BEIJING: The year was 2014, and cash still reigned supreme in China. Even while mobile payments were making their presence felt, they were mainly confined to online purchases, and it was not unheard of for people to pay in huge sums of cash for a car or house.
At Internet giant Tencent Holdings, the maker of mobile messaging app WeChat, the makings of a social and economic phenomenon were taking shape. It was a tradition that on the first working day of every new year, staff would get a hongbao or red packet from their bosses.
For years, this had meant hongbao queues in its offices. Then a thought came to mind: Why not dispense with the queues and give every employee their money gift electronically instead?
The idea was tested. It turned out to be a hit.
So when the digital wallet service that had been created and incorporated into WeChat in 2013 was not quite taking off, the next thought was: What if the hongbao service was extended to WeChat’s (back then) 400 million users, allowing them to send each other digital red packets?
The idea was launched with a bang during China Central Television’s heavily-watched 2014 Spring Festival Gala, with people given a chance to win a total of US$80 million in red packets. It was a resounding success: Within a month, WeChat Pay’s user base expanded from 30 million to 100 million.
The company didn’t stop there. It created a hongbao game, in which users decided how much money to give in each packet for members of their chat groups to “grab”.
WeChat Pay senior director (operations) Lilian Huang told the Channel NewsAsia programme Why It Matters: “It made giving red packets a kind of game; entertainment instead of being all about money … That makes it fun. That’s how it got popular.”
The rest is history. (Watch the episode here.)
FROM KTV BOOKINGS TO SHOE REPAIRS
These days, a plush red hongbao cushion in the merchandise store at WeChat’s Guangzhou headquarters is a symbol of the WeChat success story that has essentially revolutionised the way China’s consumers pay, shop and look for services – not just online but also in everyday aspects of the physical world.
With the app, they can shop for anything from groceries to shoe repairs; and make a range of bookings, such as for a cab, a dental or medical appointment as well as a karaoke room.
Restaurant diners can scan a QR code on the tables to open the menu on their phones, order and pay. Even buskers can use WeChat’s QR code to get tips.
The ubiquity of QR codes and mobile payments, including at newspaper stands, means a digital native like undergraduate Chris Leung, 22, no longer carries cash.
“You can buy items of any value in China (using WeChat Pay),” said Mr Leung, who has spent as little as 0.5 yuan (10 cents) on a lighter, while also using the app to pay for his medical check-up bills.
It’s hard to imagine that a mere three years ago, eight in 10 mobile payments in China were made on Alipay, the country’s other e-payment giant. And at the time, the Chinese used its platform mostly to buy products online.
Today, four in 10 mobile payments are made using WeChat Pay. The dominance Alipay took 10 years to build has been eroded to half of the market.
RIPE FOR A REVOLUTION
More significantly, the majority of consumers in major Chinese cities use a smartphone now to buy just about everything, which amounted to S$7.5 trillion last year – more than the gross domestic product of Japan, the world’s third-largest economy.
WeChat’s success story, however, was not the only key to China’s cashless revolution. The country has benefited from a proliferation of cheap smartphones in general, and the smartphone penetration rate has risen rapidly since 2012.
Amid these trends, one factor had not changed, pointed out financial technology academic Ouyang Liangyi from Peking University’s HSBC Business School: Traditional financial institutions were not providing enough services, hence the need for mobile payments.
“For example, we don’t have so many credit cards and point-of-sale (terminals). So it made our everyday life very tough for payment of small amounts,” he said. Going cashless became a solution, including to the problem of counterfeit notes.
“It’s very convenient. So once people have adapted, they’re addicted. We don’t want to recall the years without mobile payments,” he added.
WATCH: What you can buy with your phone (3:43)
OVER A MILLION MERCHANTS
Getting consumers on board, however, was only half the battle. Merchants, such as owners of convenience stores and supermarkets, had their doubts at the beginning. Ms Huang shared how WeChat Pay answered their questions.
“In a cash transaction … you sell me your goods, I’ll pay you, and you keep the money, I keep the goods, right?” she said.
“However … do you know why I bought your product? You don’t. Do you know when will be the next time I visit you again? You don’t. All you have is the money you’ve received.
“With mobile payments, users and merchants can build a relationship … by allowing merchants to send messages to users. Through the (WeChat) in-app transaction history, merchants will be able to know who their customers are and when their customers might visit.
“For example, I‘m running a promotion. I can request permission to message you. If both agree, I’ll be able to send messages with discount coupons to you in future.”
What was a spiel then has since become a reality. After WeChat Pay developed a series of payment solutions for different industries to facilitate a better transaction experience, merchants saw its usefulness, she said.
More than a million merchants in China have now signed up with WeChat Pay.
In Guangzhou, marketing manager Bally Cai said that doing so cost his restaurant Three Hot Peppers no more than what credit card companies would have charged.
Productivity, on the other hand, increased by an estimated 30 per cent after customers could use WeChat’s QR code to order and pay.
“(We’ll) prepare the food according to how customers want it. In this entire process, my staff don’t need to be equipped with or learn additional skills to operate this system. The order slip will be automatically printed,” he said.
A MINE OF CUSTOMER DATA
The more services WeChat provides, the more often users are on the app, which is currently more than 10 times a day on average. Nine in 10 users in China’s first-tier cities make payments with it now.
And access to that user base as it approaches the one-billion mark is invaluable to merchants.
With the data WeChat has on where its users spend their money and what they buy, it can profile them and assess their income and annual consumption.
The possibilities include credit ratings for users based on their WeChat payments, said Associate Professor Ouyang. “You could borrow money with no collateral, with no other procedures. Just press your app, you could get your loan.”
The main commercial benefits from such data-mining, however, lie in cross-marketing. While it is illegal for WeChat to sell data, the company can find customers for advertisers. Assoc Prof Ouyang himself has used this service.
“I want to target potential students who are willing to pay more than 600,000 yuan in tuition fees to our most expensive programme,” he said.
“(WeChat) knows who they are … And if they find that they’re interested to attend this programme, they’ll click on our (targeted) advertisements.”
Privacy, he noted, is the price for convenience. So if other countries do not adopt these mobile payment methods, they “don’t lose anything”, and people “feel comfortable”.
But he added: “Compared with the United States, China’s business develops much faster. You can see the GDP growth.”
Read Part 2: Can Singapore replicate China’s success in going cashless? Watch the season premiere episode of Why It Matters here.