China’s retail payments may struggle to survive

Alipay and WeChat Pay’s dominance of China’s retail payments was scripted over the past decade on the back of the humble quick recognition code. The same dotted squares could now start to undermine their moat.
Fan Yifei, a deputy governor of the People’s Bank of China, said at a recent forum on digital finance that it was necessary to standardise, among other things, the two-dimensional barcodes so that “merchants can support various payment tools without increasing costs.”
Before the pandemic, QR codes had spawned a 9.5 trillion yuan ($1.4 trillion) industry for settling bills in China. Other countries enthusiastically copied the model that was made wildly popular, starting in 2013, by Ant Group Co’s Alipay and Tencent Holdings Ltd’s WeChat Pay, the two tech giants controlling more than 90% of the mobile-payment market between them. But authorities in Beijing didn’t like the idea that funds — and the highly valuable customer data that came with them — flowed in two large, private closed loops.
Not knowing which app the customer would use, merchants had to be ready to offer both the QRs, as well as one from China UnionPay Co, the state-owned payment processor for banks. After the central bank recommended in August 2019 that the codes become interoperable, Tencent and UnionPay decided to allow each other’s customers access to their walled gardens.
That may have been just the start. Fan’s comments suggest that the tech industry’s lock may weaken further. Beijing will push for a unified QR code because it wants to give a leg-up to the digital yuan, or e-CNY, a paperless version of the fiat currency issued by the central bank. Pilots to promote the new instrument are both expanding and becoming more sophisticated: With smart contracts, or self-executing computer code, consumers can pay a business in advance, but e-CNY will only be released by their wallets when they receive the goods or services. In uncertain transactions like paying for under-construction homes, money with built-in rules could help establish trust between the buyer and the seller.
Still, smart money is of no use if people don’t also find it easy to spend. Therefore, the PBOC will ensure that merchants display a single QR to all customers, one that
by default accepts e-CNY. Alipay, WeChat Pay and UnionPay wallets will have to accommodate the code to avoid rejection.

—Bloomberg