Looking to get rich quickly, two young men travelled across China last month with a plan to rob three convenience stores in the wealthy coastal city of Hangzhou.
They bought knives, masks and an electric bike and in the early hours of March 27, set off on their heist, targeting busy downtown areas.
But, unfortunately for the robbers, the cash registers were bare. Across the three stores they managed to pilfer less than 1900 yuan ($362), not even enough to pay for their train tickets home. As the frustrated pair now contemplate jail time their tale of woe has become a signpost for the rise of China's cashless economy and the rapid take-up of mobile payments.
Those registers were bare because Chinese consumers are more inclined to use their mobile phones when buying a drink at the convenience store, settling a taxi fare or splitting a restaurant bill, than they are to use cash.
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Chinaâs third-party mobile payment market by transaction volume Giants battle for control
This rapid shift in consumer behaviour has made China the largest mobile payments market in the world with transactions tripling to 38 trillion yuan ($7.2 trillion) last year, according to consulting firm iResearch.
And the country's two biggest internet companies, Alibaba and Tencent, are now battling it out for control of this giant market.
Alipay, owned by Alibaba affiliate Ant Financial, is the incumbent due to the runaway success of the group's e-commerce sites Taobao and T-Mall. However, Tencent's, WeChat Pay is gaining market share due to the popularity of its messaging and social media app, which boasts 768 million daily active users.
"Alipay is still number one but WeChat, which is just so integrated, has come from nowhere and is rising fast," says Mark Tanner, chief executive of Shanghai-based digital marketing agency China Skinny.
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A stall owner in Shanghai next to a sign showing customers can pay using AliPay or WeChat Pay by scanning a QR code on their smart phone. Angus Grigg
"From his public statements Jack Ma [the founder of Alibaba], is clearly concerned about the threat from WeChat."
The convenience of paying with just a few taps of your smart phone, strong take-up from businesses and the lumbering nature of China's state-owned banks has driven this strong shift in consumer behaviour, which is also forcing an equally large shift in how foreign companies approach China.
While it was previously a credible e-commerce strategy to set up a store on Alibaba's Taobao or T-Mall, the popularity of WeChat and the addition of shopping to its platform has changed the focus for many companies. WeChat stores take off
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Customers can pay using AliPay or WeChat Pay by scanning a QR code on their smart phone. Angus Grigg
French luxury goods retailer Christian Dior has closed its T-Mall shop, replacing it with its own Chinese language website and WeChat shop.
It's a similar story for Woolworths and its China venture Pudao Wines.
The high-end liquor retailer has neither a T-Mall nor Taobao presence, but recently opened a WeChat store.
The simplicity of browsing and buying is hard to match.
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A stall owner in Shanghai next to a sign showing customers can pay using AliPay by scanning a QR code on their smart phone. Angus Grigg
From opening the WeChat App to buying a bottle of wine takes just seven taps on your mobile phone and then the purchase is delivered usually in a couple of hours.
For Woolworths, success or otherwise in China is not going to be material to its turnaround strategy in Australia, but its operations on the mainland could provide a window into the future of retailing and how it will be affected by the rise of mobile payments.
Then there is the ASX-listed SmartTrans Holdings, chaired by former deputy prime minister Mark Vaile, which has gone a step further in its adoption of WeChat.
When it opened its Australia-themed e-commerce store last month, it did so entirely on the messaging platform.
In partnership with Dodoca, a WeChat focused marketing agency based in Guangzhou, SmartTrans is selling everything from Australian wine and cosmetics, to toasted muesli and cleaning products.
It's still early days for the e-commerce venture and while SmartTrans has used its Australian connections to source products, its technology is the more valuable aspect.
"We can help Dodoca secure Australian brands, but ultimately it is our FinTech which will hold the relationship together," said Vaile during a recent trip to Shanghai.
SmartTrans, which has had many iterations as a listed company, holds a rare licence to convert the Chinese yuan into foreign currency, which enables brands to be paid in three days after a sale has been processed.
For foreign companies frustrated with the difficulty of repatriating funds from China, this licence gives SmartTrans an advantage, but the company is already thinking beyond e-commerce and traditional retailing in China.
Brendan Mason, SmartTrans' China chief executive, said eventually the company's SmartPay technology could be used in conjunction with WeChat Pay or Alipay in Australia to pay for university tuition or general purchases.
And while SmartTrans technology can be integrated with either WeChat Pay or Alipay, Mason, who previously ran hearing implant maker Cochlear in China, said the rise of WeChat was hard to ignore.
"WeChat started as an app but now it has become a whole operating platform or ecosystem," he said.
Transforming the payments market
David Glance, director of the University of Western Australia's Centre for Software Practice, said the rapid take-up in e-commerce across China, led by Alibaba, had allowed the payments market to be transformed.
"Along with the relatively sudden increase in the wealth of China's middle class, it has accelerated the take-up of mobile payments," he said via phone.
For Australia, this shift has been less pronounced, as mobile payments are based around "tap and go" from credit cards, rather than mobile phones.
According to the Reserve Bank's latest Consumer Payments Survey, participants made 37 per cent of their payments in cash during 2016, down from 47 per cent in 2013 and 69 per cent 10 years ago.
Of these payments just 1 per cent were via mobile phones, according to the RBA survey.
As Glance points out, the assessment of the Australian Competition and Consumer Commission in the recent Apple Pay case was that "cards are still incredibly convenient in Australia and that it wasn't absolutely clear mobile was in a situation to take over".
The ACCC knocked back an application by the banks to collectively negotiate with Apple over their digital wallets. The decision means the banks won't be able to boycott Apple Pay.
The other difference is that Australians use cash for more than 60 per cent of small transactions, according to the RBA, while in China it's normal for even the smallest purchases to be done by scanning a quick-response code, known as a QR code, on a consumer's mobile phone.
These QR codes are displayed at the point of sale in even the smallest shops or stalls across China and have the advantage of being fast and convenient to use.
"Most people in China use WeChat whereas in Australia, people will use a variety of platforms," said Glance.
"If Facebook decided to do payments in Australia that's when you would see a big difference." Apple Pay struggling in China
Apple Pay, which is moving aggressively into Australia, is nowhere in China.
More than a year after its launch, Apple Pay has struggled to gain any traction and is not even a top 10 player in China's mobile payments market, let along being considered a threat to Alipay or WeChat Pay.
But while many headlines have been created by the rise of WeChat, it's worth remembering Alipay is still the dominant player.
WeChat is the challenger after capturing the attention of consumers in 2015, when it introduced an option to send friends an e-hongbao (red envelope) of cash during Chinese New Year.
These days We Chat Pay operates more like a digital wallet, allowing restaurant bills to be split or for money to be sent to friends or those providing services such as cleaning or sports lessons. From here WeChat Pay has grown into payments at the point of sale or when shopping online.
Alipay on the other hand had its genesis in purchases on Taobao, before morphing into an electronic bank account, which offered higher interest rates than the banks, and could also be used for paying utility bills. From here it targeted smaller transactions at the point of sale.
And so after starting off as very different tech companies – Tencent initially made its mark in games – the two giants have found themselves locked in a fierce battle for dominance of China's mobile payments market.
"WeChat is having a very large impact," said A2 Milk chief executive for Australia and New Zealand, Peter Nathan, who has built his business around selling into China.
"There's no direct equivalent for WeChat in the West. It is so transactional and so social which gives that platform incredible power."
Nathan said most personal shoppers or "Daigou", who bought products in Australia and couriered them to China, based their business around WeChat.
"We're channel agnostic," he said.
But Nathan said the rapid take-up of mobile payments in China "does signal there is a more seamless transaction taking place online. Part of the attraction for the consumer is the ease of making the purchase and placing the order on a mobile device. It improves the customer experience."
Alibaba is not accepting the challenge from WeChat passively.
According to research firm Analysys, in the third quarter of last year Alipay accounted for 50.4 per cent of the mobile payments market. That compared to 38.1 per cent for TenPay, which includes WeChat Pay."
In an effort to sandbag its market share in mobile payments, it has backed or purchased stakes in retailers with the view of moving more aggressively into the online-to-offline space, known as O2O.
One of those it has backed is Hema Market, a start-up that has been rolling out a string of cashless supermarkets across Shanghai. The only form of payment accepted at these sprawling mega-markets, which don't have cash registers, is Alipay.
At a Hema store about 15 minutes from downtown Shanghai, one employee who only gave her name as Ms Xu, is sprinting across the store filling up a bag with pumpkins, tofu and lettuce. Having filled this online order, she places the bag on a hook and it is transported up to the ceiling to an overhead conveyer belt, travelling across the store and out through a hole to the car park where a courier is waiting to deliver it.
Hema promises delivery times of no more than 30 minutes.
At this stage, Hema, is keeping its expansion strategy low key with management declining an interview request from The Australian Financial Review.
In addition to its backing of Hema, Alibaba is in the middle of a $US2.6 billion ($3.5 billion) privatisation of Hong Kong-listed department store Intime Retail, which has 29 department stores and 17 shopping malls across China.
"Ant Financial, the parent company of Alipay, is the most powerful new financial services brand in China," said Don Zhao, the co-founder of Azoya, an e-commerce solutions and operations company that helps foreign brands enter China.
He notes the Ant Financial ecosystem is much broader than that of Tencent and includes virtual credit cards, investment products, credit rating services and personal loans.
"It's brand is more established and trusted than Tencent," he said.
That said it's hard to ignore the rise of WeChat in online payments.
Data compiled by Azoya from the 12 Chinese websites it manages shows WeChat Pay accounted for 24 per cent of all transactions by value during the week ending March 31, after it was added as a payments options just six months earlier.
Alipay accounted for 72 per cent of transactions with the state-backed UnionPay, which holds a monopoly on credit card payments in China, making up the remainder over the same period.
But Zhao said WeChat's market share had been as high as 40 per cent on some days, when promotions have been running.
"There's no doubt it is challenging the dominant position of Alipay," said Zhao.
NOV Price at posting:
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