How to Receive Payments in China? Common Payment Methods of Chinese Consumers

With the development of China's economy, the per capita disposable income of residents nationwide, as the basis of consumer expenditure, has also increased from about 28,000 yuan in 2018 to about 37,000 yuan in 2022. China's consumption base has shown an overall stable and positive trend. Payment, as an important part of consumption, is directly related to the operating efficiency and customer experience of Chinese merchants. How to collect payments when doing business in China ? With their innovative functions and convenience, third-party payment institutions have driven the scale of China's third-party payment transactions from 27.1 trillion yuan in 2018 to 49.1 trillion yuan in 2022 , and it is expected to reach 80.6 trillion yuan in 2027. Third-party payment refers to a non-bank payment institution with certain strength and credibility, which establishes a connection between merchants and banks, thereby facilitating the payment method for transactions between the two parties.

Common payment methods used by Chinese consumers

In the early stage of the development of China's third-party payment industry, Chinese consumer payment products were the main driving force behind the rapid development of the third-party payment market . Driven by the explosion of products such as Chinese e-commerce shopping, online finance, social red envelopes, and offline QR code scanning, third-party payment has also completed its penetration and evolution among consumers and corresponding transaction scenarios . The following are some common types of third-party payment

Account-based payment platform

Transactions are completed by opening independent payment accounts on payment platforms, such as Alipay and WeChat Pay. Users can recharge funds to their account balances or bind bank cards for payment. It is widely used in multiple scenarios such as online consumption, transfers, and collections, and is convenient and secure. In terms of Chinese consumers' payment habits, Alipay and WeChat Pay have firmly occupied the minds of users. In the past five years, the combined payment share of Alipay and WeChat Pay has reached 93%, so it is difficult for other payment institutions to shake their market position in a short period of time with the same payment products.

Offline Payment

Mainly refers to QR code payment. QR code payment generates barcodes through payment platforms, such as WeChat and Alipay, to collect or pay. QR code payment was quickly accepted by users as a new payment method between 2016 and 2017, and its scale has experienced explosive growth. Among them, personal QR code transactions are an important part of the offline barcode payment market, and its scale will be 17.5 trillion yuan in 2022. The popularity of offline QR code payment methods is due to the vigorous cultivation of users' QR code payment habits by leading payment companies such as Alipay and WeChat Pay. It is convenient and fast, and is suitable for offline retail, catering, public transportation and other industries.

Mobile Payment

Payment is made through mobile devices such as mobile phones and tablets, and transactions are mainly completed through mobile applications, text messages, etc. Apple Pay and Huawei Pay are typical representatives, using technologies such as NFC or fingerprint recognition of mobile phones to achieve fast and secure payments, suitable for small-amount, high-frequency consumption scenarios, such as shopping in convenience stores and taking the subway.

Common payment methods for Chinese merchants

For merchants, what they need to face is the differentiated payment needs of users. Although Alipay and WeChat Pay have already occupied a strong position among Chinese consumers, the competition between the two is still stalemate, and users have a relatively scattered choice of the two when using barcode payments offline. Not to mention that in the early stages of market development, there were still other payment wallets that launched heavy subsidies in an attempt to open up the market. And because offline merchants, especially small and medium-sized merchants, are highly decentralized and large in number, Alipay and WeChat Pay cannot directly implement offline merchants' service docking, maintenance, expansion and other businesses. Therefore, the usage habits of offline merchants are not as concentrated as those of consumers. UnionPay Business and Lakala are still the main players in the non-bank acquiring market. In 2022, the two will account for 55.9% of the market share of non-bank acquiring institutions.

The diverse payment methods of Chinese consumers have caused merchants to switch between cash registers or require users to scan different barcodes, which causes inconvenience in the user experience. From a longer operating chain perspective, merchants not only increase operating costs, but also need to integrate the income from multiple channels by themselves, which involves more complicated statistical work and subsequent fund collection. Therefore, the aggregated payment solutions provided to merchants, including card swiping and code scanning payment, may attract more merchants to join.

Aggregate payment

Aggregate payment means that acquiring institutions or aggregation technology service providers use safe and effective technical means to integrate bank card payment and Internet and mobile payment methods based on near-field communication, remote communication, image recognition and other technologies, and uniformly implement system docking and technical integration for multiple payment channels that use different interaction methods, have different payment functions or correspond to different payment service brands, and provide one-point access and one-stop fund settlement and reconciliation services for special merchants, effectively reducing the system investment and operating costs of special merchants, providing Chinese consumers with diversified payment methods, and promoting the continuous improvement of the payment service environment. As the main supplier of aggregate payment technology services, acquiring outsourcing service institutions have become the main participants in the aggregate payment market.

In terms of the coverage scenarios of aggregated payment, catering and retail scenarios have become the absolute main force, accounting for more than 70%. At the same time, the coverage scenarios of aggregated payment are greatly influenced by Alipay and WeChat Pay. Since Alipay and WeChat have invested a lot of resources in expanding offline catering merchants since 2018, catering scenarios have dominated the aggregated payment market.

With the development of digital payment, payment methods are becoming more diversified. The existing payment methods on the market include card and chip card payment under the UnionPay system, QR code payment of WeChat and Alipay, and other payment methods such as electronic wallets such as Baidu Wallet and JD Wallet. Behind these different payment methods are different third-party independent payment institutions licensed by the government, thus forming their own independent payment channels. Downstream, they directly connect with merchants to collect payments, and upstream, they directly connect with the banking system to serve as a new channel for Internet payment settlement. However, due to the large number of payment channels, Chinese consumers and merchants often have a mismatch in payment channels, and access to all types of payment channels also has a high cost pressure for merchants.

The addition of aggregated payment creates a new bridge between third-party payment and merchants. Through the development of its software and hardware platform, it unifies various payment methods of third-party payment and forms an aggregated payment model. This aggregated payment technology service is mainly provided by acquiring outsourcing service agencies and third-party payment institutions. As it only serves as a platform for aggregating different types of payment methods, aggregated payment is only responsible for completing the information flow and merchant operations of the payment link, does not intervene in fund settlement, and does not require a payment license, thus forming a mutually dependent rather than alternative relationship with third-party payment companies.