What is WeChat payment?
WeChat payment is a payment solution completely integrated inside the social and messaging application of Tencent: WeChat. It appears in the “Wallet” section of the application.
Through the wallet section and the integrated browser of WeChat, users can perform a variety of transactions using WeChat Pay, including and not limited to:
- Transferring money to friends (especially as “red envelopes” shared during Chinese festivals)
- Performing transactions on e-commerce websites
- Topping up their mobile
- Investment in wealth management funds
- Paying for water and electricity bills
- Order and pay for a cab
- Purchase a train or flight ticket
- Book a night in a hotel
- Purchase movie tickets
- And much more…
These transactions are meant to be a future money-maker for Tencent. It is good to keep in mind that Tencent is very different from its Western competitor Facebook: while Facebook makes 95% of its revenue from advertising, the figure is only 19% for Tencent.
Tencent actually makes most of its money through value-added services. And WeChat pay will pay a central role in this service strategy.
How to apply for WeChat payment?
There are two main cases when it comes to applying for WeChat payment:
- You already have a company in mainland China
- You have a company outside China
If you don’t have a company registered anywhere, then you won’t be eligible.
Case 1: you already have a company registered in mainland China
If you already have a company registered in mainland China, you will first have to register a local WeChat Official Account (Service account – 服务号). You can do so on the official WeChat Official account page:
In order to create and verify your account, you will need the following documents and information:
- Company registration number (企业注册号)
- A scanned of your business license, with company stamp (执照扫描盖章)
- Account operator name (must be a Chinese national with a WeChat Payment account)
- Account operator’s phone number:
- Account operator’s ID number and ID type
- Official Account name (can only contain Chinese characters, numbers, letters with no space)
- Official Account short description
- WeChat Official account ID (users can use this id to search for the account, the ID can’t contain spaces)
- Last three months of telephone bill of the account operator
- Front and back photocopy of the account operator’s photo ID
- Office landline phone number
- Company banking account
- Bank name
- Bank address
When you apply, make sure to pick Service Account (服务号) as the type of account.
Once your official account is scanned and verified, you will be able to apply to WeChat payment using the menu on the left-hand side of the account.
You will then have to follow a process similar to the account creation process in order to get WeChat Payment enabled.
Tencent charges a commission of about 0.6% on transactions made through WeChat payment in China.
Case 2: you do not have a company registered in mainland China
If you do not have a registered company in mainland China, you will have to opt in for another solution in order to set up your WeChat payment account: WeChat cross-border payment.
You can handle your application for WeChat cross-border payment on TenPay’s website:
Click on the self-application menu.
There are several type of WeChat payment applications:
- App Payment is meant for Android / iOS APP wanting to include WeChat as a payment option
- WeChat Offline Payment is meant for brick-and-mortar stores wanting to add WeChat payment via QR codes
- Official Account Payment is used in order to embed WeChat payment within your mobile website (this is the most common use-case)
Note that the application requests your “Official Account APPID” which is an unique identifier for a WeChat Official Account. If you are unsure how to create an Official Account for your oversea business, feel free to reach out to us.
In terms of fees being charges, there are two main constraints set by Tencent:
- A 3% commission on all transactions
- $5,000 USD settlement amount (which means the money will be transferred to your bank account each time you reach $5,000 USD of sales
These are very similar to the terms from Alipay vs. WeChat Payment (cross-border payment). You can see a detailed comparison in the table below.
How well is WeChat payment doing?
WeChat payment, is doing, in a couple of words: pretty good.
The function has been popularized by Tencent masterful marketing coup: enabling Chinese users to exchange money via digital red envelopes, a tradition during the Chinese New Year festival. As a consequence of this strategy, as of today, the most popular use of WeChat payment is still to send red envelopes and exchange money with friends.
Compared to its competitor Alipay, WeChat Payment is however more focused on smaller transaction amounts: only about 20% of WeChat Pay transactions exceed RMB 1,000
Most importantly, WeChat payment is seeing an explosive growth: according to a report by the consulting agency McKinsey percentage of users having used the feature doubled between 2015 and Q1 2016.
The report also showed that the sources of traffic driving to e-commerce purchase via WeChat payment were diverse: more or less evenly split between traffic coming from friends, from WeChat Public Accounts, from JingDong (Tencent has a 15% stake in JD) and from other applications.
Another key factor which influences adoption of WeChat Payment is the support from online merchants. Many WeChat Official Accounts (the equivalent of Facebook Pages for Wechat) started linking their “blogs” with WeChat stores in order to generate sales from e-commerce.
The current average of WeChat accounts being linked with a WeChat store (among top accounts is around 25%). Of course these statistics vary depending on the industry. Accounts in the childcare, beauty and travel industries tend to have a higher penetration of WeChat shops (around 30%) while accounts discussing relationship-related topics have a much smaller number of e-commerce implementations.
Because WeChat e-commerce is often related with endorsement from Key Opinion Leaders (due to the social nature of the application), these WeChat store are a heavy driver for the widespread adoption of WeChat Payment.
These WeChat shops are, for the most part, created using third party SaaS platforms (such as Weidian, Youzan or WalktheChat). Such platforms are local equivalents of Shopify which enable to easily set up a store and create a link between social and e-commerce.
The number of accounts having developed their own website is comparatively small, with only 24% of them having developed their own customized WeChat shop.
Why online payment is a terrific market
First thing to understand is: payments are important. And “who will win the payment fight” might very well be a life-or-death question for Alibaba and Tencent.
To take a point of comparison: PayPal represents as of today about 44% of Ebay’s revenues. Moreover, this proportion keeps growing over time since 2002 (PayPal is now going to be taken out off eBay in 2015, but that’s another story)
The reason is simple: e-commerce markets fight for lower and lower margins. In such a commoditised market, payment is the one part of the business where margins get (less) compressed.
Compared with Alipay: Alipay’s revenues reached RMB 13.8 billion in 2013, accounting for 29% of Alibaba’s revenue. Moreover, Alipay’s margin was about 30%, higher than PayPal’s 24%.
The situation is therefore clear: payment is a major path for growth and there is still much room for expansion.
Online payments in China: a competition between Alipay and WeChat Payment
China is unique. Because China doesn’t have a monopolistic payment system such as PayPal. It has two Internet champions fighting for the market.
As of Q4 2013, Alipay owned almost 50% of the total online payment market in China, making it a clear leader. What is Tencent doing to win this fight?
Tencent tactic 1: WeChat groups
WeChat groups are a fantastic way to communicate with people and manage small communities. Up to 100 people, it is easy to create and invite people in groups.
But beyond the 100 people limit, Tencent will ask for a favor.
You won’t be able to join a group over 100 people if your bank card hasn’t been linked to your WeChat account. This is a great incentive for users to go through the rather fast process: it takes only a minute and will enable you to speak with your friends.
Tencent tactic 2 : WeChat City Services
Earlier this year, WeChat launched City Services.
The service enables to book doctor appointments, access traffic camera feeds, pay electricity bills, handle transportation bookings, monitor air quality, pay traffic fines, report incidents to police, and more… all of this via WeChat!
Ever had to struggle to the bank in the middle of the night to pay your electricity bill? It is certain that smoothing-out the edges of otherwise inconvenient procedures of daily life in China will be a strong incentive for a lot of users to start integrating WeChat payment in their daily life.
Tencent tactic 3 : Tmall – Alibaba – Alipay block
Last year, WeChat blocked all traffic toward Alipay, Tmall and Taobao, thus cutting most possibilities of “social sales” and personal recommendations of Alibaba’s online platforms via the APP.
This is a major move as transactions are getting more and more social. Social commerce is booming with a market size of 14 billion USD In the United States alone in 2015.
As mobile e-commerce keeps getting more social, it will be increasingly attractive for shop owners to ramp-up their WeChat-friendly e-commerce platform
Tencent tactic 4 : building an eco-system around WeChat payment
Alibaba relies mostly on its 2 platforms – Taobao and Tmall – in order to meet customers demands.
Tencent however has a different positioning in the eco-system: it is more prone to encourage other platforms to use its services.
We sorted in a previous post several potential WeChat-friendly e-commerce platforms, and highlighted that some of them are very sector-specific.
For instance, Lewaimai, specialises in food-delivery via WeChat.
The flourishing ecosystem around WeChat enables Tencent to leverage the power of all the companies providing off-the-shelf services for its platform, thus improving the user experience. This ecosystem (albeit existing) is much more limited for Alibaba and Alipay, and growing at a much slower rate.
Tencent tactic 5 : “Red enveloppes” promotion
It is no news, the promotion of WeChat payment during last Chinese New Year was incredibly successful: 200 million bank cards were linked, 11 billion “shakes” were recorded during Chinese New Year Eve, and RMB500 million (roughly US$83m) worth of lucky money were distributed that night.
Both for Tencent and for Alibaba, online payments will be a key source of revenue for the years to come. Online payments are however a market where monopolies tend to appear as users don’t like multiplying the number of services they use. For at least one of the players involved, getting online payments right might be a matter of life and death.