There are several reasons why mobile payments have yet to reach critical mass in the United States: Too many competing platforms, the lack of a clear value proposition, and the sheer inertia that results from decades of plastic card use. The reason why driving mobile payment adoption in the US is so critical is that the intersection of mobile, payments, and loyalty is where customer relationships of the future will be forged. In China, mobile payments have dramatically outpaced the US, and even Europe – to the point where paying with cash has become frowned upon. Will Chinese marketers leverage the mobile payments opportunity to integrate loyalty? Stay tuned.
By Rick Ferguson
Around the mobile payments campfire, many commentators were intrigued by New York Times contributor Paul Mozer’s first-person account of his difficulties paying with cash on a recent trip to Shanghai. From the humblest street vendor to the fanciest luxury boutique, nearly every merchant Moser encountered reacted with barely concealed scorn when he attempted to pay with paper renminbi; even the street buskers accept tips only if you scan their QR codes. The two Chinese mobile payments behemoths, WeChat and Alipay, have become so dominant in the Chinese economy that foreign businesses and tourist such as Mozer now find it difficult to engage in commerce in China.
“Almost everyone in major Chinese cities is using a smartphone to pay for just about everything. At restaurants, a waiter will ask if you want to use WeChat or Alipay … before bringing up cash as a third, remote possibility. Just as startling is how quickly the transition has happened. Only three years ago there would be no question at all, because everyone was still using cash. ‘From a tech standpoint, this is probably one of the single most important innovations that has happened first in China, and at the moment it’s only in China,’ said Richard Lim, managing director of venture capital firm GSR Ventures.”
As Moser reveals, the Chinese mobile payment market has grown in that three-year period to truly staggering proportions: $5.5 trillion last year, 50 times greater than the $112 billion market in the US. These numbers mean that Tencent, the owner of WeChat, and Alibaba’s Ant Financial affiliate, which owns AliPay, are set to surpass MasterCard and Visa in global transaction volume within the next year.
Meanwhile, the Chinese market for loyalty programs has been stagnant. As eMarketer reports, a recent 2016 Nielsen study revealed that while 61 percent of Chinese consumers claimed loyalty program participation, loyalty penetration lagged behind the global average of 66 percent, and lagged significantly behind Southeast Asia (72%) and India (74%). While this number is disputed by a 2016 Collinson Latitude survey claiming that “72 percent of mainland Chinese consumers regard themselves as engaged members of loyalty programs,” there is in general agreement among analysts that Chinese consumers don’t love their loyalty programs: Collinson found that “34 percent of mainland Chinese consumers feel loyalty programs have increased in value over the past year.”
Despite the lack of apparent value, Chinese consumers want to participate in loyalty programs: Collinson found that 89 percent of mainland Chinese respondents agree that a loyalty program makes them want to spend more. With Chinese consumers ripe for loyalty programs, and with the Chinese market having embraced mobile payments en masse, the opportunity for China to set the pace in mobile loyalty is there. How can Chinese loyalty marketers leverage mobile payments and loyalty to build strong and profitable customer relationships? Here’s a roundup of best practices, culled from the research:
- Be mobile: If a Chinese loyalty program isn’t available on your smart phone, it may as well not exist. Collinson found that over 50 percent of mainland consumers use loyalty program apps – but only 12 percent of retailers currently feature loyalty programs integrated with their WeChat accounts. Meanwhile, Nielsen research found that (84 percent of Chinese consumers prefer mobile loyalty programs that automatically earn them points.
- Be frictionless: Collinson revealed that a “seamless customer experience” (75%) and “ease and efficiency” (73%) were the top desired features in loyalty program participation.
- Be personal: eMarketer notes that Japan’s GMO Research found that “41.2 percent of respondents were willing to register with a program or provide personal information in order to earn points for a reward program.” Customers will expect retailers to use this data, as eMarketer also revealed that 65 percent of Chinese customers are disappointed about the lack of in-store personalization.
If these best practices sound familiar, that’s because they’re the same best practice recommendations for Europe, for the North America, and for anywhere else where mobile payments are converging with loyalty. The risk for American marketers: because of the entrenched plastic payments network in the US, there’s a very real possibility that US marketers will lose the leading edge of mobile loyalty to the Chinese – a possibility that should keep the folks at MasterCard and Visa, at least, up at night. To illustrate this risk, Paul Moser uses the cautionary tale of Japanese flip-phone manufacturers of the previous decade:
“In Japan in the early 2000s, flip phones could do everything from stream cable TV to pay at stores. But because the phones were so advanced, Japan was slow to adopt smartphones, and it went from tech giant to tech laggard in 15 years. Now in Japan those flip phones, which are still being used, are called Galápagos phones because they evolved perfectly for an isolated environment.”
While Moser uses this anecdote to illustrate the danger of China becoming too dependent on its two primary mobile payment networks, it is at least an equally important warning sign to US marketers: the time to drive mobile payments adoption is now, and the key to driving mobile payments adoption is to provide consumers with reward and recognition through mobile loyalty. The Chinese may set the pace – but there’s no reason why Europe and the US can’t keep up.
Rick Ferguson is Editor in Chief of the Wise Marketer Group.