Mobilising Money: The rise of fintech in China

Chinese consumers set a new record yesterday, spending more than US$1bn at in just the first five minutes of Singles’ Day. Within the first two hours, they had spent more than half of last year’s total spend. The commercialised holiday that functions as a sort of anti-Valentine’s Day for single people was officially inaugurated as a discounted shopping holiday by Alibaba in 2009 with just 27 merchants participating, having previously been a tradition among university students since the 1970s.

Its value to retailers – both online and brick-and-mortar – across the region has grown exponentially ever since. In the past two years alone, it has grown 50% each year and analysts expect sales to reach US$21.45bn this year, surpassing Black Friday and Cyber Monday in the US.

In the first half-hour of shopping, mobile sales accounted for 90% of the total, building on last year – the first to see mobile sales over 50%. Not only illustrating the rapid growth of mobile use in China, the trend has also cemented the steadily-growing popularity of third-party, mobile-based payment services such as Alipay and WeChat, both influential players in the larger ecosystem of digital finance.

To understand why mobile payment is so important in China, it is important to look at several factors. Over the past five years, the number of mobile users as a percentage of all internet users in the country has accelerated from around 70% in 2011 to more than 85% in 2015, making mobile a key strategy point for retailers. Additionally, credit cards aren’t common among consumers – only a little over a quarter of the population has one, compared to more than 70% in the US – incentivising companies to accept other payment solutions.

Didi Chuxing acquired Uber China earlier this year, winning a multi-billion dollar battle

While non-traditional payment methods have been gaining popularity for a number of years, competition between the top players in the Chinese market has intensified in just the past two. In 2014, during the Lunar New Year, internet services company Tencent ran a promotion called ‘Red Pack’ seeking to modernise the traditional custom of sending small financial gifts to friends and family via its WeChat application, allowing users to send peer-to-peer packets. The success of the campaign led millions of WeChat users to enter the company’s financial ecosystem. It now functions as an alternative to Alibaba’s Alipay, which launched in 2004 and now holds the largest market share in the country – around 40%.

WeChat and Alipay, which function as the consumer finance arms of the much larger companies behind them, have been perhaps most influential in the digital ridesharing sector. When Tencent realised the potential of mobile payments, it decided to invest in rideshare company Didi (now Didi Chuxing, following its 2015 merger with Kuaidi). At present, Didi Chuxing is the only company to be backed by all three Chinese internet giants: Alibaba, Tencent and Baidu.

The relationship between third-party payment providers and China’s ride sharing industry played an important role in the multi-billion dollar battle between Didi Chuxing and Uber China. Whereas Uber’s US-oriented ecosystem revolved around credit cards stored within the app to make payments, Didi Chuxing offered the option to pay with mobile providers. With most people in China not using credit cards, the payment model put Uber at a disadvantage.

“Businesses will be forced to optimise their websites for mobiles and integrate them with systems, such as Apple Pay or Android Pay, or risk getting left behind” – Rhiannon Williams, i newspaper technology correspondent

Uber has clearly learnt its lesson: late last month, the company announced a partnership with MasterCard and Bankaool, Mexico’s first online bank, to launch its own branded debit cards. The card holds one key difference from the country’s other card providers: users are able to use them for online payments, allowing Uber to tap a new segment of the population.

Apple Pay has become integrated into many business’ payment ecosystems

The growth of third-party payment is present in the rest of the world as well, though. According to i newspaper technology correspondent Rhiannon Williams, “Mobile payments is an area we’ll see significant growth within over the next few years – consumers enjoy the convenience, and vendors are going to lengths to convince shoppers making payments via their smartphone is as safe and secure as using a computer, which has helped to increase user confidence.”

These systems are also developing alongside the credit card market. Apple Pay launched its web service last month and has already become the fifth-most popular browser-based payment system across the top 10,000 websites. Originally launched in 2014, it has evolved from a POS-based technology into a storage system that digitises and replaces credit cards that can be used directly with a large number of companies, most recently including British Airways and the Japanese public transport system. And the spread will continue: says Rhiannon, “businesses will be forced to optimise their websites for mobiles and integrate them with systems, such as Apple Pay or Android Pay, or risk getting left behind.”

Like its Chinese counterparts, Apple Pay has not come to replace the traditional finance sector, rather to complement it and fill in a gap. As a fragmented, legally-wrought sector with a high barrier to entry, the innovations made in the financial technology sector are vital to forming a bridge between the traditional finance sector and retailers that are hurtling into the digital world. Partnerships between fintech and traditional banking companies – along with consumer-facing companies – will be key to keeping consumers interested and buying.

Just in time for Singles’ Day, Alibaba launched a new payment service in October to allow users with virtual reality headsets to pay for their purchases by simply nodding, and one year ago it began to offer payment through selfies. I’m excited to see more from the future of financial technology – even with the buyer’s remorse that may come along! | @MoiraBenigson | @TheMBSGroup