US banks are concerned that the latest developments in China’s payment apps sector could undermine key streams of revenue, according to a new report from Bloomberg.
Payment apps such as Alipay and WeChat have rapidly emerged as an all but ubiquitous force in the Chinese consumer economy, boasting 520 million and 1 billion monthly active users respectively.
The two systems jointly saw $2.9 trillion in transactions in 2016, accounting for half of all consumer goods sold in China according to figures from payments consultancy Aite Group.
In sharp contrast consumers in the US remain highly dependent upon banks for most non-cash payments, with traditional lenders obtaining a significant share of the cut.
According to a recent Bloomberg report while $97.25 of a standard $100 US credit card purchase goes to the merchant, $2.20 goes to the issuing bank, while $0.23 goes to a payment processor, $0.19 to an acquiring bank and $0.13 to the card network.
The tremendous success of Alipay and WeChat in China, however, serves as proof that it’s possible for fintech companies to cut out conventional lenders, causing considerable anxiety amongst US banks and credit card companies.
Industry newsletter the Nilson Report indicates that payments by US merchants to card networks, payment processors and banks cards are worth roughly $90 billion per year.
In China third-party payment providers are set to account for around 40% of such fees by 2020, which in the US market would translate into $43 billion in revenues for banks and the payments sector.
Conditions could now be ripe for an established US tech giant such as Amazon or Google to follow the lead of Chinese tech giants on their own turf.
China’s tech companies themselves are also eyeing the US market, with Jack Ma’s Alipay already available for payments to taxis in New York, catering primarily to visiting Chinese tourists.
Other Chinese app innovations could further threaten the standing of conventional banks in future, chief amongst them the provision of savings and investment services.
Alipay began to provide money market accounts in 2013, eventually enabling it to build the world’s largest money market fund by last year, with around $243 billion in funds.