China’s US$5t e-payment market accounts for 42 per cent of the world’s e-commerce transactions
Cash, alas, is no longer king as operators of mainland China’s small businesses will tell you.
In major Chinese cities, paying by paper money is all but dead thanks to the convenience of mobile payment, which has now surged to US$5 trillion in the mainland.
Ask Lin Nianbao, owner of Ruyi Restaurant that sells noodles, dumplings and rice dishes on Shanghai’s Lancun Road. Lin is now a firm supporter of the country’s rapid pace of digitalisation, where e-payment and online food delivery services have helped his business grow and thrive.
“Cash is no longer needed in running the restaurant,” he said. “It is a fast-changing business world as mobile phones begin to dominate people’s life.”
Until 2015, Ruyi used to collect cash from all its customers, but e-payments through WeChat Pay and Alipay now account for more than 70 per cent of its total transactions, or about 10,000 yuan (US$1,515) a day.
“This is a typical disruptive technology,” Lin said. “It forces us to learn how to better use the apps to develop our businesses.”
Small restaurants like Ruyi operate in a cutthroat fast-food sector, where each dish costs 10 to 20 yuan, and operators are hit with a host of other constraints such as steep rents. The restaurant is big enough for about 20 tables that can sit around 50 people at any one time. It was among the first food businesses on its street to adopt e-payment early last year.
“We thought it was worth a try when the payment service firms approached us,” Lin said. “The rapid increase in the use of mobile payment at small restaurants like ours is a surprise.”
He said e-payment service was no longer a nice-to-have option, but a necessity to attract new customers and retain regulars.
“Some people come in and ask whether we accept Alipay or WeChat,” Lin said. “Those restaurants on the street, which insisted on cash payments have lost their businesses to us.”
Digital payments had helped drive the restaurant’s revenue up by about 10 per cent, he said.
Ruyi is one of numerous mainland businesses benefiting from the digitalisation drive.
Third-party payment services by internet giants Alibaba Group, owner of the South China Morning Post, and Tencent Holdings, which offers Tenpay service via its instant messaging app WeChat, have found their way into hundreds and thousands of small-scale shops including restaurants, grocery stores and tea houses, as well as wet markets which previously shun bank cards for payment.
Third-party payment refers to the retail transactions through services outside the banking system.
By June this year, China’s third-party payment market according to consultancy Analysys International, has grown to 35.9 trillion yuan, which represents half of the country’s gross domestic product in 2016. Alipay controls a 39 per cent market share and Tenpay, a 27 per cent.
Globally, China takes a 42 per cent share of the world’s e-commerce transactions, processing 11 times more mobile payments than the United States, according to global consultancy McKinsey.
For restaurant owner Lin, there is a need to further digitalise his business.
“The apps collected a big amount of data through the payments and they know exactly who our customers are and what they want,” he said.
“I am prepared to work closely with them in future when they offer other fee-based services to help promote shops’ businesses.”
Ruyi is already a client of Koubei, an online-to-offline local services platform under Alipay, which locates merchants who are offering discounts and promotions for users.
“I am addicted to mobile apps because of their increased influence and creative ways of doing businesses,” Lin said. “It’s not just about improving business. I have a nasty feeling that we will fail if we don’t follow their models (to run businesses).”