For those who missed it, Financial Horse is currently based in China. And one thing that has always mystified me about China is Alipay and WeChat Pay.
In Singapore, we are familiar with our Visa and Mastercard, and if that fails, we can always fall back to use good old fashioned cash. In China, it’s really all Alipay / WeChat Pay, and if you ask to use cash, you’re just going to get a blank stare.
Case in point, the first taxi ride I took from the airport to my accommodation, I asked to pay in cash, and after a short moment of stunned silence the taxi driver replied that he had no spare change for my notes. Compare that to where China was a mere 5 years ago, and you’ll start to appreciate how quick the development in this country has been.
Basics: What is Alipay / WeChat Pay
The easiest way to think about it as a foreigner, is that Alipay / WeChat Pay is the equivalent of Visa, Mastercard or American Express in China. Alipay / WeChat Pay sits between your bank account and the merchant you’re paying, and it processes that transaction.
It sounds deceptively simple, but it’s incredibly powerful to be the guy controlling that payment gateway.
How to use or setup Alipay / WeChat Pay as a foreigner in China?
Step 1 – Get a China Mobile Number
The first thing you’ll need to do is to get a China mobile number. This one isn’t so hard, you just pop into any telecom store (the big ones are China Mobile and China Unicom), and you ask to buy a SIM Card （手机卡）. They’ll need to verify your passport and take a photo of you for facial recognition, and it takes about 10 minutes tops.
You’ll need a China Mobile Number to open a bank account and to register for Alipay / WeChat Pay, so there’s no skipping this step.
Step 2 – Get an Onshore China Bank Account
The next and most important thing that you’ll need is a China bank account, with a China debit card (called 银行卡).
Unfortunately, because of the way China’s capital controls work, RMB is not a freely transferrable currency. So there is a difference between an onshore account created in China, and an offshore account that you may create with a China bank overseas (eg. with BOC in Singapore).
For Alipay / WeChat Pay, you’ll need an onshore account. This can only be created in China, and as a foreigner, you need to be on a student visa, a work visa, or any other kind of long term residence permit to open an account.
If you have such a residence permit/visa though, then it’s pretty straightforward. You bring all your documents (passport, visa page or visa application form, temporary residence permit) to any bank branch, and they’ll open an account for you. Note: For those who don’t speak Chinese, you can tell them you want to 开账户(open bank account) or 办银行卡 () – or you could just show them the words here ?.
You’ll also need to fill in an application form and a tax declaration status. Do be careful when signing documents though, because the banks usually want to sight your full name in your signature. I found the easiest way around this way simply to write my full name in the signature block.
They’ll also create a debit card for you, and you’ll be prompted to create a 6 digit pin. And you’re done!
The entire process is really quick and efficient once you have the right documents, about 30 minutes max.
You’ll probably also want to use a big bank to avoid any potential issues down the road. In China, these are the “Big Four”: Bank of China, ICBC, China Construction Bank, and Agricultural Bank of China.
Each bank has a slightly different process though. I found China Construction Bank (中国建设银行) to be the easiest to use, but that might just have been me.
Step 3 – Bind your China Bank Account to your Alipay / WeChat Pay
With your China debit card (银行卡), you can now use Alipay / WeChat Pay. Download the respective apps on your phone：Alipay (支付宝) or WeChat (微信) respectively.
Launch the payment function, and there’ll be a prompt to bind your debit card. Fill in your account number (the number at the back of your debit card) and the relevant details (eg. Passport number, full name etc). Note that these details must match those that you gave when opening your bank account exactly.
You’ll also need to set a 6 digit pin for security purposes..
And you’re done! You’re now ready to use Alipay / WeChat Pay.
A quick note on choosing between the two, Alipay generally has an easier verification process. So if you’re pressed for time, and don’t want to provide too much verification, stick with Alipay.
WeChat on the other hand, has a wallet function that allows you to top up money into the wallet, so you don’t need to draw from your bank account each time. This could be good if you want to budget (eg. You top up a fixed amount to your WeChat Wallet each week, and you only spend that amount).
WeChat is also helpful because of its social function, where you can send and receive red packets to other users on WeChat. WeChat is basically the WhatsApp of China, so imagine being able to text your friend some money on WhatsApp. It’s everything that Facebook is trying to do with Libra Coin, only that China has already done it, while Facebook is embroiled in regulatory and institutional pushback.
Step 4 – How to use Alipay / WeChat Pay?
There are 2 ways to pay using Alipay / WeChat Pay:
- You generate a QR code for the merchant to scan (for bigger vendors) – The bigger vendors usually have a device that allows them to scan QR codes for payment (think of this like Visa PayWave). You launch the app, go to payments, and click on payments (收付款), and it will generate a QR code. You tap this on the payment device which scans your QR code and completes the payment.
- You scan someone else’s QR Code (for smaller merchants) – Smaller merchants usually don’t have the device to scan QR codes. Rather, they’ll print out a QR code on a piece of paper. So you’ll launch the scanning function on either Alipay or WeChat Pay (it’s called 扫一扫), and scan the QR code. You’ll then be prompted to enter how much you want to pay, enter your 6 digit pin, and it’s all done!
And there you have it! You’re now able to use Alipay / WeChat Pay to make payments like a local!
Business Model of ePayments
Now there are 2 main reasons why it’s incredibly powerful to control payments: (1) Customer Acquisition, and (2) Data Analytics.
Customer acquisition is everything these days. Do you think Grab makes money from selling you ride-hailing services? No they make money from getting you on their platform, and then selling you other value added services. They’re still in the customer acquisition stage now, so it’s less obvious what they’re trying to do, and they’re basically burning cash to grow the customer base by adding new services like food delivery and payments, and subsidising them. Some day down the road when funding dries up (or they IPO), they’ll need to switch to profit generating phase.
Alipay / WeChat are further down this path, so they are full on in monetisation phase. And it’s done via providing ancillary, value added services. So Alipay provides investment services, or allows you to deposit cash short term for higher interest rates. Think of Grab, with a mobile banking licence thrown in, that allows you to invest in low cost index funds, or deposit cash at an interest rate higher than DBS Multiplier. The possibilities are endless – but first you need the customer base.
The other big thing is Data Analytics. What’s the most powerful kind of information to have about a consumer? If you guessed spending habits, you’re absolutely right. Most companies would kill to have a full record of what their customers spend on, how much, and how often. And once you have such information, it’s super easy to sell them other kinds ofservices that you would like. Controlling payment data is a huge treasure trove of information, and it’s importance will only grow in the comping years.
This is also why Alipay/WeChat Pay’s business model is different from Visa/Mastercard. Visa/Mastercard make money from processing payments, so they charge a 2.5% to 3% MDR (Merchant Discount Rate), which is basically the transaction fee per payment. It’s pretty unbelievable that at this day and age where we can send an digital file around the whole in less than a second completely free, it still costs up to 3% to process payments. Even DBS PayLah charges their merchants a 2.5% to 3% MDR.
And Alipay/WeChat pay? They’re at less than half: 0.7% to 1.2%.
That’s simply because for Alipay/WeChat Pay, the payment function isn’t a core business like Visa/Mastercard. They can afford to use payments as a way to get customers onto the platform, get their spending data, and then make money from selling ancillary services.
So it’s clear that ePayments is a game changer if you can get it to work. And once you do, it requires a complete rethink of how you approach the business, from the traditional Visa/Mastercard model.
Can Singapore develop our own ePayments?
Of course the natural question then would be, can Singapore do our own version of Alipay / WeChat Pay?
A year or two back, Prime Minister Lee Hsien Loong declared that he wanted Singapore to go bigger on ePayments. And Singapore, being Singapore, went about it with a frenzy, with just about every big GLC trying to come up with their own solution. Heck even Razer wanted to launch their own payment system.
But I’m not so sure if doing ePayments for the sake of doing ePayments will be a success.
The way that great products are made, is that they are made to solve a problem.
Alipay itself was born in the early 2000s. The problem back then was that the Chinese had bank accounts, but they had no easy way to use the money in that account to make payments. They had to either use the bank card (and expose themselves to fraud and security issues), or withdraw cash (which had security issues as well, and was messy – who wants to carry change). So Alibaba built the entire Alipay network from the ground up, as a way to allow Chinese consumers to easily and safely access the cash in their bank accounts to make payments.
So for a Chinese person, moving from before Alipay / WeChat Pay to after Alipay / WeChat Pay was a massive step forward. Alipay/ WeChat Pay was 10 times better than the existing payment system, which was to use cash or your debit card.
In Singapore however, just about everyone already has a Visa or Mastercard. Just think about it, moving from Visa or Mastercard, to something like GrabPay, how much better does it make your life? Sure, it has its benefits, and there are ways to each more cashback, but it’s definitely not 10 times better than than Visa/Mastercard? More like 1.5 times better.
And if your new product is only 1.5 times better than the existing, instead of being 10 times better, it’s going to be hard to drive that kind of viral adoption you need for such a platform to be viable.
So while I absolutely get why ePayments is great, I have my doubts whether it will take off fully in Singapore.
And don’t forget that Visa/Mastercard are not going to sit around and watch their business model get disrupted by ePayments. They couldn’t compete in China because of certain regulatory and business issues, but you bet they’ll fight tooth and nail to retain market share in developed countries like Singapore.
Closing Thoughts: Mobile Banking Licence
A couple of readers have asked me for my thoughts on Mobile Banking Licences and how it will affect the likes of DBS, UOB, OCBC.
I think it’s way too early to tell.
In this business, execution is everything, and how the licence holders execute their game plan will make or break the business.
And unlike in China, where Alipay/WeChat pay had a couple of years headstart before the banks started realising what was going on, DBS, UOB and OCBC have the benefit of China as a case study. They know that if they sit around, they’re going to end up in a world where they are relegated to providing deposits and financing, while the real customer acquisition and client facing operations is performed by other players. So I expect them to continually evolve their product in response to these new threats.
And unless you’re a player with deep pockets (*cough cough* SingTel), you don’t really want to be fighting against DBS, UOB and OCBC as a startup.
If a big player with bold ideas and prepared to disrupt the status quo like an Alibaba, Tencent, Ping An etc decides to come and compete, that could be a game changer. But for now, it seems to be more of the local players like SingTel, and my gut feel is that the business model they eventually roll out will be one of incremental change, rather than a complete overhaul of the banking model.
But we’ll see.
What do you guys think? Is Alipay / Wechat Pay the best thing ever? Will Mobile Banking Licences shake up the banking industry? Share your comments below!
Looking for a comprehensive guide to investing? Check out the FH Complete Guide to Investing for Singapore investors.