Mobile payments under the microscope
As cash transactions increasingly give way to mobile payments, we look at why mobile commerce styles are so different around the world
The fundamental concept of payments hasn’t changed in thousands of years – goods and services are exchanged between the buyer and seller for a mutually agreed price. What’s changed is how we make payments.
The move from traditional payment methods to digital means that the driver for payment innovations isn’t the currency itself, but the technology we use to show that transactions have taken place. However, technology, including wireless internet and smartphones, has been adopted at different rates and times in various countries, leading to drastically different payment landscapes around the world.
“It is interesting to see how payments have evolved in each country and how differences in culture, technology and economics have influenced their progress,” comments Chi Eun Lee, Business Development Director, Barclaycard Payment Solutions. “We are seeing a dramatic uplift in electronic payments, but everywhere has developed in a different way. When you combine this with the boom in global tourism, we find that consumers increasingly expect to be able to shop with their preferred payment method wherever they go in the world, so it’s important for us to understand what they have in their wallets.”
Chinese Super Apps
One of the most noticeable differences in payments is the use of digital wallets, a secure service that stores your personal information, including bank account and card details, for use in online transactions. Apple Pay, Google Pay and Samsung Pay are popular digital wallets in the western hemisphere. However, in China, two super app players – Alipay and WeChat Pay – dominate the payment landscape, and they work very differently to digital wallets in other parts of the world.
Both WeChat and Alipay go beyond being just payments apps. The China-based consumer never needs to leave the app ecosystem to live their everyday lives, as it essentially combines Facebook, Amazon, Whatsapp, and seamless payments all in one. The second advantage of these super apps is that they target marketing offers to specific customer segments based on their purchase behaviour, delivering a powerful loyalty scheme for consumers and in turn providing value to merchants.
When it comes to payment functionality, Alipay and WeChat Pay both rely on QR codes. These blocky black-and-white patterns, used to encode web addresses and other information, didn’t really take off in the West, but in China, practically every major retailer, street market and even buskers use them.
One reason may be that QR codes and, in turn, the AliPay and WeChat Pay apps, caught on in China is that credit cards and a traditional banking structure didn’t develop in the same way as in much of the West. But, use of the internet and smartphones did – and then some. According to a report backed by the China Internet Network Information Centre, more than 98% of internet users in China, representing over 800 million people, have smartphones, and 71% of them use online shopping and mobile payments. The result is that China's mobile payments market is huge; there are around 700 million active monthly Alipay users and WeChat has over one billion, compared to 127 million worldwide Apple Pay users.
The move by AliPay and WeChat Pay to leverage existing tech in the form of smartphones and QR codes is one reason for their success. Another is China’s banking ecosystem and the fact that payment cards attached to bank accounts never took off. This meant that the regulatory environment around payments was initially far more relaxed than in other parts of the world, which helped Alibaba and Tencent, the owners of AliPay and WeChat Pay, to ‘leapfrog’ plastic payment technology and go straight to eWallets.
In the past, these apps were restricted to use within China but now they are growing their international acceptance, fueled by the rapid expansion of Chinese tourism. Barclaycard Payment Solutions recently announced a new partnership with Alipay and retailers in the UK can now accept payments with AliPay. Chi Eun Lee notes, “This opens up a new chapter in the growth of AliPay as users in the UK will benefit from a more convenient and familiar in-store payments experience and merchants can generate more sales from Chinese tourists by increasing their visibility in the Alipay app.”
Evolving payment landscapes in the rest of the world
China isn’t the only part of the world to mostly pass over plastic payments. Mobile money services have dominated Africa for the past decade, with an increasing number of fintechs moving into the market to compete for the large number of mobile customers. According to McKinsey, one in ten African adults now has an active mobile money account and just over half of the 282 mobile money services operating worldwide can be found in the Sub-Saharan region.
In Mexico, where over half of the population doesn’t have a bank account, only 3.9% of retail sales were made online in 2018 (compared to around 20% in the UK). However, things could soon change. Amazon and an Argentine service MercadoLibre are in talks with Mexico’s central bank about introducing a new government-backed mobile payment system called CoDi, which uses QR codes in a similar way to AliPay and WeChat Pay. If the technology gets off the ground, it could be an important step in furthering financial inclusion in the nation.
In Singapore, QR-based phone options are so numerous that a recent initiative has sought to unify more 27 different payment schemes. Previously, consumers had to check whether their preferred QR payment was available, which led to cluttered storefronts and longer processing times. The new solution, called Singapore Quick Response Code (SGQR) consolidates 27 QR code types into a single unified design. The initiative is part of the government’s Smart Nation goal to reduce cash usage, go cheque free by 2025, and spread the adoption of mobile payments.
In New Zealand, contactless payments are popular, with around half of the population tapping to pay last year, but the uptake of mobile payments has been relatively slow. One reason is consumer demand; it’s thought that New Zealanders are happy with contactless and don’t feel compelled to switch to mobile. Another is the slow adoption of popular mobile payment options. Until January 2019, only two New Zealand banks supported Apple Pay. Now a third, ASB, has added Apple Pay to its suite of virtual payment options for its 500,000-strong customer base.
In some other parts of the world, mobile payments are growing at a slower rate. For example, cash is still the payment method of choice in Japan, followed by credit cards. The Japanese Ministry of Economy, Trade and Industry is set to change that though and has compiled a new ‘Cashless Vision’ report as the government is seeking to increase digital payments from 20 percent to 40 percent by 2027.
Convenience is the ultimate motivator
Every country is going down a different route to determine which mobile payments systems work best for them, but the direction of travel is clear. Commenting on the range of options, Chi Eun Lee, says, “Mobile commerce is on the rise everywhere but when it comes to adoption of different technologies it boils down to what is the most convenient option. It’s crucial that consumers have trust in the payments for any momentum to be gained, and they will only switch if it makes their life easier. Whether it’s created by QR codes, contactless or invisible payments, mobile payments are here to stay and we are working hard with our merchants to help them understand and accept different types of payment so they can attract new customers to their business.”