China’s mobile payments market has long been dominated by two companies—Alipay and WeChat Pay—which together process the vast majority of the country’s digital transactions. However, increasing regulatory scrutiny of large technology platforms has opened the door to greater competition. As Chinese regulators seek to curb market concentration and encourage innovation, companies like Huawei are positioning themselves to capitalize on any opportunity to enter one of the world’s largest digital payments ecosystems.
The Chinese government may be on the verge of breaking up AliPay and making way for increased competition in China’s massive mobile payments market. Huawei, the telcom company, appears to think this is a possibility and recently purchased a firm, Xunlian Zhipay which has a payments license and would allow them to offer an alternative to AliPay and WeChat Pay.
Any company that thinks that it can compete with AliPay and WeChat Pay would have to have some “secret sauce” to compete with these entrenched mobile apps. Huawei has 300 million existing customers which is a pretty great start. LedgerInsights had this to say on the matter:
To date, Huawei has apparently intentionally not sought to acquire a payments license. So what’s changed? Firstly, the eCNY or digital yuan is getting closer to launch. And secondly, if AliPay is broken up, this will create new opportunities.
Last year, AliPay parent Ant Group pulled its giant IPO at the last minute. Prior to the IPO, there were already signs of bubbling Government concern about its market dominance.
More recently, Ant was told to turn the parent into a financial holding company, with all the capital requirements that comes with.
On top of that, three weeks ago, the People’s Bank of China published draft legislation for non-bank payments institutions for commentary. It stipulates that there’s a dominant position if one payments institution has more than half of the market, two have more than two thirds, and three have more than three quarters. Currently, AliPay’s market share is 55% and together with WeChat Pay, they have something like a 90% market share. But the proposed rule states it would still consult the antitrust regulator to confirm the dominant position.
Whether or not Alipay is ultimately broken up, China’s regulatory actions signal a shift toward a more competitive digital payments landscape. For companies like Huawei, acquiring the licenses and infrastructure necessary to enter the market could provide a rare opportunity to challenge the industry’s established leaders. While displacing Alipay and WeChat Pay will not be easy given their enormous user bases and deeply integrated ecosystems, regulatory reforms may gradually reshape the competitive dynamics of China’s mobile payments market.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group