Caixin
May 16, 2017 06:36 PM
BUSINESS & TECH

Mobile Payments Charge Up McDonald’s, Starbucks in China

(Beijing) — Global dining giants Starbucks and McDonald’s say they now get a third or more of their China business from mobile payments, reflecting the nation’s growing global leadership in the high-tech electronic transaction space.

About 45% of purchases at McDonald’s Corp.’s more than 2,400 China stores are made through mobile payments, usually involving checkered QR codes generated from a person’s smartphone, the leading fast food giant revealed at an event over the weekend.

Meantime, coffee giant Starbucks Coffee Co. said 29% of transactions at its China stores were made through mobile payment in the first quarter, according to its China CEO, Belinda Wong, who revealed the figure during the company’s latest analyst briefing.

Starbucks’ mobile payments have ramped up in the last half-year after it signed a tie-up with Tencent, operator of the popular WeChat instant messaging app and its associated payment tool. The sector’s other major player is Alipay, a unit of Ant Financial Services Group, with WeChat and Alipay collectively controlling 90% of the digital-wallet market.

“The digital payment market in China has yet to be saturated, and is still going to increase, in terms of both penetration rate and transaction value,” said Chen Liming, CEO of BigData Research who follows the industry closely.

Digital payments are part of a broader trend that is seeing China’s restaurant chains go high-tech, including features like in-store Wi-Fi and ordering from electronic kiosks. The mobile payments trend also capitalizes on China’s high wireless penetration, since most of the country’s 1.3 billion people now have cellular accounts.

Following the rapid growth, more than 77% of Chinese have used mobile payment tools at some point, or more than double the 35% rate for North America, according to a report last December by market consultancy Kantar TNS.

Mobile Promotions

As part of its young WeChat tie-up, Starbucks launched a social gifting feature three months ago that enables users to pass vouchers to friends on the popular platform. More than 1.2 million gifts were sent during the first seven weeks after the launch, and over half have been redeemed by recipients, Wong said.

“Our innovative new social gifting platform, we call it ‘Say it with Starbucks,’ is not only encouraging everyday simple acts of kindness and connection, it is also bringing new customers into our stores to trial and enjoy the Starbucks experience,” Wong said.

Digitization in an array of forms has helped drive sales for both giants. McDonald’s achieved 4% global same-store sales growth in the first quarter, led by its strong performance in China. Starbucks reported its China same-store sales rose by 7% in its fiscal quarter through April 2, more than double the global growth figure of 3%.

Potential for the technology is still big in China due to untapped markets in the nation’s smaller cities and rural areas. McDonald’s stores in developed cities have a relatively high penetration rate for mobile payments, with Beijing clocking in at around 55%, said Zhang Fan, senior general manager of the company’s China unit. But the rate is much lower in less-developed areas.

In-store digitization has also landed in food-ordering at McDonald’s, allowing customers to complete both ordering and payment using touchscreens on stand-alone kiosks. More than 20% of customers have turned to the new way of ordering, Zhang said.

Most major restaurant chains and even many local eateries in China now accept payments via WeChat and Alipay, and companies frequently use the platforms for promotions similar to the one at Starbucks.

In 2016, transactions made through mobile payment rose 45% to 158 trillion yuan ($22.9 trillion), according to China’s central bank.

Both Alipay and WeChat have also formed partnerships with financial companies in other countries as they attempt to export their technology and services to markets in Asia, Europe and the U.S. But so far both have had difficulty reaching local consumers outside China, relying mostly on Chinese citizens living and traveling overseas as their main overseas customers.

Contact reporter Coco Feng (renkefeng@caixin.com)

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