Can China UnionPay Defeat Alibaba’s Alipay and Tencent’s WeChat Pay?

China UnionPay, also known as CUP, originally dominated all payments in China. The company was effectively a state-backed monopoly in China's electronic payments market due to its central bank mandate. It was almost impossible for any other firm to compete.

In 2019, CUP no longer dominates payments in China as it was too slow entering the lucrative mobile payments sector. CUP launched its mobile payment solution, QuickPass, at the end of 2017 whereas Alipay launched its mobile payments solution in 2009 and WeChat Pay followed in 2013.

Three women with shopping bags looking at a smart phone together
Three women with shopping bags looking at a smart phone together

Image Source: Getty Images

CUP's mistake allowed Alibaba Group (NYSE: BABA)'s Alipay and Tencent Holdings Limited (NASDAQOTH: TCEHY)'s WeChat Pay to essentially form a duopoly in this booming segment, which rang up total transactions of RMB 277.39 trillion (US$41.51 trillion) in 2018. Together Alipay and WeChat Pay have over 90% market share in China for mobile payments.

Understandably, CUP wants to regain some of its lost ground and be the third player in China's lucrative mobile payments sector. Its mobile payments app QuickPass is growing as the total number of registered users have increased to 160 million from 100 million at the end of November. The company hopes to reach over 400 million registered users in 2020. The question is can CUP achieve its goal?

Tens of billions at stake for Alibaba and Tencent

If CUP were to gain significant market share, it could spell trouble for the stock prices of Alibaba and Tencent. Alipay is worth a lot. Alibaba owned 33% of Alipay's parent Ant Financial before it raised another US$14 billion at an estimated US$150 billion valuation in 2018. Assuming that Alibaba owns around 30% of Ant Financial now, the e-commerce company's mobile payment stake alone is worth around US$45 billion.

Given that WeChat Pay's mobile payment market share is 38.9% (versus Alipay's 53.8% at the end of 2018), Tencent's mobile payment app is also likely worth tens of billions. If CUP were to gain 20% or 30% market share, Alipay and WeChat Pay's own valuations could suffer.

Market forces or the wishes of regulators?

If the market were to decide things, it seems that CUP has its work cut out and it will have a mountain to climb in order to gain enough market share. As impressive as its registered user numbers are, CUP's QuickPass doesn't have the engagement that Alipay does. Of QuickPass's 160 million registered users, approximately 18 million use it daily. By comparison, around 320 million people use Alipay daily.

The convenience of using WeChat and paying at the same time is also simply too powerful. The average Chinese person spends over an hour on WeChat per day and this mobile ecosystem clearly benefits WeChat Pay. Similarly, too many people already use Alipay and habits are hard to change.

The mobile payments market is already a duopoly, and there aren't that many more "new" customers to capture. Many analysts believe that the Chinese mobile payments market is near saturation and that mobile payment service providers will need to add value added services such as insurance, loans, or wealth management to maintain growth.

If China's government wants CUP's QuickPass to be a third player in mobile payments, it could happen given the government's influence. Potentially, it could get merchants to accept it and urge people to use it.

Foolish takeaway

However, in terms of whether regulators will enact policies that favour QuickPass, it seems unlikely. China's government doesn't have much to gain from mandating a third player in the mobile payment market and, so far, there is no indication that they are moving toward that scenario. The mobile payments duopoly of Alipay and WeChat Pay's seems secure for now but it's definitely something investors should monitor closely.

A version of article originally appeared on our Fool Asia site. For more coverage like this head over to

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