Everyone who’s been to China or is doing business with Chinese companies has heard of WeChat. It’s an application that resides on your smartphone and provides a number of services including chatting (WhatsApp, iMessage), audio and video calling (WhatsApp, FaceTime) but also sharing photos / status updates with your network (Facebook). There’s one application that really makes it different to it Western counterparts – WeChat Pay.
From a user perspective, WeChat Pay is quite straightforward. You peg your credit card or bank account to WeChat, then you can pop up your WeChat account with money and use it to pay.
Payment works two-fold.
1) You show a QR Code on your phone that will be scanned at a cashpoint (POS – point of sale as it’s often referred to) and then deducted from your account.
2) You scan the QR Code of the merchant, then type in the amount to transfer, done.
Option 1 isn’t much different from using a credit card or Apple Pay, the only difference being is that you show a QR Code that is being scanned.
Option 2 first sounds a bit more complicated for you as a user as you need to input the amount you have to transfer. However, it is the reason why WeChat Pay has taken China by storm.
Think from a business point of view. If you want to accept payments via credit card or bank card you need to sign up for a system. You will then need to purchase the hardware at your point of sale including a card reader.
This system will then need to be connected to the internet to process the payment.
All in all, you’ll spend a few hundred or thousand USD to be able to process payments from a credit card.
Granted, there are mobile solutions now that allow you to accept credit card payments with a mobile phone and a card reader. However, you still need to sign up for a payment service provider in the background.
Now, here comes WeChat.
All you need is a QR Code to accept payments.
1) You create a “Pay Me” QR Code on your phone.
2) You take a screenshot of the QR code and save it as a photo
3) You print out the QR Code on an A4 paper
4) You put the paper next to your point of sale.
5) The transaction fees on WeChat are: zero!
So it’s no surprise that everyone uses WeChat Pay. Imagine you’re a food vendor selling dumplings and fried noodles. You either accept cash and live with the inconvenience bringing said cash to the bank to deposit on your account. Or you create a QR code and allow everyone to pay via WeChat. That way, the money is going directly into your WeChat Pay account from where you can transfer it back to your bank account. Or use it for purchases yourself.
“How does WeChat make money?” you might ask.
Well, quite easy. In the same way that Facebook and Google make money. With your data. At the end of the day, you’re not the customer but the product.
So if you’re a privacy minded individual, WeChat Pay isn’t for you. However, in China, it’s getting more and more difficult NOT using WeChat Pay (or AliPay which relies on the same method). Vendors are often not willing to accept cash and prefer WeChat as it’s so convenient.
It’s amazing to see how fast it changed the entire payment industry. And it’s a sign what the finance industry will have to face in the Western world soon.
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