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Why Mobile Payments Have Dethroned Cash as King in China

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Mobile payments are the norm in China

Cash is no longer king in China (MCHI), as transactions are increasingly being made through mobile-payment platforms like Tencent’s (TCEHY) WeChat and Alibaba’s (BABA) Alipay.

According to Forrester Research, $112.0 billion in transactions in the US were made through mobile payments in 2016. According to iResearch, China saw a whopping $9.0 trillion in mobile payments in 2016. As the chart below shows, mobile payments in China have surged since 2012.

Alibaba’s mobile payment service leapfrogged US-based PayPal (PYPL) as the largest mobile-payment platform several years ago.

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How Alibaba and Tencent profit from their platforms

Companies like Alibaba earn a small percentage of these mobile transactions, and they also garner invaluable customer data. Reduced regulations in its financial system may have caused China to beat countries such as the US in mobile payments. The People’s Bank of China may require nonbank financial firms to have a more transparent view of payments through mobile platforms later this year.

Alibaba and Tencent are beginning to make their digital wallets accessible elsewhere in Asia, particularly in Hong Kong and Singapore. Alibaba has also backed several Asian companies, including India’s PayTM, which also has a mobile transfer feature. Tencent has invested in India-based messaging app Hike Messenger, which also has a payments feature.

Alibaba and Tencent each saw their stock prices rise more than 100% in 2017.

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