Ecommerce in China

On November 11^th 2016, Chinese consumers set a new record, spending more than US$1bn at Alibaba.com in just the first five minutes of Singles’ Day. The commercialized holiday was officially inaugurated as a discounted shopping holiday by Alibaba in 2009 with only 27 merchants participating. Its value to retailers – both online and brick-and-mortar – across the region has grown exponentially. In the past two years alone, it has grown 50% each year with sales above $21bn in 2016.

With the rise of this holiday phenomenon, mobile payments stand out as the catalyst for this rapid growth. In the first 30 minutes of operation, mobile payments accounted for 90% of all retail sales on Alibaba. This illustrates the rapid growth of mobile use in China. To understand why mobile payments are so important in China, it is important to look at several factors. Over the past five years, the number of mobile users as a percentage of all internet users in the country has accelerated from around 70% in 2011 to more than 85% in 2015, making mobile a key strategy point for retailers. Additionally, credit cards aren’t common among consumers – only a little over a quarter of the population has one, compared to more than 70% in the US

While non-traditional payment methods have been gaining popularity, competition between the top players in the Chinese market has intensified. In 2014, during the Lunar New Year, internet services company Tencent ran a promotion called ‘Red Pack’ seeking to modernize the traditional custom of sending small financial gifts to friends and family via its WeChat application, allowing users to send peer-to-peer packets. The success of the campaign led millions of WeChat users to enter the company’s financial ecosystem. It now functions as an alternative to Alibaba’s Alipay, which launched in 2004 and now holds the largest market share in the country – around 40%.

From this explosive growth in mobile payments, businesses are now being forced to optimize their websites for mobiles and integrate them with systems, such as Apple Pay or Android Pay. Also due to these innovations, the financial technology sector is vital to forming a bridge between the traditional finance sector and retailers. Failure to do so will mean slow economic growth and retailers getting left behind.