By Camilo Tellez, Head of Research, Better than Cash Alliance
A new UN study has revealed that Alipay and WeChat Pay enabled US$2.9 trillion in Chinese digital payments in 2016, representing a 20-fold increase in the past four years. The data shows that digital payments, using existing platforms and networks, provide access to a wider range of digital financial services, expanding financial inclusion and economic opportunity throughout China and neighboring countries.
The new report by the UN-based Better Than Cash Alliance, Social Networks, E-Commerce Platforms and the Growth of Digital Payment Ecosystems in China – What It Means for Other Countries, contains key lessons to help other countries include more people in the economy by transitioning from cash to digital payments. This shift could increase GDP across developing economies by 6 percent by 2025, adding US$3.7 trillion and 95 million jobs, according to a McKinsey Global Institute report.
As Ruth Goodwin-Groen, Managing Director at the Better Than Cash Alliance, says, “In China, digital payments are thriving from these channels, bringing millions of people into the economy. This matters because we know that when people – especially women – gain access to financial services, they are able to save, build assets, weather financial shocks, and have a better chance to improve their lives.”
The key findings of the report are as follows:
More people have opportunities to save and invest. Platforms such as Alibaba’s Yu’e bao make investing money into diverse sets of financial products more accessible for low-income populations. These products allows them to invest the money left on digital accounts, leading incrementally to long-term savings. From 2013 to 2016, Yu’e bao has grown to manage US$117 billion and is now serving over 152 million customers.
Digital finance helps dramatically increase access to capital for small merchants. As of September 2016, a total of RMB 740 billion (US$107.3 billion) had been lent on the Alipay platform to over 4.11 million small and micro enterprises and entrepreneurs.
Big data generated through these platforms helps to build credit-scoring history and boost access to credit, particularly for low-income financially-excluded populations. For example, Sesame Credit offers an alternative creditworthiness assessment by examining the credit history, financial behavior, contractual capacity, identity, and social networks of users.
The study also found both Alipay and WeChat are expanding beyond China and investing in major fintech and payments providers. They are joined by other major communication platforms, utilizing existing social networks and e-commerce platforms to drive digital payments and financial inclusion. The report found opportunities especially strong in countries with a high smartphone uptake and collaboration between the private and public sectors:
In South Africa, 78 percent of all internet traffic takes place over mobile channels – one of the highest rates in the world. However, despite the continued growth of adoption rates, only 15 percent of South Africans reported making a purchase on a mobile phone in the preceding month when surveyed in 2016.
In India, both Ant Financial and Tencent have bought into the Indian mobile payments market, which is enjoying rapid growth under new regulation. Ant Financial and Alibaba have invested up to $900 million in PayTM, as well as sharing staff and technical expertise. The result: PayTM has grown from 5 million to around 200 million users in just the last few years.
Indonesia was the fastest-growing m-commerce market in the world in 2016, expanding 155 percent from January 2016 to January 2017. Some of this growth may be due to the release in 2015 of BBM Pay’s Instant Mobile Payments. The popular BBM chat app has over 55 million users in Indonesia and continues to develop.
In South America, markets have the infrastructure necessary to build payment ecosystems similar to those seen in China. Fifty-nine percent of the South American population uses social media, and 52 percent connect with social media over their mobile phone. Yet the digital payments space remains fractured, and no payments provider has linked their service to these platforms in a significant way, or vice versa.
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