Card networks should be worried about WeChat Pay’s European expansion (TCEHY)

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Major Chinese mobile wallet WeChat Pay identified Europe as a key market to grow its cross-border business, which allows users to pay in Chinese yuan, which can be automatically converted into local currency.

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The firm plans to expand its growing list of merchants in the region: Its European merchant network was 3.5 times larger in April 2019 than the year before, and the company has recently signed deals with an array of merchantsand at destinations that see a high volume of Chinese tourists, including Amsterdam Airport Schiphol.

Here’s what it means: A European expansion will allow the mobile wallet to capitalize on Chinese tourist traffic.

Europe is a high-traffic destination for Chinese tourists. China has the highestrates of outbound tourism globally: More than 149 million Chinese tourists traveled in 2018, 11% of whom went to Europe.
High rates of outbound tourism lay the groundwork for WeChat to grow and maintain volume overseas.WeChat Pay has already expanded its merchant acceptance network to accommodate its existing user base, and bolstering the roster or European retailers offering WeChat Pay will allow the mobile wallet to capture spend from its customers when they travel and maintain loyalty.

The bigger picture: WeChat Pay could boost volume in Europe and steal share from Chinese card networks.

There’s demand for mobile payments among Chinese tourists. Mobile payments surpassed cash payments among Chinese tourists for the first time in 2018: Chinese tourists paid for 32% of their transactions overseas with their phones in 2018. That can likely be attributed to the growing availability of Alipay and WeChat Pay in popular tourist destinations. Growing its merchant network will allow WeChat Pay to meet the needs of its users when they travel abroad, while boosting volume: 94% of Chinese tourists said they’d use mobile payments more often if more merchants supported them, according to an Alipay and Nielsen study.
WeChat Pay’s expansion could threaten card networks — particularly China-based UnionPay, which has been pursuing the European market. UnionPay ramped up its issuing efforts in partnership with European banks after building out an acceptance network in the region. But those efforts could be met with challenges as WeChat Pay pursues Europe simultaneously. UnionPay has seen mounting threats from mobile wallets within China, where 92% of Chinese consumers use Alipay or WeChat Pay as their primary payment method, which causes UnionPay and other networks to miss out on transaction volume. Some analysts even expect third-party platforms to earn up to 40% of China’s transaction fee revenue by 2020, which would exacerbate the threat. But WeChat Pay’s threat is not restricted to UnionPay: Offering Chinese tourists a wider array of places to spend with the mobile wallet they use at home might lessen the chance Chinese consumers open Visa or Mastercard credit cards to travel.

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