Alipay will soon start charging users 0.1 percent surcharge for transferring money from Alipay account to personal bank account. But Alipay is not the first to do so. WeChat Pay has already started charging users since March 2016. While Alipay can afford to not charge users transaction fee, WeChat Pay has to. Why is this so?
On 12th September, Alipay announced that it would start charging fees for transfers from Alipay account to personal bank account from 12th October onwards. The rate is 0.1 percent, the same as WeChat Pay. However, there will not be a surcharge for transaction lower than ¥20,000 (US $2,998.0) and the corresponding figure for WeChat Pay is ¥1000 (US $149.9). Points in Alipay can be used to redeem free cash withdrawal limit. Since consumers’ habit has already been established, the surcharge will not result in a loss of users. Alipay is encouraging consumers to leave the money in the Alipay accounts and spend more through Alipay. In comparison, the income from charging fee is more important for WeChat Pay because its profit model is not as mature as Alipay’s. Therefore, WeChat has a stronger need to reduce cost.
WeChat Pay does not have a closed loop in payment ecosystem
Alipay has approximately 300 million active users. On the other hand, while there are 800 million active users on WeChat, only 300 million people have added their bank cards on WeChat Pay. Although WeChat Pay managed to lure users during the Red Envelope War in 2014, it remains only as a payment service when Alipay has already developed an ecosystem from payment.
WeChat Pay relies too much on the social app
WeChat Pay can be more convenient and user-friendly than Alipay at times. Suppose users are on WeChat for leisure purposes, they would not want to close the app and open Alipay just to buy things like drinks. But at the same time, WeChat Pay will lose a decisive advantage if it is independent of WeChat. Independent WeChat Pay might be in a weak position if it is confronted by Alipay, a payment service that has more functions and independent of Taobao.
Established in 2014, the parent company of Alipay, Ant Financial, offers payment-base services including wealth managements (Ant fortunate), digital bank (MYBank), credit system (Zhima credit) and cloud computing service (Ant Financial Cloud). It is a complete financial services industry chain with the coordination of all the sectors.
Tencent is more of a funder, not a creator
WeChat Pay has a channel for selling of other companies’ portfolios while Alipay has decided to make their own in 2013. Tencent holds 30.0 percent of WeBank’s share and has also invested in Zhong’an Insurance, the first Internet insurance company in China. But these two Internet financial companies are not related to WeChat Pay. It is clear that Tencent does not want to risk entering a new field. This also means that they are unable to become a financial ecosystem. To ease data accumulation, Alipay develops a credit system and a cloud computing service while WeChat focuses on accurately-targeted advertisements in Movements.
Tencent does not make full use of this payment tool
While profit from online gaming makes up a huge part of Tencent’s overall profit, Alibaba derives most of its profit from e-commerce. That is to say, payment and relative services are much more important to Alibaba. Tencent started WeChat Pay as a response to Alipay and the trend of mobile payments. It was joining the market to get a share of the pie. But in recent years, there is a clear trend of WeChat repeatedly imitating Alipay in areas such as online wealth management products, red pocket, payment code, card repay and provision of access to other apps. However, due to their different nature, Tencent devotes much lesser attention to the layout of finance as compared to Alipay. WeChat is always a social app while WeChat Pay, besides being the second largest mobile payment service in China, serves as the technological support of red envelope between friends. At the end of the day, WeChat Pay is nothing more than a toy and a payment tool.