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Should Western retailers embrace China’s cashless revolution?6 min read

International luxury department store Galeries Lafayette recently announced that customers are now able to purchase items in store by using the new WeChat Pay app, in two of its flagship stores in Paris. This is a significant moment that marks the global expansion of China’s mobile payments presence and has us wondering what the future holds for paper money and coins. Will all monetary transactions of the future go completely digital?    

But what is WeChat and WeChat Pay?

WeChat is one of China’s most popular social media mobile apps. Developed by Tencent in 2011, it now has over 980 million monthly active users. WeChat Pay is an extension of the WeChat app, which allows users to make payments with their mobile devices with just a click of a button.

But wait there’s more – Alipay

Another popular payment platform in China is Alibaba-owned Alipay. According to a report released by the UN-based Better Than Cash Alliance, Alipay saw users transfer a whopping $1.7tn in total payments through the service in 2016.

With more than $3tn worth of payments collectively transferred through both WeChat and Alipay in 2016, it’s clear that China is leading the way in online payments and is rapidly becoming a cashless nation.

With the rise in popularity of these payment apps, leading department stores in the UK, such as Harrods and Harvey Nichols, have introduced these payment methods into their stores, in a bid to accommodate the ever-growing numbers of Chinese tourists.

A truly cashless society

The cashless revolution has dominated Chinese society, and this economic phenomenon has become embedded in everyday life. In fact, I hadn’t truly realised the full extent of just how popular the apps had become until I returned to my native country for a short trip and experienced it first hand.

A brief encounter

Two years ago, I was required to go back to China in order to submit an application form in Guangzhou (not my home town). Much to my dismay, I arrived during the rainy season and shortly after my arrival I found myself trapped in my hotel room due to the terrible weather.  Having nothing to eat, I resigned myself to downloading several takeaway apps in an attempt to order dinner. However, this seemingly simple task proved to be far more problematic than expected, as I quickly discovered that from the hours of 7pm to 8pm, every restaurant that was listed on the app only accepted payments through either WeChat Pay or Alipay. Not having the apps myself and unsure of what to do, I resorted to asking a friend (who was miles away in my home town) to order a takeaway on my behalf and have it delivered to my hotel. Despite having ample cash, the money proved to be worthless in this situation and I was unable to use it to pay for my £3 takeaway. The next day I left to visit my home town and was even more astonished to see my own mother purchasing a bag of garlic in an outdoor market using the payment app.

Cash has become a relic of the past

It’s undeniable that China is at the forefront of mobile payments and in 2017, a total of $138,272m worth of transactions were made via mobile payments in China, which is over double the number of transactions made in the US.

Global comparison transaction value

Source: Statista

The integration of mobile payments in China is nationwide, and a printout of QR codes can now be found at almost every cash point in China. Even the state-owned departments accept mobile payments on public services. The core technology is built into the mobile app which links to the user’s bank account, and by simply scanning the QR code and entering the respective security code, payments can be made in seconds.

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A happy accident

Alipay was originally developed to support the payment process for Chinese eCommerce platform Taobao. Executive Chairman and former CEO Ma Yun had initially wanted to use payment platform Unionpay; however, due to its high fees for small transfer payments between stores and buyers, Ma Yun was in need of a more cost-effective option and so decided to develop his own payment platform, which unexpectedly revolutionised transactions in China. At the time, internet banking was a lengthy procedure, which required multiple notifications and security code entries in order to complete simple online payments, but Alipay dramatically shortened the process, whilst remaining secure and economical.

As Alipay grew in popularity, Ma Yun extended the service to offline stores, and today, Alipay provides payment services for more than 460,000 Chinese businesses. The platform has remained agile throughout the years to accommodate the changing market, and the latest version now mimics some of the WeChat functions and can assist users with daily tasks, such as tracking packages, mobile top-ups, and even paying for utility bills. Large service providers also use Alipay’s add-ons to perform tasks such as booking taxis or hotels, ordering takeaways, and booking flights, and services such as Uber and Airbnb can be also be used directly within the Alipay app.

Alipay interface

Should Western retailers implement Alipay?

There are more than 300 worldwide merchants that are currently using Alipay, with increasing interest from Western businesses looking to attract the rising number of Chinese tourists. As well as being convenient, Alipay can also help boost footfall for offline stores through its location service recommendations, giving retailers an added advantage.  

Alipay location service recommendations

What are the differences between the two platforms?

Much like Alipay, WeChat Pay has a large Chinese user base, and as of October 2017, it now has over 75m daily users, making it China’s most popular mobile app. The popularity of the app is largely due to the convenience that it offers, allowing its users to accomplish a variety of daily tasks all from the same place.

Similarly to Alipay, WeChat Pay allows users to transfer or purchase services digitally. However, unlike Alipay, WeChat Pay is not solely focused on financial transactions and offers users a much broader functionality. Launched in 2013, nine years after Alibaba entered the market, WeChat Pay had acquired more than 37 per cent of the market share by Q4 of that year.

Which platform is best for my business?

For any retailer looking to attract Chinese consumers, online or offline, offering a popular and convenient payment solution is crucial, but which one should you choose?

For offline shops looking to attract Chinese tourists, Alipay would be the recommended option due to its location recommendations. Whereas for brands who have an existing presence on WeChat, we would recommend WeChat Pay, as it offers users a quick payment solution for a multitude of services, all from the same place.

WeChat Pay - one stop shop

However, if truth be told, you can’t really go wrong with either, as both platforms offer a range of benefits that would be a great addition to any business of any size.

If you’d like to find out more about payment apps or wish to speak to a member of the team – get in touch.