Chinese economic headwinds raise questions about mobile payment growth

Jan. 8, 2019 | by David Jones

Chinese economic headwinds raise questions about mobile payment growth

The recent economic headwinds blowing through the Chinese economy are raising questions about what the near term impact will be on that country’s critical mobile payments market, where hundreds of millions of consumers use mobile apps not only to shop retail, but to borrow funds, pay bills and send money to friends and family.

According to Frost & Sullivan, mobile payments in China is expected to grow at a compound annual growth rate of about 22 percent, effectively tripling from $29.9 trillion in 2017 to $96.7 trillion in 2023.

The total number of active mobile payment users  in China is expected to rise from 562 million in 2017 to 956 million over the same period.

"The use of mobile payments grew while addressing a clear need in the market," said Mei Lee Quah, industry principal analyst, information & communication technologies practice, digital transformation at Frost & Sullivan, via email. "The need arose as a result of a lack of sufficient banking infrastructure due to the size of the country, relatively low credit card penetration and counterfeiting of cash notes, among other things."

Thad Peterson, senior analyst at the Aite Group, says that the the majority of Chinese households still have checking accounts, which are linked to WeChatPay and Alipay, the leading mobile payment platforms in that market.

"The payment system hasn’t really evolved prior to the mobile alternatives, the Chinese government refused to allow the payment networks [Visa/Mastercard] into the country," he said via email.

He noted that UnionPay was the Chinese alternative, however that platform had limited distribution within the country. He noted that cash was the only other way to transact deals and it was universally accepted.

"The simplicity and ubiquity of Alipay was superior to any other alternative," said Peterson. "It really worked well and mass adoption happened."

Investor warnings

Apple CEO Tim Cook, whose company makes the iPhone and iPad tablet, stunned much of Silicon Valley and Wall Street last week when warned investors economic weakness in China would cost the company billions in revenue as fewer customers were upgrading their devices and continued trade tensions with the Trump administration were taking a bite out of business.

Cook noted that reported GDP growth in the September quarter in China was the second lowest in the last 25 years. He said traffic to Apple retail stores and channel partners had dropped and the economic climate resulted in a sharp decline in smartphone business in that market.

The Apple warning was not a complete surprise to investors following trends in that country. In November, Alibaba Group discussed the reports of deceleration in the Chinese economy during the company’s fiscal second-quarter conference call with analysts. The company cited National Bureau of Statistics data during the call showing a slowdown in consumer purchases of big ticket items, while the company said they continued to see robust growth in consumer staples, cosmetics and apparel.

The company also reported strong growth of monthly mobile app use, with 665 million users accessing Chinese retail through the Taobao mobile app, an increase of 32 million over the previous quarter.

In addition, the company pointed out data showing Chinese households still had additional capacity to take on new spending, as 300 million middle class Chinese consumers had real wage growth in the last decade and as of March 2018, Chinese household debt was 49 percent of GDP compared with U.S. households, where debt was 77 percent of GDP.

Joseph Tsai, co-founder and executive vice chairman of Alibaba, told analysts on the call that Ant Financial specializes in providing credit to underserved individuals who borrow in small amounts and require flexibility to revolve frequently.  

"The penetration of the amount of consumer credit  in total online sales, while still in the low teens, has increased significantly during the first seven months of this fiscal year," he told analysts.

Didi Chuxing, a leading ride sharing and food delivery service in China, just last week announced new in-app financial services following its 2018 entry into the consumer finance, offering car financing and critical illness insurance through the device.

Steve Villegas, vice president, partner management at PPRO, a London-based payments platform, said that Chinese mobile transactions should remain strong despite the downturn. He noted that the 2018 Singles Day shopping holiday resulted in a record $31 billion in sales, a record breaking performance.

"Regardless of any evidence of of a slowdown, there is still massive economic growth in the region,"  he said via email.

Photo: iStock

Topics: Mobile Apps, Mobile Banking, Mobile/Digital Wallet, Mobile Payments, Region: APAC, Retail

Companies: Alibaba, Alipay, UnionPay International, Apple

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David Jones

David Jones is a veteran business and technology journalist, with three decades of experience writing about business travel, real estate and technology.

Since 2015 he covered a range of technology stories for the ECT News Network, which includes the E-Commerce Times, TechNewsWorld, LinuxInsider and CRM Buyer, writing about cybersecurity, artificial intelligence, machine learning, open source computing and privacy issues among others,. He recently covered FinTech issues for PYMNTS.com.

He worked as a staff writer for Bloomberg Business News and an online reporter for Crain’s New York Business. He has written for numerous media organizations, including Reuters, The New York Times, The Real Deal, Continental, City Limits and The Nation.

He was previously awarded the George Washington Williams Fellowship for Journalists of Color by the Independent Press Association.

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