Mobile payments soar in China

With the largest number of mobile shoppers, country is testing ground for new technology

When paying for a restaurant meal or buying a cinema ticket, the first thing Beijing native Cao Siyuan reaches for is often her phone - not her purse. She does the same when paying for taxis or when she goes shopping.

"I don't carry that much cash with me any more as I can easily make many payments through apps on my smartphone. It's much more convenient and there are often discounts thrown in too," the graphic designer told The Sunday Times.

Chinese consumers like her are rapidly giving up cash in favour of payments via smartphone, powering dramatic growth in the sector and lifting it to a new high last year.

Transaction volumes through third-party mobile payment platforms skyrocketed 66 per cent to 2.3 trillion yuan (S$498 billion) in the second quarter of last year, according to a report by iResearch. In 2014, transactions soared to six trillion yuan, almost five times that of the previous year.

More than 90 per cent of the market is dominated by e-commerce giants Alibaba and Tencent through their third-party mobile payment platforms AliPay and Tenpay respectively, the research firm said. Alipay is the market leader with 400 million users.

Experts say the dramatic growth of mobile payments in China can be attributed to the fact that the country, with 1.3 billion cellphone users, has the largest number of mobile shoppers in the world.

On Singles Day on Nov 11 last year, for instance, 68 per cent of the 91.2 billion yuan in total sales during China's equivalent of Cyber Monday in the United States were made on mobile devices.

"Consumers in lower-tier cities have even bypassed the stage of (using computers) and have embraced mobile adoption and shopping online. This triggered the development of the mobile payment industry in China," Forrester Research analyst Di Jin told The Sunday Times.

Mr Matthew Crabbe, research director at market research firm Mintel, said that the rapid rise of mobile payments in China also makes it the perfect testing ground for new innovations. Alibaba founder Jack Ma, for instance, tested out face recognition technology for mobile payments during a trade fair in Germany last March.

"China is more willing to try and adopt new ideas... much more so than in countries where other cashless payment methods are more developed and mature, and consumer habits are already long formed," Mr Crabbe told The Sunday Times.

The widespread adoption of mobile payments among China's digital-savvy is also transforming the global retail scene, experts note.

Many international brands and retailers, including Bloomingdale's, Macy's and Ann Taylor, for instance, have started accepting Alipay on their e-commerce websites. Others, such as luxury retailer Ashford and beauty shop Lookfantastic, have adopted WeChat payment, a messaging app that Tenpay works through, on their sites.

In Singapore, e-payment platform Nets partnered with Alipay in 2014 to allow Singapore consumers to shop directly using local currency on popular Chinese websites such as Taobao and Tmall.

Some experts say that with many shops in China already accepting mobile payments, the next step will be for such payments to be available in brick-and-mortar stores abroad as well. This is especially since overseas spending of Chinese tourists reached 3.1 trillion yuan in 2014, according to estimates by Financial Times' China research arm.

"Stories abound of Chinese tourists targeted by pickpockets because of the large volumes of cash they carry; on that front, a user-friendly mobile-based payment system confers significant security benefits," he added.

But mobile payments are not without risks. Last month, China's central bank released regulations on online payment services by non-bank institutions, including requiring real-name registrations for all non-bank payment accounts and limits to payment amounts to protect customers.

While there are concerns that this might dent the sector's growth, Mr Crabbe said the increased regulation should be viewed positively.

"Any kind of regulation and protection systems brought in to help control and reduce risks can only be a good thing," he said.

"Not only should such checks... help to prevent fraud, but they also help to allay consumer fears, thus encouraging them to use these systems more."

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A version of this article appeared in the print edition of The Sunday Times on January 31, 2016, with the headline 'Mobile payments soar in China'. Print Edition | Subscribe