E-Payments and cashless societies (part 2)

By Loke Hoe Yeong


As late as 2012, before mobile payments took off in earnest, 96% of payments transacted in China were in cash. Today, China’s Alipay, the largest such system globally, has one billion users around the world. That prompted Singapore Prime Minister Lee Hsien Loong to acknowledge in his 2017 National Day Rally speech that China has been leading the way in the e-payment space, even as the Singapore government was rolling out the Smart Nation initiative.

Beyond all the hype however, are we distilling the correct lessons from China’s dominance in the e-payment market? What are the implications for Southeast Asian markets, if any?

In this second article of a three-part series on e-payments, we trace the origins and growth of Alipay to WeChat joining the fray, and finally to their expansion into Southeast Asia. In doing so, we delve deeper into the usual media headlines to get a more accurate understanding of how China’s two giants of the e-payment landscape have developed and expanded, and to get an early sense of the implications for the region.


How did Alipay become so big? The answer lies in e-commerce.

The story began in 2003 with Taobao, the e-commerce website launched by the Chinese entrepreneur Jack Ma and his Alibaba Group; the Alibaba Group was in the business-to-business commerce sector. Alipay was created for Taobao, a consumer-to-consumer e-marketplace, as an escrow payment service – where a third party holds the funds from a buyer, and only transfers them to the seller after contractual requirements are completed. This played a crucial role in reducing transaction risk at a time in China when mutual trust between consumers and businesses was still low. The first mobile version of the Alipay application was launched in 2009.

Up to this point, the story sounds similar to that of PayPal’s, which processes payments for the US e-commerce site eBay, except that the critical mass of the Chinese economy was the game-changer.

By 2014, Taobao could boast of having 300 million users, creating an overwhelming base of as many Alipay users. Alipay had overtaken PayPal as the world’s largest mobile payment platform. That same year, the Alibaba Group was listed on the New York Stock Exchange, and Alipay, which had been spun off from Taobao to become a separate company under the Alibaba Group, was rebranded as Ant Financial Services.

Yu’ebao, an online money market fund linked to Alipay, was launched in 2013 and soon became the largest of its kind in the world. Affiliated products like Yu’ebao, praised as an “investment fund for the masses” which other similar payment providers like PayPal lack, have helped make Alipay more attractive to ever more users.

By 2018, Ant Financial was valued at US$150 billion, far exceeding the valuation of US$88 billion by the US investment bank Goldman Sachs, which incidentally was one of the first investors in Alibaba back in 1999.


There are many factors for Alipay’s overwhelming success, but one which relates to UnionPay and the relatively lower rates of credit and debit card usage in China stands out.

Much has been made of how China’s spectacular success in the e-payment space is the result of leapfrogging the stage of credit and debit card usage, which more mature economies like Singapore, Japan and the US are still in. Researchers have theorised that Chinese culture frowns on the notion of debt, and therefore, credit cards were less appealing to Chinese consumers.

It is more plausible that China “missed” the stage of widespread credit and debit card usage in its financial development as a result of heavy-handed state intervention. That in turn benefited Alipay in gifting it an empty slate of foreign competitors within China.

The People’s Bank of China (PBOC), the central bank, has kept Visa and Mastercard out of the Chinese market in spite of China’s obligations under its World Trade Organization membership to open up its financial services industry. Visa and Mastercard are accepted for use in China, but they cannot process payments in yuan nor issue cards in the country. It was only in November 2018 that American Express became the first US card company to gain approval to process yuan payments – and even that was with a 50-50 joint venture with a Chinese partner.

In place of foreign cards, PBOC and the Chinese government launched UnionPay back in 2002, with five of China’s biggest state-owned banks among its founding shareholders. UnionPay, the only issuer of bank cards in China and the largest in the world, works just like Visa and Mastercard in its fee structure, where merchants rather than users are charged the fee. However, UnionPay cards have to be linked to a bank account in China.

As the classic theory goes, monopolies would become complacent over time and would lose out to the entrepreneurial streak of disrupters. Alipay would soon give the state monolith UnionPay a run for its money.

While UnionPay boasted of an impressive 35% year-over-year growth as of 2017, mobile payment methods grew an estimated 85% during the same period. Although UnionPay was among the first to develop the mobile payment QR code technology, it has perhaps irreversibly relinquished its advantage to Alipay and WeChat. And because Alipay and WeChat bypass UnionPay’s network when processing mobile payments to offline merchants, they are essentially diverting billions of yuan in fees away from UnionPay.

It is more plausible that China “missed” the stage of widespread credit and debit card usage in its financial development as a result of heavy-handed state intervention. That in turn benefited Alipay in gifting it an empty slate of foreign competitors within China.


It is not surprising at all that Alipay’s success fuelled competition from a rival. Just as what e-commerce was to Alipay, social and gaming was to Tencent. In 2013, the latter launched WeChat Pay as the mobile wallet inside the Chinese social messaging application WeChat.

In making up for lost time in building up its user base, WeChat Pay capitalised on Chinese tradition with the introduction of its virtual red packet where users can send up to US$29 to their WeChat friends. Around 16 million red packets were exchanged on Chinese New Year’s Eve in 2014, according to Tencent. One year later, that figure jumped to one billion. Soon, Alipay followed suit.

As of the last quarter of 2018, Alipay still has the lion’s share of the e-payment market in China at 53.8%, compared to WeChat’s 38.9%. At this point, naturally, the battle between the two giants extended abroad.


Given its proximity to mainland China, Southeast Asia is a popular holiday destination of choice for many Chinese tourists who are users of Alipay and WeChat.

To be sure, Southeast Asia is not the only battleground for Alipay and WeChat as Chinese tourists do not only spend their holidays in Southeast Asia. Northeast Asia and Europe are popular destinations too, perhaps with even bigger expenditure potential.

Rather, the particular attraction of Southeast Asia for Alipay and WeChat is the low penetration rate of credit and debit cards – at just around 2% in countries such as Indonesia and the Philippines – while mobile penetration and internet connectivity are rapidly on the rise. Moreover, the region’s cashless payment market is highly fragmented with no dominant player in sight, which presented both an investment and an expansion opportunity for Alipay.

In 2017, Ant Financial announced the merger of Alipay and helloPay, a year after Alibaba took control of Lazada Group, the e-commerce site that is also the parent of helloPay, with a US$1-billion investment. All the operations of helloPay, which was the payment platform of Lazada, have since been rebranded as Alipay.

Ant Financial has also entered into joint ventures with local partners in the region to offer Alipay products to Chinese tourists. It has teamed up with Touch’n Go in Malaysia, Kasikornbank in Thailand, Pi Pay in Cambodia and CCPay in Singapore.

… the particular attraction of Southeast Asia for Alipay and WeChat is the low penetration rate of credit and debit cards – at just around 2% in countries such as Indonesia and the Philippines – while mobile penetration and internet connectivity are rapidly on the rise.


Despite the impressively growing number of e-payment users, there are still considerable limitations on the use of Alipay and WeChat Pay. For a start, a bank account in mainland China is required for Alipay usage. WeChat Pay accepts users of foreign bank cards, but user comments on online forums claim that would only work if the WeChat app is downloaded while in China.  While there are various reported ways to get around these restrictions, such as anecdotes of foreigners getting the help of friends in mainland China to top up their Alipay and WeChat wallets, all of these mean that China’s mobile payment apps are essentially only for Chinese citizens’ use for the foreseeable future. Another drawback is that the payments made through Alipay and WeChat Pay can only be processed in Chinese yuan, which makes it less attractive for other users who will be more inclined to pay in their home currency.

This may change incrementally through the partnerships forged by the two payment providers in the local markets. Last year, Malaysia became the first country outside China – that is, aside from the Special Administrative Region of Hong Kong – to have WeChat Pay enabled in a local currency. One key consideration for Tencent is the size of the ethnic Chinese population in Malaysia, in addition to the existing 20 million WeChat users.

But WeChat has since announced its intention to focus on the Chinese tourist as a matter of business strategy. So aside from its presence in Malaysia, WeChat Pay is not likely to have much impact on other Southeast Asian markets.

On the other hand, Alipay still has no plans for local currency Alipay services in the region, but is working with merchants supplying services to Chinese tourists and forming joint ventures with local partners for e-wallets using their brands. This is because Alipay has found that local currency-supported solutions “take more time and resources to develop”, aside from problems in obtaining government approval to handle local currency transactions.

Given these limitations of Alipay and WeChat Pay, it is still too early to tell what implications China’s mobile payment apps will have on the Southeast Asia market beyond catering to Chinese tourists. Of course, with Alipay’s ambitions to grow its acquisition of local payment providers in the region, the dominance of China’s mobile payment apps will likely be exerted and felt in various ways. It could potentially influence what will become the predominant technological infrastructure for e-payments, as well as the related data privacy regimes. Alternatively, it may result in the consolidation of e-payments in the region comprising the Chinese payment service providers on the one hand, and a fragmented field of local ones on the other.

As competition intensifies, the mobile payment ecosystem will continue to develop and change.

This article was first published in IS Chartered Accountant on June 2019. You can read the original version here.

Loke Hoe Yeong was Manager, Insights & Publications, ISCA. He has since left the Institute.