Visitors to China will be aware of the ubiquitous use of phones to make payments for goods and services. Even the more enterprising beggars ply their trade with scannable QR codes, one side of the code being compatible with AliPay and the other with WeChat pay.
We recently had 18-year-old Gabriel Taylor on our work experience program. Having spent his early youth in Scotland, he spent the past six years studying in China. Gabriel provided us with some insight from his daily use of AliPay, WeChat and several other apps that have become essential to the smooth running of daily life in China.
The urban Chinese have embraced food delivery, particularly at lunchtime during school hours and especially in the larger cities. While this behaviour is evident in Europe and the US, the marketplace is fragmented whereas in China there is a duopoly where both players are integrated with the payment systems: Alibaba owned Ele.me and Tencent backed Meituan control over 50% and 40% of the food delivery market respectively.
Despite the rise in ordering food at home, dining out with friends remains popular. Waiter service is still the preferred approach for most restaurants, but it is common to see QR codes on your table. Scan the QR code with either the WeChat or Alipay app and your phone will bring up a menu from which you browse and order your food. Once you are finished, the payment is taken straight from your phone. The inclusion of a bill splitting feature enables friends to pay their share seamlessly within both apps.
Fancy seeing a movie after the meal? Both payment apps will allow you to do this. Booking and paying for tickets straight from the app takes less than a minute to complete. Once your film is finished, both payment services make it easy for friends to pay you back, WeChat even allows you to do this within your group chats or private messages.
Phone payments have also simplified use of the extensive public transport networks, particularly in the larger cities where bike sharing has also become a feature. The industry has consolidated after the initial enthusiasm resulted in piles of unwanted and damaged bikes creating obstacles for pedestrians. To hire a bike, you simply scan the QR code on the back and you are ready to go. When you finish the journey, you are automatically charged through your phone.
A trip home is easier with a taxi and can be done through the Didi app, the company responsible for 10 billion trips in 2018 and China’s leader in ride hailing. Didi is backed by both Alibaba and Tencent and acquired China’s Uber operations in 2016, following several years of competition and losses between the two. Before the IPO of Uber this year, a public filing revealed that Uber retains a 15% position in Didi.
Regular followers of Aubrey’s comments in China will be familiar with our expectations that tourism is a growth industry, with less than 10% of the population holding a passport. With a reputation for spending more than any other country’s tourists, the international retail industry has begun to embrace Chinese phone payments with department stores such as Harrods and Neiman Marcus now accepting both AliPay and Wepay.
While many of the app functions offered by the Chinese giants are available in other countries, it is their integration with payment systems such as Ant Financial (owned by Alibaba) that makes China’s marketplace sleeker and more streamlined than the mélange of options available to Western consumers.
The trend has been captured in a recent report from PwC which forecasts that over 85% of the Chinese population will use phone payments in 2019, greatly outstripping a global average of 34% and demonstrating the advanced status of the Chinese industry. The consumer’s relationship with his/her phone has changed daily behaviour and we expect further investment opportunity with 8 of the top 10 largest phone payments markets residing in the wider Asian region.
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Source: Aubrey Capital Management Ltd, Bloomberg. Past performance is no guarantee of future results. Source for all data: Bloomberg, RBC and Aubrey Capital Management. Aubrey Capital Management is authorised and regulated in the UK by the Financial Conduct Authority and is registered as an Investment Adviser with the US Securities & Exchange Commission.
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