Editorial: Where the Chinese go, Alipay and WeChat Pay go
Of late there has been much talk of the Digital Silk Road, starting in March 2015 when the Chinese Government issued a white paper on the subject. I recommend anyone interested in the Belt and Road Initiative (BRI) to read the white paper as it provides some insight into the vision—yes vision—China has for supporting the physical infrastructure with the appropriate digital infrastructure. In particular, I like the parts which seem to emphasize the proven fact that digital infrastructure really only exists to improve human interaction and cooperation. In the white paper, there is significant discussion of what has been translated in English to “people-to-people bond”.
For example, an excerpt:
So, China fully supports this “people-to-people bond”. I think that is great. Even wonderful. Yes, translated into English it sounds a bit like Chinese utopian propaganda, I know. Cynics might even try to label it cultural imperialism but I have seen it working on the ground and while not perfect, the Chinese tend to take all these utterances of “we should…” extremely seriously.
But the Digital Silk Road—however it manifests itself—will be built by the people-to-people bond born out of trade and tourism first; just like the original Silk Road was. Therefore, I believe that the very next phase of the Digital Silk Road will be created from the footpath of what I call the “Mobile Payments Path." As Carson Wen, founder and chairman of Bank of Asia, British Virgin Islands, and BOA Financial Group, said at the Asia-Pacific Business Forum in April this year, "There are over 2 billion people with phones but no bank accounts. This is a chance for financial inclusion for everyone."
Where people go, they need to buy goods; and where the Chinese go, they prefer to buy using Alipay or WeChat Pay. So, while the Digital Silk Road is being promoted by the Chinese government and to some extent by all the 65 (and counting…) countries along the way, the mobile payments path has been under construction by traveling individuals and the businesses who serve them for some years now. “ We need to figure out how to remove the barriers between them through the use of modern tech," said Zhou Li, publisher and editor in chief of the China Daily Asia at the same Asia-Pacific Business Forum event.
This “Mobile Payments Path” is real and people are driving it, not government policy. Chinese travelers and tourists have been building it with each step they take and each mobile payment they make. Let’s look at some examples…
The most amazing statistic I have run across in the last few weeks is that there will be 158 million outbound Chinese travelers in 2018. If those travelers all landed in the same place and formed a country, it would be the 9th most populous country in the world—just behind Bangladesh and just ahead of Russia. That is over 300 million feet walking the “Mobile Payments Path." However, even more mind-blowing is the fact that only 6% of Chinese have applied for a passport! Talk about room for growth!
As the Chinese economy continues to grow at an unprecedented pace by any measure, the Chinese consumer is becoming wealthier. According to most estimates, nearly 40% of all e-commerce done in the world today is happening in China. All this purchasing power and the sheer number of travelers means that no country can afford to disregard the opportunity.
While all predictions show the size of China’s economy passing the US’s in the next 5-10 years, China already surpassed the US in total e-commerce sales volume a few years ago. Hardly anyone even noticed. And even more people don't understand why. It is just simpler to pay via your phone in China. Today Chinese don’t use credit cards, a login for each site, forgettable passwords or any of that mess that the Western e-commerce shopper has to deal with. They find what they want on their phone and press a button to pay. Or on a PC they just use their phone to scan a QR code onscreen to log in. No wonder they moved from using bank debit cards to Alipay and WeChat Pay. Currently, 96% of all e-commerce in China is transacted via Alipay or WeChat pay. Again, this all changed very quickly. In the last three years, indeed.
So the real story here is that the Mobile Payments Path is already built and becoming more and more like a superhighway every day. In North America and increasingly in Western Europe, vendors wherever the Chinese go are accepting Alipay and WeChat Pay—for the simple reason that it makes good business sense.
Let’s take an example from North America; Citcon founded by Chuck Huang. From modest beginnings in 2015, they have expertly ridden this wave of Chinese travelers. I remember visiting their office Santa Clara in the Silicon Valley in early 2016 when their only customers were a few Las Vegas casinos frequented by Chinese. Now they are putting in Alipay and WeChat Pay terminals all over the top ten US cities most visited by Chinese. According to a senior official at Citcon I interviewed for this piece, they currently claim to have 5,000 merchants using their mobile payment solution across North America. And by taking lower fees than credit cards from merchants and serving an official clearinghouse for Alipay and WeChat pay in North America they are now raking in the electronic dollars.
I think most of the ultra-successful Chinese tech firms (Tencent, Alibaba, Huawei, DJI, Haier, etc.) are extremely low-key and smart, especially compared to their American counterparts. By sticking to their knitting, not making grand pronouncements, they have simply followed Chinese travelers into the US marketplace. At the same time, they have impressed the local population with cost/performance on features. Now, do you honestly think the 5,000 outlets that support Alipay and WeChat pay are going to, at this juncture, just unplug their terminals and upset their valuable and numerous Chinese customers, just because Donald Trump tweets to tell them to stop? I don't think so. This is market penetration Chinese-style, and we have seen it from mobile phones to refrigerators, air conditioners, and all types of products. US companies could learn a lot from this strategy of carefully targeting new markets first in the segments where they know they can get traction and have advantages.
In fact, here in China, Alipay and WeChat pay are so dominant that even the Central bank had to sneak in via the back door under the guise of “protecting the consumer." At current course and speed, the banking system would have been rendered pretty much irrelevant to the average consumer. That has all been "fixed" as of this week as the Chinese Central Bank takes its third and most comprehensive step towards regulating the payments industry. According to Matthew Brennan, Managing Director of China Channel, the switch has just been flipped, and payments in RMB must now run through a central clearinghouse system, a brand new one for mobile payments called NetUnion (Wanglian 网联). But this is regulation in the dictionary sense of the word, more of a safeguard to encourage the big players to self-regulate and play well together in the same sandbox. Ultimately, this is government regulation in the true Chinese sense: as long as the players behave and cooperate, the state will not intervene…much.
Personally, I am quite impressed by how the Central bank has taken an incremental approach to putting this regulatory infrastructure in without disrupting the system or causing angst and panic amongst the consumers who use the system nor the players like Alipay and WeChat who created and run the system on a day to day basis. So far it has been an excellent example of industry and the regulatory authorities working closely together to ensure a stable system. Competition between the players remains, but the playing field has been kept level for all participants.
Here is where I find an analogy to BRI. China is proving to be extremely good at building useful infrastructure (physical or electronic) that supports the existing traffic while building better and much more advanced infrastructure that supports future growth. The cooperation between the private and public sector works exceptionally well in China. Whether you cite the rollout of 4G telephone coverage in 2013, the increasingly massive and convenient subway system in Beijing and other large metropolises, the examples abound. The Chinese send loads of "representatives" all over the world to see how things are done and takes the best and worst examples of key infrastructure projects, learns from them and then improves upon them. Really. They do this, and they study everything then build the best, most advanced version of it here in China. The bullet trains in China now make Japans feel like locomotives. I know, I am a frequent rider of both systems. This way of doing things--of incrementally putting in new infrastructure without upsetting the apple cart also applies to the way the Chinese government approaches BRI and the Digital Silk road.
So, when will the “Mobile Payment Path” be built in the BRI countries? The answer is that is it already has begun. As with the first example of the dramatic increase in outbound travelers, the infrastructure projects that are ongoing all over the ancient silk road and maritime trade routes from China westward are creating a dramatic expansion in Chinese expatriates. According to Saruni Maina, a Kenyan entrepreneur and tech commentator whom I interviewed for this piece, "There are quite a large number of Chinese expatriates in the area where I live. From 7,000 in 2013 to over 21,000 today." According to Saruni, while Alipay and WeChat pay has not caught on amongst the general population, the stores the Chinese expatriates frequent do accept Alipay and WeChat Pay. Jack Ma and Alibaba executives have been regular visitors to Africa as of late, and South Africa has long been a WeChat stronghold, due in part that a large early investor of WeChat's parent company Tencent is located in South Africa.
Having watched this mobile phone payment platform explode in China domestically from here where I live at ground zero in Beijing, I have a theory that where the Chinese go, Alipay and WeChat go. Africa, Eastern Europe, and Central Asia are next. In fact, just this week Tunisia announced they signed a partnership agreement with China to build out digital infrastructure. Along the lines of the “people-to-people bond” per the whitepaper excerpt at the beginning of this article, the announcement focuses on the fact that “opportunities will be created for young Tunisians” rather than hubris around the companies who are involved.
In all the BRI countries they are all buying Chinese smartphones anyway, so it kind of just makes sense. I will be following this story for quite a while as well as walking the "Mobile Payments Path" myself. Please send me your “Alipay and WeChat Pay Accepted Here” photos from exotic locations all over the world to me at @jameslal on Twitter or firstname.lastname@example.org . If I use your photos in a subsequent piece I will be sure to give you the proper photo credit byline.