The Rise Of Digital Payments In China

The market for Chinese e-payments providers has been climbing steadily over the years, with third-party online payments surpassing $820 billion in the first quarter, according to China Internet Watch. A byproduct of the rise in e-payments in China is an increase in consumption and new services, Moody’s added in a recent report.

Alipay, Wechat Pay were among the top Chinese e-payments providers

A United Nations study found Alibaba’s Alipay and Tencent’s Wechat Pay to be the two leading Chinese e-payments providers last year, enabling $2.9 trillion worth of digital payments combined last year. This amount has risen 20-fold over the last four years, the UN found.

That growth may seem extreme or based on the sheer size of the Chinese population, but looking at this from a percentage standpoint, the Chinese have led the way in adoption of fintech, according to a recent study by EY. The firm found that approximately 69% of Chinese Internet users have used at least one fintech services over the last six months. In the U.S., only 33% of Internet users also used fintech services. Nielsen also found that the Chinese lead the way in e-payment penetration.

chinese e-payments providers

When most think about fintech, the tendency is to think of it as meaning robo-advisors or other online services for managing investments, although blockchain firms are also considered to be fintech. EY’s study includes Alipay as a fintech firm but excludes JPMorgan, despite the billions of dollars it says it spends each year on technology. Although fintech firms do offer loans and investments, early adoption has been mostly in e-payments, especially in emerging markets.

Chinese e-payments providers support consumption

Despite this strong growth in e-payments, Chinese banks don’t have anything to worry about, according to Moody’s Investors Service. Moody’s Analyst Lillian Li said in a recent report that third-party digital payments providers are supporting Chinese regulators’ goal to rebalance the nation’s economy toward consumption. She reports that third-party digital payments have surged by more than 100% annually since 2015.

This rapid increase is boosting personal consumption in China because it gives consumers an alternative to the payment channels offered by banks, which carry higher transaction costs. Chinese e-payments providers are benefiting from “the relatively short history of bank card usage” among the nation’s consumers, she adds, as shoppers are more willing to accept this new type of payment technology.

Chinese e-payments providers aren’t threatening banks

Li also studied which types of firms are benefiting from the rise in digital payments in China, and which are being hurt. Interestingly, banks are not taking a hit from the increase in e-payments, she believes, as they won’t impact banks’ profitability or revenue growth. She explained that banks get only small percentages of their revenue from their retail payment segments and interchange fees.

One area she does see the potential for loss by banks is market share in retail payments, but she adds that this is a long-term concern. She also believes that Chinese e-payments providers could impact banks’ lending businesses.

Chinese consumption on the rise, thanks to e-payments

Li warned that some traditional retail channels may take a hit if they fall behind in e-payment systems. However, she expects e-payments to drive growth among most Internet and service companies as they stimulate online consumption.

chinese e-payments providers

She adds that as Chinese e-payments providers develop their services further and spur more e-commerce growth, it should support the nation’s economic rebalancing in the direction of consumption. She explained that these companies will invest in expanding their services, increasing employment, which then drives even more consumption and feeds digital payments further, resulting in a continual cycle.