Some of the biggest digital wallets in the world — including Alipay and WeChat Pay — succeed because they have very little in common with other big-brand wallets like Apple Pay, Google Pay and Samsung Pay.
Notably, those mobile wallets relied on older, dated technology to reach ubiquity faster, rather than wait for new standards of hardware and security to be put into place. And these wallets saw little need to upgrade their technology even after NFC and tokenization became widespread.
What's more surprising is that these wallets are expected to maintain their lead in the coming years — as well as overtake older payment methods like plastic cards.
Because of the long reach of China's mobile wallets in other geographic markets, and others emulating the success, mobile money platforms using QR codes are likely to surpass traditional card-based payments across the globe within the next decade, according to new research from Aite Group.
Rather than making QR codes obsolete, newer systems have begun to kowtow to the format's dominance. Last year the EMV standards body, EMVCo, said it would possibly incorporate the Alipay QR tech into its global standard for QR codes. Such a move would help QR codes spread to other markets.
A tale of two technologies
Better technology doesn't always mean a better experience for the consumer. QR codes may be widely accepted but they are still a more cumbersome model to use at the point of sale. Consumers must first unlock the app and then point the screen at a QR code reader at the right time; by comparison, wireless NFC wallets work without requiring the user to open an app or point the phone's screen away.
It would have seemed that Google Wallet (an ancestor of Google Pay), one of the first major NFC wallets to launch in the U.S., had a significant advantage when it debuted in 2011 with Citigroup already on board. But in the following year, no other issuers agreed to support Google Wallet, and Google finally had to rework its technology to use Host Card Emulation, a software-based alternative to its original approach.
Compare this to the Starbucks app, which has always relied on a bar code and now accounts for 30% of the company's in-store U.S. payments; or Chase Pay, which launched years later with a QR code system and is accepted by hundreds of merchants.
If QR codes were the only determining factor, "it would make Chase Pay a preferable option for merchants" said Thad Peterson, senior analyst with Boston-based Aite Group.
How EMV hurt QR in the U.S.
The U.S. recently went through a major overhaul of its point of sale technology as part of the late-2015 shift to EMV-chip card acceptance.
The card brands used this as an opportunity to promote newer payment technologies — if merchants had to upgrade their terminals for EMV anyway, why not add NFC to accept mobile wallets?
QR codes were never a part of the pitch, and the hefty investments in EMV at the point of sale have drained merchants' resources and interest in further upgrades.
"There has been so much investment in EMV and NFC infrastructure in the U.S. that merchants may be reticent to explore yet another payment alternative," Peterson said.
If the U.S. were to see a shift toward QR code wallets in the near future, it may be due to an influx of Chinese tourists toting Chinese mobile wallets. Ant Financial, the Alibaba affiliate behind the Alipay wallet, has explicitly stated that its strategy for the U.S. is to encourage merchants to support Alipay for Chinese travelers.
"Caesar's Palace in Las Vegas has huge banners about their acceptance of Alipay and WeChat Pay and it's a standard form of payment there," Peterson said. "Companies that are already serving a large Chinese tourist population are the companies to learn from."
What happened in China?
As the U.S. still struggles to find a winning format for mobile payments, QR code-based wallets have seen explosive growth.
"Alipay and WeChat Pay arose to address a fundamental challenge in China — the lack of a POS ecosystem with sufficient distribution to offset cash," Peterson said. "Most Chinese have bank accounts, so the challenge was finding a way to use their funds to buy stuff outside of cash."
For its report, Aite conducted interviews and conversations with individuals from more than 20 organizations and thought leaders actively engaged in the Chinese payment market. Third-party sources added context and detail in compiling the report, the research organization said.
Alipay and WeChat Pay have become the most common mobile payment type in China, delivering a significant impact on consumer cash usage. Both options, along with the mobile money offerings in other markets, are on the way to surpassing transaction volume from traditional payment alternatives. In effect, mobile money penetration and usage is ubiquitous in China, the report said.
The QR code standard released by EMVCo will level the playing field for competitors such as UnionPay, but the head start that Alipay and WeChat Pay enjoy will limit their competitors' opportunity to achieve significant market share in mobile payments in China. Others, like Apple Pay, have boasted of high adoption in China — though it may simply mean that consumers buying new iPhones in China would have the mobile pay system included on the handset.
But even China wasn't at the forefront of this trend. Safaricom launched a mobile network in Kenya in 2007 called M-Pesa, creating a successful mobile payment ecosystem before the era of big-screened smartphones.
Global registration for mobile money accounts outside of China grew to 690 million in 2017 from 110 million in 2012, the report said. Overlapping that time span in China, WeChat's social media platform and potential mobile user base grew to 1 billion in 2017 from 355 million users in 2013, while Alipay grew to 520 million in 2017 from 100 million in 2013.
In terms of monthly active users, Alipay had 806 million and WeChat Pay had 450 million in 2016, the report said, citing Asean Today data.
Alipay holds a dominant share because of its deep penetration and history as part of Alibaba, but WeChat Pay is growing quickly and becoming a go-to social media platform in the country, the report said.
A third major player, Baidu (which is the Chinese equivalent of Google), has a mobile wallet similar to the others, but has only a small market share at this time.