Mobile Payments – Open Thread

There was an interesting Wall Street Journal article yesterday on mobile payments in China – I knew mobile payments were big in China (and that the US is a long way behind on cashless) but I hadn’t realised how stark the difference is:

BEIJING—Soliciting handouts near a grocery store, Zhao Shenji, a slender man with shorn hair, made giving easy for Beijing residents accustomed to relying on their smartphones.

“Recommend using WeChat Pay,” said a placard the beggar displayed.

It was a literal sign of the times. Payment via mobile-phone services such as WeChat is sweeping the country. After gaining a beachhead as a means to buy things online, mobile payments moved on to store purchases and are fast becoming the way many people in China pay for just about everything.

Though the U.S. saw $112 billion of mobile payments in 2016, by a Forrester Research estimate, such payments in China totaled $9 trillion, according to iResearch Consulting Group, a Chinese firm.

For Alibaba and Tencent, the payoff isn’t just the transaction fees they make from merchants, typically 0.6%. It’s also the consumer data collected, which can transform their apps into marketing platforms for an expanding array of services, from bike sharing to travel.

Mobile Payments: China vs US

Some of the repercussions of increasing mobile payments are just coming into view. The payments haven’t been required to go through the central bank’s clearing system, making it harder for China’s monetary authorities to follow capital flows and watch for money laundering and fraud. The People’s Bank of China has ordered a new payment-clearing platform that will require nonbank financial firms to give it a clearer view of mobile payments by the summer of 2018.

Consumers also are being offered more pitches for loans, investments and other financial products via smartphone. Short-term consumer credit in China soared 160% in the first eight months of 2017 from a year earlier, according to the central bank. Some analysts think the growing ease of borrowing is part of the reason.

There are a lot of interesting angles on this. I have some initial thoughts and I’m interested in reader views… bomb away in the comments:

  • Why so big in China? Apple and Android payment systems are in many countries but they never took off like these mobile payments have in China
  • Chinese GDP per capita is around USD15k per person. This is suggesting USD6.5 is being spent per person on mobile payments. This seems high. Maybe the numbers are wrong, or they are counting “both sides” of the transaction. Need to look more at this.
  • Is it a precursor to a similar explosion elsewhere or are there China-specific issues?
  • Some of this is ease of use – you can easily send “strangers” instant payments. You don’t need a card reader, you can send phone to phone which makes it much easier than requiring a merchant to have a card reader
  • Some of this is “regulatory arbitrage”, getting around the banks. Seems like it is soon to come under banking scrutiny in China – maybe there was a “one-off” window to do this in China before the regulators cracked down
  • Some of the growth may be due to restrictions that China put on Mastercard/Visa (but that doesn’t explain the size)
  • China never big on credit cards and so they might be “leapfrogging” the credit card era
  • WeChat is ubiquitous in China – most of the rest of the world doesn’t have a common platform so it might be much harder
  • At first blush, seems like a big threat for Mastercard and Visa
  • Is there a technology that could cause the US to do the same? The US is a dinosaur in terms of the widespread use of cheques still – could mobile payments finally kill the personal cheque? I’m guessing not, but something to watch

Damien Klassen is Head of Investments at the Macrobusiness Fund, which is powered by Nucleus Wealth.

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.

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  1. Remember China lead frogged the fix line phone infrastructure. I was in Beijing in early 2000’s where our company ran a mobile games portal and other services for China Unicom.. Millions of handsets a week were going onto the two mobile networks at that point. Fixed line infrastructure never took off in China. There was no point.The US is behind Australia in payments and I suspect its the lack of competition that holds it back.

    • I’m quite interested in how something like the NPP would effect charities. Would a charity soliciting donations out on the street just have a sign with their email, or a QR code, on it, in lieu of a payment terminal? I’ve seen something that goes half way towards this at Sydney airport. There’s these tap and go terminals that are unattended and have a fixed donation amount of $5 for a cancer charity. Seems like quite a clever solution to the problem of no one carrying spare change around any more. But the average punter, or begger for that matter couldn’t get one as I image you’d need a merchant account to use one.

      • That’s part of the secret. To accept Visa Mastercard we had to set up a merchant account and pay fees, oh, and more fees. To use PayPal is easier, but comes with fees. The Chinese system is much easier to set up, can be used with just a phone if needed, and cheaper. See the story below how beggars are using system. Has to be simple and quick.
        Someone here said it’s the me too effect. Only at first. Now it’s something every vendor supports. They don’t all support a credit card. Credit card just makes one look gauche or foreign.
        Not here though.

      • Damien KlassenMEMBER

        Thanks alterbrain… I’d thought of the terminal side but forgotten about the whole set-up rort…

  2. china’s mobile payments offerings are often quite rudimentary. EG scanning a barcode on a smartphone to make a payment. This is very clunky and prone to errors. Australia’s mobile payment options are more advanced than this. However, they aren’t catching on because it is easier and less error prone to simply tap a plastic card. Overseas markets which historically didnt have a well established card payment infrastructure will adopt mobile payments quite quickly, even if the applications are a bit clunky.

    • Right. I have been using PayWave since 2012 or something.

      I would rather risk dropping my MasterCard on the ground than my smartphone.

      In London, people can use their MasterCard – instead of a train ticket – to travel in the tube! It even works out cheaper:

      • I know people drool over NFC but NFC is only good for specific use cases.
        – Payment to physical merchant: tap and go
        – Payment online: errr login to paypal?…. fumble fumble get your credit card out? Apple pay?
        – Payment to a person: Log into internet banking…. what’s your BSB? Account Number? Do I tap my card on your forehead?

        That’s just payments.

    • yeah – nah. I use WeChat pay when I travel through China. Barcodes are so 1990 and not used – QR codes are and can only be properly accessed via the WeChat app. When opened in WeChat, the link from the QR can provide simple info about the merchant (for a QR code printed next to the cash register) or if scanned from another smartphone, can provide full details on the current transaction including merchant, items and amount. Only place I didn’t see it was Walmart, KFC had it (in fact staff will help you to use the app to order as well to avoid the awkward Chinglish when ordering). I am able to order taxis and DiDi (Chinese Uber) cars through links and pay the drivers directly when they issue the fare due. DiDi also allows guaranteed ride share fares (ie I wait for someone with a car heading in the same direction I need to go) with immediate settlement.

      WeChat pay can be linked to a bank account (though not needed), there is heavy regulation around the sector now (AilPay is owned by Ant financial) and this by no means a way to get around banks. Will it spread? Yes – look at what is happening in Indonesia and Malaysia. It just reached a tipping point quicker in China. If paypal offered a similar smartphone service modelled on ALipay or WeChat Pay that could be used at point of sale….. or if Apple Pay was available at most small outlets…..

      • I think the Anglo block will fiercely resist this since Master/Visa/Swift is US’s geopolitical weapon of choice.
        Shots has already fired as the US blocks Alibaba’s purchase of MoneyGram.

        The great civilisation wars is just beginning.

      • PayPal’s merchant fees for small business is 2.6%
        The average banks charges between .99% and 4% depending on who you go with and how hard you are willing to drive them down on the percentage. The banks will also charge an account keeping fee, a fee for having the merchant account and handset, on top of the transaction percentage.

        Big biz pay a hell of a lot less than the little guys, so for some small businesses PayPal can work out to a better choice.

        .6% in fees is a bargin in Australia and the uptake would be huge from businesses

    • Sorry but you have no idea what you are talking about.
      Mobile payments is not just scanning a barcode, in fact, mobile payment is a small cog in the greater connectivity between seller and buyers whether its B2B or B2C or C2C but it’s another big topic.

      The barcode is merely a way to connect offline to the online world. Some examples:
      – Adding someone to your wechat: scan a barcode
      – Paying for tea/coffee at merchant: scan a barcode
      – Paying for a product on a vending machine: scan a barcode
      – Give money to a stranger you met on the street: scan a barcode
      – Buying a movie you saw on your Internet set top box, scan the bar code on your TV
      – More information about a product: scan barcode
      – Log into a web site on your computer: scan barcode using your mobile
      – Bring up a menu at a restaurant at a particular table, order and pay all in one go: scan barcode on the table.
      etc. etc. etc.

      China is light years ahead.
      It’s Time For Facebook To Copy WeChat – Forbes
      WhatsApp looks to copy China’s Tencent-owned WeChat |
      Watch For China’s Silicon Valley To Dominate In 2018 And Beyond

      Unicorns are basically evenly split last year between China and US with the rest of the world fighting for scraps. The rapid change in China is so fast, unless you are in it, you would be clueless.

      I’m not surprised MB has no idea about this even though this whole mobile payment thing is 7 years old in China. When the only language you know is English, you have natural self-censorship implemented. You really have to go out of your way to find any actual information.

      • Is WeChat cloud-based yet?

        I love the WeChat emoticon for shyness! I can not believe the West does not have an emoticon for that!

        Westerners never feel shy?

        Facebook has always been cloud-based and when my iPhone got stolen, my Facebook posts were fine.

        Although Facebook has acquired WhatsApp, one can not store his WA stuff in the cloud – even for a fee!

      • From what I have read on the site to date, Macrobusiness tends toward an aversion all things China. Perhaps this stems from firm conviction that the Chinese economy will collapse (it won’t), distaste for China soft power and growing regional strength (accept it) and most obviously, Chinese economic activity in Australia.

        One day China well may rule the world, metaphorically speaking, I’d be paying close attention to our major trading partner, its impressive path to modernisation and its goals for the 21st century and beyond.

    • The barcode is not ‘backward’ : it is a technology decision taken to allow the fastest adaptation on all handsets.

  3. Sounds far more like ‘peer to peer’ and more accessible than the clunky EFTPOS service facilitated by banks, etc.

    • +1. Most is in fact private peer to peer transactions. I wonder if there are stats on the breakdown of financial transaction by the gifting side of it (i.e. wechats amazon style sales) vs the actual transacting of monoey for regular purchasing.

      • Agreed, it’d be like a Facebook Money platform for them. They seem to despise red tape and taxes as much as anyone else, but this had provided an opportunity for individuals to go dark on possible regulatory vigilance.

  4. The company I work for, an investment manager, has around 300 people employed just to process cheques in the US.
    Sheer madness.
    Cheques virtually unknown in all other offices!

      • I hadn’t seen one since I was a child in the ’80s.

        Until I lived in the US 2009-2011 and had to pay my rent every month by mailing the landlord a cheque.

      • darklydrawlMEMBER

        We own property in the US many people still use cheques. It is like living in the 1980’s

  5. China’s development aligned with the development of mobile telephony – for people born in the 90’s mobile phones have always been the devices to go to. My assumption is that other infrastructure common to the developed world was non-existent or under developed.

    The above would create an environment and culture where payment via mobiles is a ‘natural’ fit.

    For me personally mobile phone payment is just too unwieldy. Navigating screens to get to the required option, crap mobile connectivity in the local supermarket, it is just easier and quicker to whip out a card and run it through infrastructure provided by the store.

    China’s Economy is characterised by tiny little operations that perhaps do not have the means (or desire) to deal with banks and associated costs to get such infrastructure installed.

    Relying on a bank for your payment system perhaps includes an element of risk of corrupted officials demanding a share?

  6. I moved back to Oz from China (lived in BJ for approx 17 years). Here is my 2 cents.
    Chinese love new tech and adoption rates are extremely fast and broad.
    Chinese love ease of use and convenience, even when some things might not be as convenient as it seems at first blush (I happen to think tap and go is easier and faster than the Chinese mobile payments system: e.g. my phone is slow I have to unlock it, then unlock wechat then get into payments then scan the QR code, enter the amount and then type in PIN, but try telling that to Kiwi friend married to Chinese living in BJ, tap and go scares her as it can be abused up to whatever the limit is).
    China would never ever want Visa/Mastercard to be a major payment platform, hence they developed UnionPay. China never ever wants any foreign system to be dominant (or even used by a significant minority of people inside the PRC, that includes foreigners who are admittedly an insignificant proportion of the pop) as they want to develop their own systems to maintain control and independence, NEVER EVER forget that when analysing anything about China.
    I was paying beggars in BJ (I had a couple who I had known for a decade +) for 12 months by mobile payments before I left.
    Those figures on usage quoted are probably correct/fairly accurate. Oldies are also really good at tech uptake in China. My cleaning lady who was in her mid 40s and is illiterate (she was from rural Anhui so that was to be expected – I’m far more literate in Chinese than she is) didn’t have a smart phone for a long time due to her illiteracy but she got one about 3 years ago, although when I left she was not making payments on her phone as her husband managed all the financial aspects of the family as he was literate (I offered to pay her by phone but she couldn’t accept it, and no this was not her trying to keep some money back from her husband, they had a really good relationship; her husband cleaned above mentioned Kiwi friend’s apartment and she cleaned my apartment for 13 years). The reason for mentioning this is old people make mobile payments and they will be a significant proportion of that demographic. Illiterate people obviously are using mobile payments (many beggars will be illiterate, but not all of them of course), however atm a portion of that demographic will not be, however this could change quickly. I can’t really think of any group in China which doesn’t have broad smart phone use and who wouldn’t be using mobile payments (I know the Tibetans took up smart phone use really quickly once they could have Tibetan script on the phone, which they couldn’t with the old mobiles).
    People in China (and I would suggest Asia in general too), will need to make payments to each other at a far higher rate than most westerners due to cultural differences, so having an easy way to transfer money peer to peer is hugely convenient, there is NO way the government will stop this system, regulate it more closely yes, but not stop it. The new consumer lending that has exploded recently via mobile phones/internet is another matter.
    I am getting paid in RMB through red packets on wechat from an ex student I am providing ad hoc lessons to over wechat. The only drawback to that is I have forgotten my pin to send transactions because I didn’t write it down, and I have let my Chinese mobile lapse, so I can’t change the pin (therefore essentially these 30 min lessons are free). Ah well, hopefully the guanxi will prove valuable and if I make it back to China at some stage I can unlock the funds and use them!

    • I would add that Alibaba gave a LOT of incentives to shops and customer to adopt Alipay. In Australia there is no such thing.

    • I was paying beggars in BJ (I had a couple who I had known for a decade +)

      Am I missing something here????? Where was this ‘payment’ rendered. On the street ????????????????!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

      • Yes of course on the street. I would see them, chat and then I’d scan their qr code and transfer an amount, usually 5-10RMB.

        One bloke was always outside the April Gourmet close to the Workers Stadium. He’d put cardboard boxes over my bike seat if it was raining while I was inside shopping, and one day I shouted at the thugs the store owner had hired to move him on, to leave him alone (which he greatly appreciated, I think I was the only person who stood up for him). One of my closest friends who lived behind the shop saw him nearly every day and she always gave him money and he knew of our friendship of course, so the beggar and I had quite a good relationship I guess you could say.

  7. Forrest GumpMEMBER

    I just came back from spending 2 weeks in China

    Despite being advised (Warned) that all transactions take place on the Wie Chat pay via mobile phone, I was blown away by just how big this is. Everyone..I mean everyone down to the old man selling cooked peanuts by the side of the road uses Mobile Wei Pay.

    You buy a pair of shoes, a loaf of bread, fill up on petrol, go to the chemist for panadol, pay for a taxi…. literally everything is paid using a mobile phone.

    Its instantaneous, as the purchaser using your phone, you scan a bar code at the shop, taxi or where ever, type in the cost of the product or service and press “Done”. The receiving person checks their phone, they see the money in their account and its over quicker than it takes to count 80 cents of change.

    My understanding is that the payment system is separate from a bank. You need to either transfer cash into it to begin with or someone will put some money into your account from something you sold to them. I think it can be a bit like electronic currency, your account balance is just a number in an account until you cash it out….if you cash it out.

    This definitely signals the end of ATM’s and Debit Cards. Which is why I believe the banks recently stopped charging their ATM fees. They know already..its coming.

    The other point is with the 600 million or so Chinese that use this, the bank must be fairly pissed off. That money is not in a traditional bank account that the banks can utilise and reap profits from, rather its held electronically on the ether somewhere. I’m sure the banks are seething at this. They want their greedy hands on it.

    • HadronCollisionMEMBER

      What is the risk here of this company absconding with your money – i.e. is a bank more trustworthy than this intermediary – are they regulated?
      How are disputed transactions, consideration failure, faulty goods/services managed?

      Not stirring the pot- genuinely interested

    • Be cause China has a real government, not business managed government, it does not care about big business’s feelings if its for the greater good. Wechat/Alipay is a good example, the other one is domestic airlines. When high speed trains were built, the short trip airlines got DESTROYED but because it’s for the greater good, China moves on.

      Contrasts that to here, still no rail to airport for Melbourne because political lobbying by Skybus, Taxi, Airport parking etc. Corruption by any other name.

      • Sometimes an ALP politician has a spine:

        Dan Andrews promising to rip up the East West Link contract and he did exactly that after winning the election.

        Rudd re-nationalising the Telecom network (NBN).

        Jay Weatherill buying a gas power station.

        But the same ALP gave out 457 visas for $0 each! And they refuse to have jail for wage theft. So 3rd world males will keep coming here to work for $10/hour under PM Shorten. Absolutely disgusting!

      • What I meant to say is: if they can renationalise the Telecom network, why do they refuse to buy back the electricity grid and SYD airport?

  8. As a retail store owner I found that my credit card to cash sales changed from a 60/40% ratio to about 85/15% with the introduction of Paywave. It took less than 6 months for this to happen. Everyone and I do mean everyone from grannies to trannies switched over very quickly. Yesterday I took zero cash it, it was all credit cards and this is happening more frequently.

    I have customers who refuse to use cash, they hate carrying a wallet and all they need is their phone and keys when they leave the house. One 20 year old told me she doesnt shop in places that require cash.

    A much smaller percentage of customers use their phones to pay. Aussies seem to be a little more reluctant to adapt to this technology. I know that I personally havent started using it as I dont trust it or myself – I’ve lost one iphone and destroyed another in the last ten years and worry about losing my phone (again)

    Back to the question of why the Chinese are using WeChat Pay, I can only speculate. Perhaps China doesn’t have an ATM on every corner, perhaps credit card skimming is rampant and phones are actually more secure?

    Interesting times are ahead.

    • Some shops in MEL say “$10 minimum if paying by card”. What is the cheapest thing you sell?

      Do you have to pay if a shopper buys something from you by card instead of cash?

      • Some businesses have a minimum to make it worth absorbing the bank fees.

        Personally I dont like those minimums so I dont do it. I feel it cheapens the retail experience and in the current economic climate shopping is all about the experience.

        I suck it up and absorb the costs because hey, I’m classy like that.

    • Oh and another advantage is that business owners dont have to worry about staff pocketing the cash because there is none and the funds go straight into their bank account.

      • The Traveling Wilbur

        Ancient Chinese proverb:
        Staff with small trousers do not pocket master’s merchandise.

  9. Mate, it’s concerning that your not aware of this as it suggests you don’t understand the significant changes in play in financial services globally including Australia. The entire banking sector globally is about to be wholly disrupted. There is a ton of content on the net about what’s going on so won’t repeat. Suffice it to say, traditional banking is ten years from being turned on its head. 25 years later, CBA etc may still exist but similarly to the one civic video store in Sydney.

    • The Traveling Wilbur

      You mean as a burned out empty shell full of cockroaches, drug-addicts and toxic substances?

      Yep. Sounds CBA.

  10. QR is huge in China driven by Tenpay and Alipay and is catching on in indonesia, Thailand, HK, and India (BharatQR). Regulators love it because it promotes demonetisation and is trackable. I think it is a combination of mobile adoption/penetration and low payments infrastructure driving this so probably not going to be a global trend.

  11. Why so big in China?

    I take a guess it’s because there was never really much in the way of non-cash transaction systems (ie: credit cards) to become entrenched before mobile payments became feasible. Same way lots of third-world countries have excellent mobile comms infrastructure and woeful (if any) fixed-line comms infrastructure.

    A paywave/paypass credit card is just as good (and from how the system is described, also far more secure). Mobile phone payments have been relatively slow to pickup here, but I reckon that’s mostly because of the reluctance of the banks to enter into arrangements with the mobile hardware providers like Apple and Samsung. Everyone I know under the age of fifty with a compatible bank uses their mobile phones in lieu of payway/paypass, and I know lots of people who have specifically changed banks and/or taken out additional credit cards to gain this capability.

    I just wish more systems were able to take advantage of the NFC capabilities of modern phones. Then I wouldn’t need to carry around my Go card, my gym card, my work pass(es), my carpark pass(es), etc, etc.

    • “I take a guess it’s because there was never really much in the way of non-cash transaction systems (ie: credit cards) to become entrenched before mobile payments became feasible.” That was my gut feel as well. A way to validate would be to see what has happened in Japan, which has also traditionally been quite averse to credit cards.

      • I don’t think it’s even a matter of being averse to, so much as the possibility never really existed.

        Credit cards (and I’m including charge cards like Diners and AMEX here) have been reasonably common in Australia since when ? The ’70s ? The ’60s for the US & UK ?

        A better comparison than Japan, I think, would be other countries that likely skipped over the penetration of credit cards in the ’60s, ’70s and ’80s due to a more recently developed middle class driving the need for easier consumerism. India, maybe ? South Korea ?