Published on Internet Retailing; October, 2017
Don Zhao, co-founder of Azoya, examines the latest developments in this crucial aspect of cross-border ecommerce, and why offering mobile payment options are prerequisite when selling in China.
If you are going shopping in China, leave your wallet at home. Whether buying a train ticket, picking up some fruit at the market or purchasing new shoes, you only need your phone.
China-based businesses that accept cash or plastic have become the exception, following the rise of third party payment options which take the pain out of paying – by allowing customers simply to scan their phone to complete a deal.
Importantly, these financial institutions have the support of the Chinese government, which is keen to encourage any innovative financial technology that boosts the online economy as part of its ‘Internet-plus’ strategy. When low credit card penetration in this country is taken into account too, offering mobile payment options becomes a prerequisite for selling in China.
Online retail is predominantly mobile-led in China, accounting for over 70% of sales. Shopping by phone necessitates a fast and frictionless experience and has provided a fertile environment for simple mobile payment methods to gain traction. Three companies control more than 90% of the market. Alipay is the dominant player, with 53.7%, WeChat has 39.51% and Union Pay and other suppliers make up the remaining 6.79%.
It’s a cost-effective option for retailers as charges from providers are much lower than from banks. There are numerous other benefits too. Brands can encourage customers to follow their social media accounts post-purchase and join forces with providers to offer special discounts. For example, customers who buy from UK-based TLC Pharmacy with Alipay on a Wednesday are able to use a discount coupon (below).
Mobile shopping blends comfortably with social media and ‘super app’ WeChat continues to reign supreme in China, with currently over 809 million users. One of the key attractions for retailers is that it provides an integrated portal for social media and their own app. Customers typically arrive via a WeChat social media campaign or a KOL (Key Online Influencer) recommendation. When it comes to paying, WeChat won’t allow Alipay to be activated in its browser as it’s a competitor, so the retailer will need to offer WeChat Pay or risk losing the sale.
Tuning into trends
The marketplace is competitive and providers need to find innovative ways to incentivise customers. The Chinese like to be entertained while they shop, especially with games. WeChat Pay has been the most successful at this so far, but Alipay has started to introduce an element of fun into the paying process.
It recently created a series of mini games, including Alipay Farm (below). Users need to pay via Alipay to obtain ‘food’ for their virtual pet. Every payment generates one feed and a ‘happy’ pet will produce ‘hearts’ that are converted into charity donations from Alipay.
The success of these payment providers hasn’t gone unnoticed. JD.com and other major Chinese retailers have recently formed partnerships with financial institutions to offer their own payment options. These retail giants could potentially make a serious dent into the dominance of established providers.
Meanwhile, Alipay and WeChat Pay are busy pursuing international ambitions, as facilitating consumption in overseas markets is a primary goal for them both. Chinese tourism is booming and UK retailers are gradually adapting their operations to accommodate visitors. Alipay is accepted by a number of major UK retailers instore, such as Harrods and several branches of The Body Shop. WeChat Pay, which has been available in the UK since summer 2017, has already been adopted as an online payment method by TopShop, Dorothy Perkins, Feelunique and Beauty Expert among others.
Despite shipping to China, some retailers such as ASOS, John Lewis and Tesco haven’t yet adopted any Chinese payment options, most likely because they feel the business isn’t currently there to warrant it. They would be wise to reconsider – the Chinese love to shop on websites that support Alipay or WeChat Pay, and connecting them will drive organic traffic to their sites and significantly improve conversions. As with all retailers, they just need to take into account the transaction costs when order numbers are low. Payment integration should be part of a complete solution that manages digital marketing and operations in China in order to improve overall efficiency.
The lines on the mobile payment battleground have been drawn between WeChat and Alipay, but will other providers, such as JD Finance, upend them both? China has the world’s largest ecommerce market and it’s predicted that more than 75% of ecommerce sales will be via a mobile device by 2021, so the potential is huge.
WeChat is growing its business fast and our internal research shows that it accounts for approximately 20-30% of transactions when offered alongside Union Pay and Alipay. However, its overall payment volume is still much smaller than Alipay, which is well-established in terms of business co-operation with major retailers. With regards to overall payment experience and services, Alipay is more powerful too. Increasingly, consumers are turning to Alipay to purchase a range of financial products.
Retailers wishing to sell in China should look at all the options if they are to provide the most streamlined mobile payment service possible. Offering customers a choice makes good business sense – just don’t ask for credit card details.