possible by WeChat and Alipay’, although incorrectly written. It’s a good example of how popular mobile payment is in China. Even the smallest merchants, people with barely any education, know and use Alipay or WeChat Wallet. However, it also shows which challenges this presents to the traditional banks. Although the banks have begun countermeasures to pick up on mobile payments, their future possibilities are limited. Mobile payment services offered by traditional banks are supported by NFC technology, which means that if merchants choose to accept NFC, they have to invest in a POS machine with purchase costs starting from CNY200. The question is: how many small merchants are willing to buy a POS machine when they can use their phone to scan QR? The picture on the right displays an ordinary fruit stand in China. The real eye-catchers are the banners on it: two blue Alipay banners on top with the message ‘support Alipay wallet and get discounts from Koubei’, a banner on the left from WeChat Wallet and one from China UnionPay to stimulate the use of a bank card. This small fruit stand actually is a fierce area of competition for mobile payment. This competition is also evident in shopping malls; cashiers are often asked which payment methods give the most benefits.


Currently, the number of active Alipay Wallet users exceeds 270 million people, and there are 200 million users with a bank card bound to WeChat Wallet. This is all the more remarkable given that 650 people million actively use WeChat every month and the number of active users of QQ is 639 million. On the contrary, Baidu Wallet has a mere 45 million users. As mentioned, Alipay Wallet is extending its business through setting up various payment possibilities and perfecting their social media functions, which can be seen from their new tabs ‘Koubei’ and ‘Friends’. The first service, Koubei, established by Alibaba and Ant Financial on June 23, 2015, intends to integrate online and offline retail. Since it was established, Alipay Wallet has highly promoted Koubei by incorporating it in its premium menu on the app and giving a 300 rmb cash reward if someone recommended a brick store link on Koubei. Kobei is positioned as a local service platform, with offers of restaurants, shopping and entertainment information. Among these services, the food delivery service is most impressive: nearby restaurants offering take-out and delivery service can be searched on the app, the order then can be placed by phone and paid through Alipay Wallet. All that remains is wait for the food to arrive. Another example with movies: Koubei can be used to search cinemas and movies, and order the tickets, probably with a discount, after reading the local comments and recommendations as well.

‘Double Eleven’ is a popular e-commerce festival held at Taobao on November 11th every year, recently followed up by ‘Double Twelve’ as a second shopping event 1 . The difference is that ‘Double Twelve’ involves online as well as offline shops. According to data from Alipay, there are 300 thousand offline shops participating in ‘Double Twelve’ and using Alipay Wallet, including restaurants, convenience stores, delivery food services, shopping centres, airports, beauty parlours, hair salons, and cinemas. Around 200 cities in China and 12 other countries are involved. A small noodle shop in Shanghai served no less than 500 table guests in two hours during ‘Double Twelve’.

1 ‘Double eleven’ refers to the eleventh day of the eleventh month, and ‘double twelfth’ is therefore on December 12th


Koubei reflects Alipay’s decision to cover the offline payment market. Without Koubei no housewife would think of paying for groceries with a mobile phone. Alipay Wallet offers an ‘access point’ for Koubei and in the future Koubei could be an ‘access point’ for Alipay Wallet, because it creates more payment possibilities, covering more diversified transactions. The second service, Friends, is another function strongly promoted by Alipay Wallet this year. As we know, Alipay Wallet was originally a third party payment platform whereas WeChat and Weibo control the social media in China. Alipay’s Friends is more like WeChat: but with more possibilities: you can post news on your ‘life circle’ and chat with friends but also send your friends an IOU, a red envelope, discount coupons. They’ve even tried to innovate with messaging features, adding a ‘burn after reading’ feature on your conversation messages. WeChat Wallet WeChat Wallet actually offers similar services to Alipay Wallet. Instead of connecting to ‘Koubei’, it uses ‘Dianping’. Before the appearance of Koubei, ‘Dianping’, ‘Meituan’ and ‘Nuomi’ were used for booking movie tickets and searches for discounts. Nowadays ‘Dianping’ and ‘Meituan’ are integrated into and supported by WeChat Wallet, where as ‘Nuomi’ still belongs to Baidu, another strong competitor in the mobile payment market. According to an eMarketer’s report, the WeChat user penetration in Chinese Tier 1 cities2 is 93%, giving WeChat Wallet great potential. Recently WeChat added a ‘receive and pay’ function on its homepage, making it possible to transfer money between strangers. Previously WeChat Wallet offered a payment function in the form of sending a ‘red envelope’, but it meant that payer and recipient had to add each other as WeChat friends first. The ‘receive and pay’ function resolves the awkward situation to add strangers as WeChat Friends: to use it you indicate an amount, then scan a QR code to pay and receive money. Only when merchants have a POS machine can WeChat barcodes or QR codes be used to pay. Other notable functions in both Alipay Wallet and WeChat Wallet are credit ranking and individual financing services. Alipay Wallet uses ‘Sesame Credit’ to make money available to users just like a credit card. WeChat Wallet offers ‘Weilidai’ to lend money according to a user’s credit rating.

2 Tier 1 cities: Bejing, Shanghai, Guangzhou, Shenzhen, and municipalities.


Baidu Wallet Baidu Wallet is a market follower in the mobile payment market, but it has access to a vast number of consumers and online users coming from Baidu (the largest search engine in China) and Baidu Maps. Baidu Wallet and Alipay/WeChat differ on two points. Firstly they use different promotion strategies: Alipay and WeChat offer discounts while Baidu Wallet simply returns 1% of consumption expenditures to the Wallet. Secondly Alipay and WeChat Wallet offer local service information in a list, while Baidu Wallet presents this using Baidu Maps. Chapter Three: Performance of commercial banks in the mobile payment market The four state-owned traditional banks Bank of China, Agricultural Bank of China, Construction Bank of China, Industrial and Commercial Bank of China as well as other commercial banks provide mobile payments and apps too. However, they have a small number of app users. The main reason for lagging behind is probably the limited functions of these apps, based only around transferring money or individual financial services. If the traditional banks aim to establish better positions in the mobile payment market, they need to cooperate. Currently, China UnionPay unites the banks, cooperating with more than 20 commercial banks in China to develop the NFC Quickpass payment system.


Advantages of China UnionPay 1. Supported by official policies UnionPay is a bank card association established in 2002 under the approval of the State Council and the People’s Bank of China. The Shanghai-headquartered UnionPay has about 400 domestic and overseas associate members. UnionPay operates an interbank payment and settlement system through which associate banks are interconnected as well as cross-region and cross-border usages of bank cards. The system and the bank card network make it possible for UnionPay to actively collaborate with various industrial parties like commercial banks in order to define united UnionPay card standards and ultimately create an independent bank card brand. UnionPay focuses on the development and usage of bank cards in order to manage and stimulate bank card acceptance and prevent risks. 2. Accumulating an extensive number of users and cooperating vendors At the end of the 3rd quarter of 2015, 5.252 billion bank cards were used, 15.135 million vendors supported the interbank payment system and there were 19.893 million POS machines. China UnionPay Strategy On December 12th, 2015, China UnionPay and over 20 commercial banks announced the ‘HCE Quickpass payment Double 12’, entering the no-card era and igniting fierce competition with third party payment platforms such as Alipay and WeChat Wallet. ‘HCE Quickpass payment’, based on HCE (Host Card Emulation) and token technology, is a form of mobile payment on smart phones. The previous November, China UnionPay had reached an agreement on ‘HCE Quickpass payment’ with the major banks in China, unifying the NFC standards. ‘HCE Quickpass payment’ enables a smart phone emulate a UnionPay bank card using its NFC chip, which requires Android version 4.2.2. Users can use their banking app to generate a virtual UnionPay card. You don’t need to open an app or even unlock the screen to use it, making it more convenient than scanning QR codes.


The week after UnionPay implemented their HCE strategy, it confirmed it had secured cooperation agreements with Apple Pay, Samsung Pay, and WangPOS (a pioneering internet POS). Apple and Samsung cover the vast majority of phone users in China and some local governments offered to facilitate Apply Pay and Samsung Pay. Hence, China UnionPay’s mobile payment strategy includes banks, user terminals, local governments and application scenarios, which represent all the participants in the supply chain. Chapter Four: Mobile Operators and Hardware Manufacturers There are three major mobile operators in China: China Mobile, China Unicom and China Telecom. China Mobile has its own payment app ‘Hebao’, Unicom likewise has ‘Wo Payment’ and Telecom ‘ai Payment’. Notable is that these apps mainly offer ‘top-up’ services and seldom functions for other consumption situations. Recently the three major operators have given signs that they too will take advantage of the opportunities that lie ahead in this market. There’s no doubt that their vast number of customers offer many opportunities. Yet, how to transform these customers into active participants in the mobile payment economy will be an enormous challenge to the operators. Among the hardware manufacturers, Huawei and Xiaomi are pioneers in developing the Chinese mobile payment market. The Xiaomi mobile payment function was already established in 2014, but has a limited market share. Recently the new Xiaomi phone Xiaomi5 integrated an NFC function. However Huawei Pay is the first to offer mobile payments to POS in China with its device Mate S. Apple Pay and Samsung Pay, meanwhile, cooperate with China UnionPay but still have not gained access to the Chinese Market directly.


Another hardware manufacturer that ought to be highlighted is POS manufacturer WangPOS from ‘Weizhiquanjing’, which is the only POS company approved by China UnionPay. As ‘NFC Quickpass payment’ by China UnionPay rolls out, the old generation POS needs replacement. It is likely that WangPOS, being the first internet POS, will claim market share in the mobile payment market too. Conclusion Mobile payment is developing rapidly in China with all the participants in the supply chain trying to claim a place in this market. Currently, Alipay Wallet and WeChat Wallet are in the lead, but commercial banks are picking up the fight with their combined network and services. As for technology, the competition is between QR codes and NFC. It cannot be predicted which technology will win, but it is certain that mobile payment has already triumphed over plastic.

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Cherie Lan - Author

Edited by Angelique Vrij

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