Why QR codes trump NFC in China

TechNode reported on Why QR codes trump NFC in China.

Barrier of entry is much higher for NFC compared to QR code payment. This applies both for consumers and vendors. Consumers need to have devices that come with NFC and vendors need equipment that can accept NFC payments.

QR code, on the other hand has minimal costs involved. Vendors just need to print out their QR code. Consumers only need a device that has a camera and can support the Alipay or WeChat apps.

QR code payments, on the other hand, demand no such extra hardware requirement. It is for sure that NFC chips come with an additional cost, and that is a luxury for many Chinese customers who have little incentive for paying an extra price to opt for NFC-based payments.

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Many vendors, mostly local small businesses, are hesitant to support NFC contactless payments due to the underlying costs. While it is reasonable to expect McDonald’s to accept credit cards, a vendor at a local farmers’ market in a Chinese city is less likely to own a POS machine that supports contactless chip cards.

QR codes are seen as a more convenient alternative to costly POS terminals. If you are a small business owner, you would have to follow a much more sophisticated, and pricey procedure to obtain a POS terminal than printing a QR code to request funds on WeChat or Alipay.

Another major factor is how users can easily link their Alipay or WeChat Pay wallets to their bank accounts, instead of a credit card. Or if you have cash, you can pass cash to someone and have them transfer money into your Alipay or WeChat Pay wallets. Many convenience stores offer such service, often charging a minimal service fee for their troubles.

Consumers in many Western countries are incentivized by the benefits and promotions that credit card holders enjoy. Although credit cards are ubiquitous in major Chinese cities like Beijing and Shanghai, they are not at all commonplace in rural parts of the country or even lower tier cities.

There are also roadblocks for college students, freelancers, retired citizens, and stay-home parents to apply for credit cards. According to a 2017 report from The People’s Bank of China, the average number of credit cards owned by each person in China is 0.39. In the US, the number is 2.6.

While the majority of Chinese people don’t get cash back from credit card companies, they can from Alipay. As third-party services, both Alipay and WeChat Pay have frequently offered (link in Chinese) promotions, cashback rewards, and “red packets” to users, including those who have only added debit cards to their accounts.

Apple Pay would be able to pose a bigger challenge and gain a greater market share in the Chinese mobile payments market if they add a QR code function and make it easier for consumers to add money into their e-wallets.