Recruiting in China

In the battle for third-party payment users, fees may loom large in artillery.

Internet giant Tencent recently stirred heated debate among netizens by slapping a commission charge on users who transfer 1,000 yuan ($154) or more from their WeChat "pocket money" to debit cards.

The commission amounts to 0.1 percent of the transfer amount once it exceeds the 1,000-yuan life-time free allowance.

Online reaction to the new fee drew comparisons with Tencent archrival Alibaba, whose affiliate Zhejiang Ant Small Financial Services Group operates the popular online payment service Alipay.

In 2013, Alipay started to charge commissions on transfers between Alipay accounts for users on desktop computers. The rate ranges from 0.15 percent to 0.2 percent. Transfers from smartphone users' Alipay balance accounts to debit cards remain free.

Tencent set its threshold at 1,000 yuan because most users' pocket money balances are below that figure. Users who register a separate WeChat account or debit card won't be exempt from the rules.

China had 358 million mobile payment users at the end of 2015, up 65 percent from a year earlier. The proportion of online payment customers among smartphone users grew to 58 percent from 39 percent at the end of 2014, according to a report published in January by the state-backed China Internet Network Information Center.

Walking around downtown Shanghai, it's easy to find convenience stores, coffee shops and snack bars that accept Alipay and WeChat payment services, not to mention the existing point-of-sale machines.

Tencent said its WeChat can be used for payments at more than 300,000 offline vendors nationwide, and Alipay's offline payment network operates on a similar scale.

Market response

Most of my friends say the impact of the new rule is marginal.

"Several hundred yuan of pocket money is really no big deal with WeChat payment services available at so many online vendors and offline merchants," said Shanghai resident Chris Xu, who is in her early 30s.

Others are more pragmatic. "I will ask my friends to transfer money directly to my bank accounts or Alipay accounts since I don't want to pay any additional fees if I wish to move my money from my account to my debit card in case of emergency," said Shanghai office clerk Doris Li said.

Very few consumers have undying loyalty to only one payment service. Most people choose whatever discount is available from either of the payment service providers.

An internal survey of more than 17,000 urban WeChat users by Tencent shows that nearly 30 percent who receive e-Hongbao (or digital "red envelope" money) have transferred their balance into debit cards, while only 12 percent have used their balance to pay for online shopping orders.

More than 78 percent of users passed e-Hongbao on to other friends and colleagues.

Some 200 million people have connected their credit or debit cards to their WeChat accounts.

A Tencent official insisted the new fee is to cover part of the cost of online payment services that connect with banks and to optimize support for small-sum transfers between WeChat accounts, which would be free of charge compared with a daily free-of-charge limit of 20,000 yuan.

Explanations aside, it's obvious that Tencent is hoping to create a de-facto virtual bank account system where one can use pocket money either to pay bills or buy merchandise from offline vendors.

Independent industry watcher Wang Yunhui said the exponential growth of e-Hongbao lands Tencent in the dilemma of transaction sizes and ever-climbing costs to connect its payment service with banks' online small sum payment systems.

"Tencent needs to give users incentives to use their account balance for online or offline payments," he added.

Besides, that would be a boost for wealth management products sold on the WeChat platform, he said. The wealth management platform, which is a stand-alone feature in the WeChat application, currently connects with 10 mutual fund and insurance companies, with combined transaction volume of about 100 billion yuan.

Currently, WeChat's pocket money can be used to pay credit card bills at 23 domestic banks.

Alipay, which is expanding its service network, drew more users during its Chinese New Year campaign last month. Its continuing efforts to team up with offline vendors and wealth management companies and financial institutions ratchets up the battle for users.

Now with Apple's contactless payment service Apple Pay available to Apple's smartphone users, consumers will have even more options. That opens up a wide horizon for more innovative services to be introduced.