Tencent's WeChat Pay ramps up international expansion; will directly challenge western incumbents

Written by Paolo Di Fonzo || November 20 2015

In a world where everything seems to be made in China there are still markets where China is no where to be found, but Western companies still dominate. One of those is the cashless payments market, with giant companies such as Visa, MasterCard and American Express owning the market for bank cards and payment networks.

However, as it sometimes happens, this huge influence does not extend to the most populous country in the world, where the monopolist China UnionPay (or CUP for short), depending directly from People’s Bank of China, is the only licensed processor for bank cards, at least for now. While it enjoys this massive market all for itself, UnionPay has faced a lot of issues when trying to expand its services to Western countries and only in the last few years has really made progress on increasing global acceptance of its cards in European and American stores.

In the meantime in China itself, a different way of making transactions has been growing through online payments, mostly using Alipay and Tenpay, from Alibaba and Tencent respectively, with the Alipay in a a clear dominant position with 75% of the mobile payment market and 57% of internet payments.

In March of 2014, Tencent tried to turn the tables, but leveraging its most important asset, the extremely popular app WeChat, enabling the possibility of making payments directly using mobiles and the WeChat network.

While this innovation rapidly expanded the market for mobile payments and helped Tencent grow its marketshare, it remained confined to China, as it could go only as far as the popularity of WeChat could bring it, at least until now: on the 20th of November Tencent announced that soon WeChat payments will be accepted in more international locations. 

This looks like a real blow to Tencent’s competitor Alibaba, which has been trying to expand its payment services to the Western world for a while without much success (the reasons behind could be various: PayPal already dominating the market, legal barriers no relationship with the likes of Visa, MasterCard and so on) and also as a surprise, giving CUP struggles.

How was this possible? First, it has to be taken into account the fact that this expansion is still directed towards the large number of Chinese nationals living or traveling abroad, more than Westerns themselves, so it does not face competition from other popular apps such as WhatsApp and Facebook Messenger.

Secondly, WeChat payments are indeed very simple and intuitive and thus the reason why it would be easy for Western commercial activities to start accepting them, as it is already used by big franchises like McDonald’s and Starbucks in China. The consequences of this expansion could be very different: while it is easy to expect that in the beginning only Chinese people will use this way of paying, it has a real shot at becoming a must-have for Americans and Europeans too, as a Western counterpart is currently lacking.

At the same time it would not be surprising if a big Western company such as Apple tries to come away with this same idea, but with a much easier and faster growth thanks to the power of its brand and the fact that it would not face the same diffidence something like WeChat might actually receive.

While future developments are still ambiguous, it is certain how today, with this operation, Tencent is definitely trying to pass its most important competitor Alibaba in foreign markets, to elude its dominance of the domestic one, and also to go past what UnionPay itself could not manage: establishing the made in China in one of those markets still completely owned by the West.