Lately I have been thinking about how Tencent’s WeChat can enter other markets. It has been a tremendous success in China with more than one billion users. Together with Alipay, mobile payment has turned Chinese society from a society where people carry large wads of cash, to one which is largely cashless, all within the space of three short years. It is a much bigger challenge to say how it can enter foreign markets.
WeChat has gained acceptance from the financial regulatory authorities in Hong Kong, South Africa and Malaysia, but it is much harder to predict what will work in other markets. While many Chinese companies would like to gain access to the US market, US regulatory authorities have been mostly hostile to the idea of any Chinese company buying US financial institutions, especially after the US government stepped in to block the proposed sale of Moneygram to Alibaba’s Ant Financial.
When it comes to American consumers, there is another impediment to adopting WeChat Wallet, or something similar: Americans are used to their checks and credit cards. Even for Apple and ApplePay, the going is slow. WeChat Wallet, along with Alipay, helped Chinese to make the leap from cash to cashless transactions, and managed all that by skipping credit cards, which most Chinese did not have.
This naturally begs the question: which people in the west DO NOT use credit cards? Would WeChat Wallet be attractive to these western consumers so that they, like the Chinese, could skip use of credit cards and go straight to cashless transactions driven by scanning QR codes?
Germans fit the bill, because they do not like to use credit, and like Chinese before the modern age, don’t like debt. For this reason, they carry much more cash than Americans and other credit card-using societies.
Many observers have missed that WeChat Wallet and Alipay transactions are in fact cash transactions; there is no credit extended in most transactions. Both show how much money you have available in your account, and if you have enough, you buy, and if you don’t have enough in your account, you don’t buy. Simple.
Looking at it in these terms, Tencent’s decision to invest in a Berlin-based fintech play, N26, makes a certain amount of sense. Germans like modern fintech, but they like cash even more. While Germany has complained about some Chinese business practices, unlike the Americans, they are unlikely to veto any Chinese investment deals the way the Trump administration did.
With the widespread adoption of credit cards, the financial world also adopted payment processing services from many American companies. American payment processors such as Paypal and ApplePay built their services on top of these current payment processors. These largely American payment processors are all threatened by the new payment processing ecosystem which Tencent and Alibaba have built.
It will be interesting to watch what the Germans will do, and if they will ally with the Chinese or the Americans.
Certainly, President Trump is not widely admired by Chancellor Merkel and most other Germans, who think that he is a boor. For once, the Germans may actually be in a position to decide who wins between the US and the Chinese.