Dominance of WeChat Pay and Alipay in the Chinese Digital Payments Industry

By Cameron Caldwell (University of Glasgow) and Jennifer Liu (McGill University)


Synopsis


Two of China’s ‘Big Tech’ players, Tencent and Alibaba, owners of WeChat Pay and AliPay respectively, have revolutionised the payment industry in China with the introduction of an alternative payment ecosystem. As far market leaders in terms of user base and number of transactions, it's likely they will remain prominent and at the forefront of the payment industry in China for the foreseeable future. However, as the fintech industry continues to grow, so too will the rising popularity of newer alternative payment methods which could potentially challenge the dominance of WeChat Pay and AliPay in the coming years.



Table of Contents


Trend Summary

  • Chinese organisations, namely WeChat and AliPay, were pioneers in new payment technology that uses QR codes and in-app features to pay for goods and services.

  • As the organisations that own WeChat and AliPay grow, so too these platforms now dominate the Chinese payment industry, with large usage nationally.


Trend Overview

  • WeChat Pay and AliPay have experienced consistent usage growth as a result of growth in their owners business models.

  • Leveraging their business models and because of cost advantages to the seller, WeChat Pay and AliPay were able to attract merchants easily.

  • There is still demand for both platforms, despite their similarities, because of how they evolved and consumers’ lack of incentive to deviate to only one provider.


Trend Drivers

  • WeChat and Alipay gained first mover advantage by entering the digital payment market early and using appropriate strategies to attract users

  • Rapidly growing e-commerce businesses will sustain the expansion of both platforms.


Further Trend Analysis

  • Rising alternative ways to pay including the digital currency and small online payments platforms will challenge the dominance of WeChat Pay and Alipay.

  • Both platforms need to consider potential costs associated with government interruptions and concerns about user privacy.

  • WeChat Pay and Alipay have incentives to further develop their own integrated platforms in order to increase customer stickiness.



Trend Summary


Over the last decade or so, western world countries continued to develop card-based payment technology and have largely stayed away from emerging digital payment technology, until recently. However, in China, alternative ways to pay, such as wallets and QR codes, were being explored and introduced. 10 years on, in 2021, the amalgamation of WeChat Pay, linked to the popular social networking site WeChat, and AliPay, owned by Jack Ma’s Alibaba, control this new and alternative payment ecosystem that has completely revolutionised the Chinese payment industry.


Instead of using card machines and cash registers to process transactions, both apps use quick pay, QR code payments, in-app web-hosted payments, and in-app payment technologies to process payments in a fast and convenient manner. Ditching traditional payment processors for smartphones, saving costs using simple technologies, and removing banks as intermediaries has created different relationships and interactions between merchants, consumers, payment providers, and banks; this has completely changed how retail and person to person transactions occur.


Comparing WeChat Pay and AliPay to western alternatives, such as Apple Pay, the Chinese adopted platforms are much more developed, with greater features, and greater usage statistics. Alipay reached 1.2 billion monthly users in 2019 and WeChat Pay surpassed one billion users in 2018. With both platforms now levelling the same amount of users as the Chinese population, it is clear they are collectively dominating the market.



Trend Overview


For a new payment technology to become largely adopted you need enough people using that technology on a regular basis and enough merchants willing to accept payments via the new technology. Both WeChat Pay and AliPay have experienced relatively consistent growth (Figure 1) in terms of active users since 2013. In addition, given greater reliance on their payment technology year on year for everyday consumer purchases and transactions, over one quarter of China’s GDP is transacted on the 2 payment providers annually. Their ability to generate large adoption and usage numbers stems from their existing business models and brand awareness. WeChat (owned by Tencent) is one of the world’s most popular social media platforms and is China’s number one social media by active user base. Integrating payment technologies within their current product offering proved to be a seamless trans