Mobile payment has become a phenomenon for these last few years in the industry. More and more consumers are inclined to use mobile payment rather than conventional methods like cash and credit cards especially with the growth of app developers that are constantly finding ways to innovate the way consumers pay. For instance, Paypal, that was established in 1999 was the pioneer in mobile payment. Since then, more mobile payment services have come to light such as Apple Pay, Amazon Payments and Google Wallet leading to significant growth in global mobile payment volume. This significant growth is contributed by the second largest economy in the world, China as it accounts for US$5 trillion worth of transactions made using mobile payment solely in 2016. Quoting Evelyn Chen from CNBC in her article, “Rather than, "Do you take credit cards?" the question was often "Do you take Alipay? WeChat Pay?" The running joke was that street beggars would rather take a mobile donation than cash.” indicates how the Chinese have totally adapted to using mobile payments in their daily transactions.
The evolution of mobile payment in China is contributed by the two apps, AliPay and WeChat Pay. AliPay is a subsidiary of AliBaba Group, a China’s multinational e-commerce company, which also owns TaoBao and TMall, the largest and most popular market retail place in the world. AliPay accounted for 54% of China’s $5.5 trillion worth of transactions made in mobile payments in 2016. However, its market share has dropped from 71% in 2015 to 54% in 2016 due to its new competitor, TenCent’s WeChat Pay. WeChat Pay is a function of the China’s biggest messaging app with 889 million monthly active users, WeChat, which is given the nickname “Super App” due to its various functionalities. WeChat Pay was first established in 2014, during Chinese New Year. It took advantage of the festive season by introducing an innovative way of giving Angpow, a tradition in China of exchanging packets money between friends and families resulting in massive popularity among the Chinese.
The success of implementation of mobile payments in China is contributed by various factors, especially in aspects of technology, social and demography. One of the main factors in the popularity of mobile payments in China compared to other countries is because of the size of its demography. As a matter of fact, China is the most populated country in the world, with a population of 1.379 billion as of 2016. This directly contributes to the number of their internet users as which makes up one fifth of internet users of the world. E-Commerce is no stranger to the Chinese society. China’s population of 1.4 billion citizens plays a huge part in their mobile payment success. China’s mobile payment market is the largest in the world in terms of absolute size and growth potential. A survey shows (PwC China, 2015) on a weekly basis, 52% of Chinese consumers shop by using their smartphones. It has more than 300 million consumers shopping online, making the demand for cashless payments even higher. In terms of absolute growth, it may be difficult for other countries to outnumber China’s as its population is unlike any other. Therefore, businesses find it very worthwhile to invest in the technology as the demand and market size is big. Besides, the government of China has also implemented the Beijing Internet Plus Strategy – a strategy where it plans to integrate mobile Internet, cloud computing big data, and the Internet of Things with modern manufacturing, to encourage the healthy development of e-commerce, industrial networks, and Internet banking, and to get Internet-based companies to increase their presence in the international market. With this strategy, Internet is therefore made accessible to all parts of China, allowing the business to make use of mobile payment platforms. Besides, Internet is also relatively cheaper in China, where you can get a connection at 30MBps for less than 60 yuan per month (RM37.25). In Malaysia, for example, a connection of 30MBps will usually cost you RM139 per month which makes it very costly for small enterprises.
Other than that, mobile internet and smartphones have become ubiquitous in china. Last year, Chinese internet users totaled 752.65 million which is more than 90% of the country’s total internet users. Improved digital platforms make it easier for Chinese retailers to provide a convenient and user friendly e-commerce service to its customers . From buying groceries to paying for metro commute tickets, mobile payment has become the norm of chinese retailers and citizens. This growth would not be possible without the significant investment in logistics. Some are Apple Pay, AliPay, Wechat Pay and Baidu wallet . As these are becoming more and more popular, traditional network payment are starting to participate in mobile payment to avoid dipinter mediation. For example, Mastercard has introduced master pay while Visa introduced checkout. Another traditional network payment making a change is Union Pay, which allows users to make payments by waving their smartphone at Union Pay POS terminals using Near Field Communication (NFC) technology. Merchants regard mobile payment as a simple transaction utility Mobile internet subscription has increased to 92% in 10 years, according to World Bank. With mobile payment, China has also successfully replaced the traditional red packets with virtual red packets, a common way of gifting money.
The other thing about China is that its merchants are willing to accept mobile payment technologies and the wide availability of third-party mobile payment. Mobile payments are no doubt an extremely useful tool for retailers. In 2016, Alibaba Group invested in mainland rural areas with the aim to bring e-commerce to undeveloped villages. It has an ongoing plan of investing 10 billion yuan in rural e-commerce. It has been noted that consumer demand in rural areas are at high levels. The group expects online sales to reach hundreds of billion of yuan in a couple of years. Alibaba’s next plan for rural areas is to create an ecosystem by linking up its financial service, Ant Financial and logistic services, Cainiao Network. Although Cainiao is experiencing a loss at the moment, the head of its rural logistics is expecting profits in the future. A rise in mobile subscription and chinese consumer spending is important to achieve an increase in usage of mobile payments. Majority of merchants are willing to accept mobile payment because it is seen as a mean of increasing sales, storing data and enhancing customer management. In 2015, PWC conducted a survey and found four key areas that brick and mortar stores need to focus on in order to utilise mobile payments for customers. The four key areas are improving customer engagement and loyalty, developing better understanding of customer data, integrating data amongst channels effectively and the most important is ensuring high levels of security.
Based on the factors stated above, one way that businesses can leverage is by placing the technology in all of their stores instead of focusing on the ones in the major cities and with high traffic. For example, in Malaysia, most small retailers, especially the ones in the countryside do not accept this mode of payment due to lack of education and exposure. Even the medium-sized retailers at major malls set a minimum amount for mobile payments. This is in fact very encouraging for the consumers since not a lot of retailers accept mobile payments resulting in them sticking to the conventional method. Therefore, it is the company responsibility to educate and expose their staffs to this technology in order to accommodate the consumers. They can also abolish the minimum amount and in fact, offer them discounts and benefits, for example, loyalty points and cashback.
The problem with other countries when it comes to ubiquity is that they lack it compared to China. As a consumer, they want to feel connected and expect a high variety of services with flexibility. International companies should learn from Chinese companies such as Alibaba and Tencent. These companies are making mobile payment as a need instead of an option to the consumers. Stores can slowly start incorporating this feature by collaborating with their countries dominant third-party payment service provider. For example, Samsung from South Korea worked together with VISA from the states to come up with Samsung Pay, a mobile payment application. The mobile payment companies from other countries can also increase ubiquity by ensuring the service is available at all times. A mobile payment service with many breakdowns can cause customers to revert back to cash payments. By increasing value in customer experience with mobile payments, mobile payment service can end up being common.
However, it is inevitable that the advancement of technology in making payments possess more complicated risks. These risks could deter businesses from utilizing mobile payment at its full potential and would result in businesses having less competitive advantages compared to other competitors who adopt such technology. Therefore, such risks should be identified based on the nature of mobile payment itself. It is well known that financial systems in many countries are regulated for various reasons, and mobile payment is no exception. For example, any business accepting mobile payment as part of its payment method in Malaysia needs to adhere to existing Anti Money Laundering and Anti-Terrorism Financing Act 2001 as mobile payment poses the risk of money laundering in providing transacting parties an easy way to transfer financial value. Therefore, compliance has become one of the companies’ concerns as non-compliance would cost them penalties and reputation of the companies to be tarnished. These extra costs imposed to companies must be weighed against the benefits of adopting mobile payment.
Security risk remains one of the biggest risks not only to consumers, but also to businesses. Although generally mobile payment has been secure, thanks to biometrics and tokenization, it has been found that almost half of it is actually not secure at all. Based on a global survey conducted by ISACA, out of 900 cybersecurity experts, 47% of them claimed that mobile payments are not secure. In addition, an overwhelming 87% predicted an increase in mobile payment data breaches over the next year. How would a system, which most of the time flaunts their advantage of having better security, actually contradict themselves? This risk comes in many forms; first being the most common which is human error. Some of the concerns are regarding disgruntled employee, an uninformed family member or an employee who has had his or her personal device hacked. Other than that, phishing attacks are also a common security risk of mobile payment. Phishing scams, which are scams where an email or website attempts to steal information, have been around for years. And, they’re probably not going away anytime soon. As previously written, phishing is still an effective attack because of human error. Even if you were were using software that blocked phishing emails, a legitimate email could still pass through and ultimately breaches the mobile payment system. These risks would definitely give a big impact towards the business.
Transactions involved using mobile payment would also require a lot of private information from users such as personal information as well as credit card details. Companies are obliged to store personal information in accordance with Data Protection Act. Such act protects personal data of data subject (customers) from being misused and abused by the data user or any third party. Any compromise of personal data would not only affect the data subject but also the data user. It would cost companies not only number of customers lost but reputation to be damaged as well if such information are compromised. For big companies, financial losses may be recovered within months but any damaged reputation could take years to gain and develop customers’ trust once again. Therefore the cost of compliance in terms of tight personal data security to promote safe digital environment is vital for the company.
As a conclusion, businesses should adapt to the current technology as the industry is getting more and more competitive in the coming future. Especially with the growth of China as the super economic power, their strategy is proven to be very effective and should be followed by other countries. Therefore, the government plays a vital role in promoting this method of payment and should go hand in hand with businesses. Apart from that, businesses would not be left behind when they adopt the mobile payment system. With the rapid rise of mobile payments around the world, China’s success alone should be enough to inspire other businesses to realise how mobile payment is the future of commerce. In Europe and the United States, mobile payment apps like Apple Pay and Samsung Pay is widely used across the continent. Here’s a fact; while some might believe that most underdeveloped countries would not use mobile payment, according to PYMNTS, Africa as a continent has a high usage of mobile payment, as the lack of infrastructure makes it especially suited for mobile payments. Thus, it is clear that businesses need to catch up with the growth of mobile payment around the world, as it’s only going to get better year by year.