Mobile Payment in Tencent China

Whoever wins in mobile wins the market for the next decade. This is a generally held belief by internet companies in China. With many potential fights to pick up, mobile payment has become the battleground. Tencent, one of China’s biggest internet companies, is trying aggressively to catch up with the mobile trend and shifting its business focus to mobile payment.

Founded in 1998, Tencent has been widely known as the provider of the most famous instant messenger software in China– QQ. Since 20014, it began to expand its services into online gaming, from licensing games from South Korea developers to making its own games.[1] In 2011, the company set its footprint in mobile by launching Wechat, a cross-platform instant messaging app. As of May 2016, the app has over 700 million active users and is the largest standalone messaging app in China by monthly active users. [2] Before the entry into mobile payment, Tencent has its business model as that of instant communication platform, with revenues generated mainly from advertisements and premium services on top of the platform’s free basic functions.


Mobile Payment in China

Payment in China has experienced a leap from cash to E-payment, a path different from most western countries where credit card use has been popular in between. By early 2006, credit card use was mostly confined to 5 star hotels in China’s major industrialized cities. Public transportation was still paid for in cash.[3] Largely driven by the rise of E-commerce giant Alibaba and its online escrow payment service Alipay, Chinese consumers quickly adapted to mobile payment. According to data provider Euromonitor International, In 2015, China’s mobile transactions more than doubled to $235 billion, pushing China the world’s biggest mobile-payment market. [4]


Tencent’s fight in mobile payment market

Tencent’s opportunity in mobile payment lies in its 762 million Wechat app monthly active users, who may currently use Alipay, Tencent’s key competitor in mobile payment market to do daily purchase. In 2013, Tencent launched its own mobile-payment service tenpay, attached to wechat and spent heavily and smartly to convert Chinese users to the platform. In 2015, Tencent nearly doubled its mobile payment share vs. 2014 to reach 20%, taking share directly from Alipay, whose share dropped to 68% in 2015 [5]

The benefits to win in mobile-payment market for Tencent are huge. It’s not about short-term financial gains, as currently Tencent charges no fees for setup, transaction or withdrawal between Tenpay services and only 1% transaction fee with instant payment to banks, but huge business potentials with million-level customer base and massive data in its service. One example has been to set up its own market fund and pool together customer money with a more attractive return than the interest rate from commercial banks in China. It also signed contracts with 1.1 million merchants spanning 20 industries including travel business, insurance, online shopping, logistics, clothing and education[6],  to provide services to almost every walk of people’s life, using Tenpay payment services. It even has attempted to create its own online shopping platform, in order to build an ecosystem where people can stick with Tencent’s services to meet every single demand in daily life.


What’s next

From an online instant messaging service provider to a conglomerate with subsidiaries in media, entertainment and partnerships in insurance, travel and online shopping etc. mobile-payment has enabled Tencent access to business beyond its original border. However, it also faces challenges to be further addressed in the future. One is governmental regulations. There is a big call for industry standard of mobile payment, especially in terms of data security and standard charges. Tencent needs to work closely with the government and gain involvement in standard setting in order to maintain competitive advantage in the future. Another challenge is to gain deeper penetration into China market. The use of mobile payment is predicated on the adoption of smartphones and the establishment of telecommunication infrastructure. What Tencent can do is to partner with telecommunication companies to speed up the development of these two conditions. Finally, while Tencent is considering expanding overseas, the sensitivity of payment puts up barriers for Tencent, as a foreign company, to enter into overseas market. Tencent needs to build its overseas image as well as product in order to gain differentiating attributes to enter into those markets.

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[3] China 20/20: The Future of Mobile Payment in China (Arlyss Gease & Joan Qiu, 2012)

[4] China’s Mobile Payments Industry – What’s next (Kapronasia, 2012)




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Student comments on Mobile Payment in Tencent China

  1. Hi Fangfang! Thank you so much for this post. It is very interesting to see how dynamic the tech market is in China were a giant like Alibaba can loose market share on their Alipay so drastically. I have 3 questions moving forward for Tencent that I would love to have your opinion on
    1) Do you think that the mobile payment market will consolidate in the future? (ex. either Alipay or Tenpay buy each other or a big telecom acquiring one of them?)
    2) Do you think that mobile operators will enter the market maybe offering a very secure system embedded in their systems?
    3) Were do you see the highest value option for the data they have ? I don’t know exactly how the technology works, but if you can relate transactions to clients, stores, items, and temporary metadata (ex. day and time of purchase) I believe there could be a lot of insights that can be extracted and that can be monetize just as Catalina did with their coupon business. I also see that once you have consumers and businesses contacts in all China, any business you want to start has the potential to become an instant success as your access cost to consumers is very very low. Maybe it would make sense for them not to charge for the service at and build services around the payment business.

  2. Very interesting post, Fangfang! China is such a fascinating case study of mobile enablement of financial services leapfrogging cards and the integration of payments into social/chat, something that Facebook and others are only just beginning to explore here in the US. Another area Tencent’s incredible user base (~700 million users!!) presents the opportunity to monetize is credit reporting. Because so many merchants have connected payments through TenPay, Tencent now has access to a wealth of payment behavior data between its users and these merchants, which could be analyzed to form credit scores. China currently lacks a reliable private sector credit bureau (the People’s Bank of China’s bureau has data on only 300 million Chinese[1]); using its data, Tencent has begun building credit files for its customers, and is one of eight private companies who received permission from the government to do so.[2] Unfortunately, the government currently restricts private credit bureau operators from using their own data to extend credit to their own customers,[2] but should the law be relaxed on this front, Tencent would have an opportunity to begin providing loans to its customers through WeChat or TenPay.


  3. Great article Fangfang! The subject particularly hit home for me because I’m think of working at Alipay this summer. I completely agree with you that Tencent represents Alipay’s biggest challenger in the Asia mobile payment industry. One partnership that I have been tracking closely is the partnership between WeChant and McDonald’s. McDonald’s represents a really large opportunity for WeChat, as customers can locate stores as well as order delivery. McDonald’s has 6.3 million fans (equivalent to followers) on its WeChat account. [1] Partnering with well-known company such as McDonald’s gives WeChat the brand exposure for a company not founded as a payments solution. I also believe, as you pointed out, that the massive amounts of payment data that WeChat collects from its retail partners is very valuable and should to monetized.


  4. Having seen the success of mobile payment platforms in African countries, where credit card use similarly lags more developed countries, this definitely sounds like a promising path for Tencent. With Alipay already having paved the way for consumer adoption of this channel, this is a case where it appears to have helped to be a second-mover. Further, with its captive market of WeChat users, the opportunities really seem endless for Tencent. I wonder however, how these very users feel about data privacy – not only with respect to their Tenpay transactions, but also their WeChat conversations. Could there be a concern that by ‘spying’ on their WeChat conversations, Tencent could be in a position to start pushing tailored products to increase mobile payments? How is privacy between the two platforms managed? Globally, consumers are increasing becoming wary of companies’ use of their data so while I’m all for the use of data analytics to personalise services, this is an area Tencent should proactively manage to avoid potentially bad publicity around a conflict of interest in this regard.

  5. Very interesting article, Fangfang! I had two questions about the future of tenpay.
    Regarding their shift towards profitability: After what we have seen about freemium models and Rdio during our marketing class, how do you think that tenpay si going to be affected once they start charging fees for payments to make the whole thing more profitable? Aren’t they afraid that once they do this a smaller player with deeper pockets (e.g., Alibaba) starts stealing customers away from them?
    Secondly, what does it take for a foreign tech company to break into the Chinese market? Is it that for digital products Chinese only like their own products or is it that foreigners don’t understand their needs? I am asking this because a few months ago Uber had to cut their losses in China, just as eBay and just as Paypal

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