Can someone replicate the success of Wechat Pay or Alipay?

Our Chinese entrepreneur friends believe that the low penetration of banking services in South East Asia presents a huge opportunity for mobile payment.

On visits to the region, they ask us, since Alipay and Wechat Pay have gained huge success in China, can they replicate the same strategy in Southeast Asia?

Well, to put things into perspective, we tell them that, actually, there are already many players in this market, trying to achieve this noble goal.  

There is ..HelloPay (of Lazada), AirPay (of SEA, previously known as Garena), GrabPay (of Grab), GoPay (of Go-Jek in Indonesia), Dash (of Singtel in Singapore), MolPay in Malaysia, Ascend Money (of CT Group in Thailand), and the list goes on.. There are so many products, yet none of them can confidently say they are successful. So we remind our friends from the North: “SEA is not another China”.

Yep, you can’t simply draw a timeline and say that Southeast Asia is China 10 years ago. Knowing the difference between the two is the first key factor of success.

The evolution of mobile payment in China

Alipay came about when Alibaba found itself in the middle of a historical opportunity:

(i) Surge in export business without a mechanism to establish trust between buyers and sellers; and

(ii) Banks not wanting to offer escrow services for these “small” businesses.

This led to Alibaba creating an effective escrow service, and Alipay was born.

And then Taobao started, with buyers and sellers needing to establish trust, and make payments. Alipay was at the right place, right time

This was similar to how eBay acquired Paypal initially (long before Paypal lost its competitive streak, but that’s another long story).

The successes of Alipay and Wechat are credited to the particular circumstances

WeChat payment is riding on WeChat – the most successful social app in China with close to 900 million active users, including grandpas and grandmas. Tencent, the owner of WeChat, propelled the success of its payment service through two marketing masterstrokes:

  1. Red packets – a gamified trick leveraging the habit of the Chinese to send money as gifts. It does not cost Tencent anything (the money exchanged came from the users) but acquired hundreds of millions of users (you need to have an account to send, or receive the red packets).
  2. Didi investment – Tencent showered the ride-hailing apps users with millions of dollars of subsidy and vouchers, if they use WeChat to make payment.

The importance of use cases

Across Southeast Asia, at present, there is no dominating e-commerce platform or uniform chat tools that are prevalent enough to replicate the success of Alipay or WeChat in payment. Maybe Line is the only possible contender in Thailand, but again it is far from universal compared to WeChat in China.

Many payment companies in the region are naively placing their hope on technology. Countless times we see companies presenting their payment solutions, emphasizing how great the technology is compared to their peers.

This is missing the point. Distribution channel and the trust that goes along with it, are the biggest factor that needs to be cracked by any non-incumbent. Or in other words, how do you get your solution to the masses, and why would they use it?

I attended a seminar on e-wallet several months ago in Singapore, where the speaker, a pundit in digital wallets and payment systems, gave a rosy picture about the great on digital wallets. Well, until I asked him a simple question: “ why would people use an e-wallet?” He froze immediately, and after a few seconds admitted that he had never thought about this question.

In my opinion, before launching a new payment solution, any company should ask themselves, “Why would people use this? What is the current payment solution for both payee and payer? What is the pain point of users are you going to solve? Is the paint point painful enough?”

Yes you need a reason, a use case.

Similarly to WeChat and Alipay, Square also rose with a strong use case: in the US credit cards are popular, but it is expensive for smaller merchants to install credit card terminals.

Also, Stripe rose when many internet businesses demand payment processing facilities but the existing methods were too cumbersome to set up quickly.

When you do not have a (strong) use case

Of course, if your use case is not strong enough that people will naturally fall for the solution, you still have a weapon: subsidies, to cultivate consumer habits.

However, this can be a very expensive game to play. And there are many ways this can go wrong.

First is the user experience. Singapore’s SingTel must have spent tens of millions on advertising & promotions for its Dash digital wallet. However, or at least its first version being promoted, had a fatal problem: its user experience. Users had to go through very complicated steps to redeem the small discount offered. Many just gave up, bringing the merchants along with them.

It’s complicated for users to redeem the 5% cashback

Second is the false sense of growth. We have seen that with a few prominent companies with subsidy-fueled user growth. The team was happy, the investors were happy – until they tried to sustain that growth with profitability aims. The peril is, when the numbers are growing, it is very easy to fall into a false sense of optimism, until it is too late to change course.

So what is the use case for Southeast Asia

Mobile internet is still young in Southeast Asia, and a lot of things could evolve beyond what we have expected: maybe the fuel Alibaba put into Tokopedia will boost Indonesia’s e-commerce in leaps and bounces by year end; maybe Go-jek and Grab will merge in six months.

In a way, it is difficult to predict which use cases will be best suited for mobile payment in Southeast Asia. In the 2nd part of this article, we will analyze what the strongest contenders look like.

After all, although you did a lot of analysis, met a lot of entrepreneurs, you need to go and have a look at the scene. The shopping mall in Bangkok, the street corner of Djakarta, the gas station in Kuala Lumpur, the fried chicken restaurant in Manila, go to these places to observe carefully how is the local people’s payment habits.

At least every time when we go deep into the different markets, we can always refresh our understanding of payment.

[This analysis was originally published by Momentum Works in Chinese; translation into English by Brenda Singh]

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].