The BAT of China – Baidu, Alibaba and Tencent - shaped China's first wave of digital transformation. Covid-19 has further catalysed the growth in digital payments in China.
Due to the zero-Covid policy, digitalisation has reached new heights post-2022. Digital payments have surged in China due to digital transformation in many industries, such as digital health and digital entertainment and is expected to grow at an average annual rate of 16.3% from 2022 to 2027, the forefront of the world digital payment market.
While many countries are still struggling to promote mobile payments, China has built a cashless society, leading in user numbers and penetration rates.
More than half of the Chinese population deploys mobile payments each quarter, with Alipay and WeChat Pay as the dominant providers.
The total mobile connections through 5G are expected to reach 88% in China by 2030. Likewise, China's digital economy has grown to 45.5 trillion yuan in 2021.
Way back in 2018, China pushed for its digital identity cards, and at least 15 major cities in China have accepted digital IDs since 2022, with plans to introduce digital ID cards nationwide.
AliPay and WeChat Pay can be called super apps covering many functions, from eGovernment and eCommerce to eEntertainment and are key components in building a coherent digital payment ecosystem.
Locally, Malaysia's digital payment is also growing, and customers have shown their preference for "on-the-go" mobile banking for payment, partly driven by the wave of digitisation due to the Covid-19 pandemic.
While QR payments increased by 13% in 2022, the PayNet Digital Payment 2022 study reveals that cash is still the critical payment mode.
Some 78% of Malaysians still favour cash payment, even though cash usage has decreased since the pandemic. Based on Fintech News Malaysia, the country has about 53 ewallet providers, and the competition is stiff.
Though the enhancement of mobile payment systems has been increased over the years, especially through integrating near-field communications (NFC) technology, the country still lacks mobile payments covering more sizeable functions and digital identity (ID) that can reduce fraud and security risk.
The presence of international players in mobile payments is also small. Ant International's AliPay from China maintains a relatively small pool of subscribers in Malaysia.
More than two-third of China's population uses WeChat. In addition to audio messaging, video calls, as well as sharing of media, this smartphone application can be used for many different types of transactions such as paying utility bills, buying food or groceries, ordering taxis and in-App purchases in mini-games.
Furthermore, functions of the app have expanded to include booking medical appointments, visa applications and many more.
Similarly, AliPay is also a mobile payment app that has multiple features. It covers online utility payments, ticket services, food delivery services, bike-sharing services, money transfers, reward-based green projects and small loans.
Both AliPay and WeChat Pay also enabled transactions in China's sovereign digital currency (e-CNY) in 2022.
Both apps act as a one-stop solution and lifestyle enabler that has become indispensable for people.
Malaysia-China collaboration
AliPay entered the Malaysian market when the AliPay-Malaysia company was set up in 2017. It was the first foreign fintech company to be set up in Malaysia in partnership with Maybank, Public Bank and CIMB Bank.
In 2019, Malaysian tourists could use AliPay in China without a local bank account. China is a cashless society, and with such features, AliPay provides seamless payment facilities to Malaysian tourists.
The latest collaboration between AliPay and Touch'nGo ewallet is the Malaysia-China cross-border payment system through AliPay+, which allows Malaysian users to make cashless payments in Ringgit when travelling in Mainland China.
Malaysia was also the first country selected by Tencent, the operator of WeChat Pay to expand its foreign market in 2019, and it engaged Hong Leong Bank as the merchant acquirer for WeChat Pay services back then.
These two Chinese-based companies have entered the Malaysian digital wallet market, and since then, the market has an increasing number of newcomers, such as CIMB QRPay and ShopeePay in 2020 and Sunway Pay in 2021.
Malaysia has flourishing ewallet providers, and based on an Oppotus survey in the 4th quarter of 2022, the top three leading digital wallets in Malaysia were Touch'nGo, Maybank2u and Grab Pay.
Ewallet usage has also expanded from grocery shopping to food and beverage, e-commerce purchases and transportation services.
However, compared to the extent that ewallets are used as a lifestyle enabler in China, the offerings and services offered by Malaysian ewallet providers are still unable to provide an integrated experience to users.
What makes China the leader in the digital payment market? What is next for Malaysia?
China has a high mobile phone penetration rate of 68.4% as of 2022, and it ranks first in the world in terms of smartphone users.
Apart from that, it also has high bank account ownership. These lay the foundation for speedy growth in digital payment in China. As the second-largest economy in the world, China has a relatively rich experience in building an inclusive financial system and easy onboarding for users to digital payment platforms.
All these ease access to the digital payment ecosystem with a variety of value-added services offered to customers and merchants. With the rapid 5G development, the conductive ecosystem has promoted China to lead digital payment globally.
Looking at Malaysia, it has a widespread mobile phone penetration, but its ewallet market is crowded with providers with little differentiation.
The user experience can be enhanced by providing more functions and payment methods. For example, direct carrier billing (DCB) payment mechanisms could be incorporated with ewallets.
An integrated digital identity and authentication process is also needed to ensure security and the best user experience in promoting digitisation. A digital identity is required to ensure efficient fraud detection and faster dispute resolution capabilities.
Having super apps in the country could be a challenging journey, but all-encompassing ewallets should be the future of digital payment to advance financial inclusion.
Dr Chong Lee Lee is the Associate Professor at the Asia-Pacific University of Technology and Innovation. The views expressed here are entirely the writer's own.
The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT), in conjunction with the 10-year anniversary of the Belt and Road Initiative.
