Why mobile commerce is so successful in China

Philipp Schaaf (COO)

Whether it’s a train ticket, a new TV or lunch, Chinese customers pay for everything by cell phone. The country’s major tech companies accompany people through almost their entire daily lives.

Given the global spread of the Internet, you’d think that we humans would now have the same shopping behavior no matter where we are. The big shopping portals like Amazon are the new department stores, where you can find everything the consumer desires. And yet there are still huge differences in the details, whether in the payment methods or the devices we use.

Just how big the differences can be becomes clear in light of the following figures: in China, for example, online retail accounted for 29.7 percent of all retail in 2018. That is more than three times as much as in Germany, where it was just 8.8 percent. According to estimates by the eMarketer analysis platform, the gap is likely to widen even further by 2023. Online commerce will then have a share of 10.5 percent in Germany – and 63.9 percent in China.

Asia as a mobile commerce paradise

The big difference, however, is not that the Chinese primarily order online – but which device they use to do so. Two-thirds of people there prefer to use a smartphone to shop online – for clothes, groceries, their next vacation. In most European countries, that’s just one-third of consumers. In some cases, the figures are even higher than in China in other Southeast Asian countries, such as Indonesia, Thailand and the Philippines. But what is going on there that is different from here?

The main reason for the triumph of mobile commerce in the People’s Republic is the country’s tech champions. First of all, there is Tencent: The Internet company from the metropolis of Shenzhen with its 12.5 million inhabitants is the Chinese equivalent of the giants from Silicon Valley. Today, the company is best known for its WeChat service. The app began as a pure messenger app and later integrated a wallet – that is, a way to store money digitally and pay with it later. In the meantime, the app can be used not only to pay in almost all online stores in China. With its so-called “Mini Programs,” WeChat itself has become a shopping platform and represents an independent sales channel for online retailers.

The difference to Amazon or other shopping apps: The application itself is not only designed for online shopping, but is as deeply woven into the daily life of the Chinese as the daily subway ride or lunch with colleagues. Whether it’s paying for dinner, a cab, or the hotel bill, sending money to a friend, or topping up online accounts, the app can do it all. Its green icon can be found almost everywhere in China these days, even on buses and trains. The transaction is usually handled via QR code – either the merchant scans the customer’s code or the other way around. WeChat is thus an almost perfect ecosystem that its 800 million users hardly ever have to leave.

Tencent dominates around 40 percent of the mobile payment market in China. In addition to WeChat, this is also ensured by the Tenpay service, an offering comparable to PayPal. The company is thus second only to one competitor, Alipay. The payment service was launched in 2004 by Chinese online retailer Alibaba. The e-commerce giant serves about 54 percent of the Chinese market with its payment service. Since 2013, Alipay has been considered the largest mobile payment service in the world. The success here is also due to the fact that the payment system was integrated into an existing platform. Alibaba’s most important services include Taobao Marketplace (China’s largest C2C shopping network) and TMall (China’s largest B2C platform). The large user numbers and market shares make investors dream: at the IPO on the New York Stock Exchange in 2014, Alibaba was able to raise a good 25 billion US dollars, the largest IPO in history up to that time. The subsidiary Alipay – now renamed Ant Financial and claimed to be the world’s most valuable fintech – is also set to go public in 2020, with analysts expecting revenues of a further 20 billion dollars.

Since customers spend money on the Alibaba Group’s services anyway, it made sense to establish a payment service of its own that could be used for all transactions on the site. Similar to WeChat, users can now pay almost everything with Alipay, even the water or electricity bill at the local network operator. The service is available in many Asian countries, such as South Korea and Japan. There have even been initial attempts in Europe, for example in Italy, Great Britain and Germany – currently exclusively for the target group of Chinese tourists, as the company regularly emphasizes.

Europe will not necessarily follow – companies must position themselves broadly

This perfect symbiosis with existing, already very successful apps and the integration of convenient mobile payment systems is probably the most important success factor for mobile commerce in China – and at the same time the reason why the method has not yet caught on in Europe. Because there, people who want to pay or shop by cell phone usually have to download an extra app. That is inconvenient. And because customers always take the easiest route, mobile commerce is still stagnating in many places in Europe. If, for example, an app as widespread as WhatsApp were to introduce a payment function, it would probably give mobile payments a boost. The Facebook service is already experimenting with this, and pilot projects started this year in Brazil and India.

Whether paying by cell phone will ever be as normal in a country like Germany as it is in China is unclear. It would be naive to believe that all countries will develop in the same way. For example, Western providers such as Google and Apple use the infrastructure of credit and checking cards with their payment services, a different approach from that of Chinese tech companies. It is quite possible that a completely different type of payment will prevail in Europe and Germany in the future. Perhaps voice commerce will be the next evolutionary step in Germany; the growth rates of recent years have been remarkable. Companies must therefore adapt their sales channels and payment models to the respective market. Local expertise will continue to be indispensable in the coming years.

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