Why Digital Wallets Aid Luxury Sales

    Beyond urban, high-net-worth Chinese, heritage brands have not grasped the importance of mobile wallets for the rest of China.
    Luxury houses now need to give customers exactly what they demand, which is, in part, a wider selection of payment methods. Photo: rblfmr/Shutterstock
    Adina-Laura AchimAuthor
      Published   in Finance

    Mobile payments have proliferated in China since 2004 when Jack Ma and Alibaba Group first launched Alipay. Today, mobile wallets dominate China, and Alipay is the indisputable global leader in mobile payment services. According to the South China Morning Post, “mobile payment transactions in China added up to more than$12.8 trillion last year, making it the world’s largest mobile payments market,” and Chinese consumers are adopting mobile payments at a faster rate than the rest of the world. Meanwhile, according to eMarketer, only 20.2 percent of US consumers use mobile payments, compared to 45.2 percent of Chinese buyers. Therefore, although the digital wallet is now the go-to payment source for urban, high-net-worth Chinese, heritage brands don’t seem to fully grasp the importance of mobile wallets in the country.

    Mainland consumers are used to their preferred forms of payment (Alipay, UnionPay, and Tenpay) and are gravitating toward a cashless society with more transparent and inclusive payment systems. Because of this, luxury retailers who accept and validate mobile payment methods have an edge over their competitors, and these cashless transactions make even more sense for heritage and premium brands who need and crave purchases from the Chinese tourist demographic.

    It should be noted that while the Chinese appetite for luxury remains strong, changes in their spending habits have recently emerged. According to a report from HSBC, the number of Chinese travelers who are spending their income domestically instead of abroad is steadily increasing. “Our belief is that the split between shopping abroad and shopping at home will shift from 75-25 a few years ago to an equitable 50-50 split within the next 12-24 months,” the report states. We find the same notion in Bain & Co.’s research. The global management consulting firm says, “In mainland China, luxury sales grew 18 percent at current exchange rates to €23 billion (20 percent at constant exchange rates), driven by rising demand rather than by price increases.” Furthermore, Bain & Co. predicts that Chinese buyers “will make half of their luxury purchases at home in China” by 2025.

    As the price gap between luxury purchases made abroad and those made at home continues to shrink, affluent Chinese consumers are shifting their buying preferences — a trend that’s prompting heritage brands to go the extra mile with their customer service. In short, luxury houses now need to give customers exactly what they demand, which is, in part, a wider selection of payment methods. But there are many reasons why brands should start accepting digital wallet payments from Chinese consumers, four of which are outlined below:

    Brand loyalty#

    Luxury brands must understand that processing payment through Chinese mobile wallets is a way to build trust and loyalty with existing customers while luring new Chinese tourists into Western stores. Some countries do understand the importance and purchasing power of affluent Chinese tourists, and they’re already ahead of the curve with Chinese mobile pay. Over recent years, Singapore, Malaysia, and Thailand have all adopted Chinese mobile payments, which has helped them maintain high sales and customer satisfaction with their Chinese customers. As stated by Nielsen, 71 percent of the designer boutiques and duty-free stores in these countries already accept Chinese mobile payment methods.

    Personalized content#

    Marketing to China’s millennial base requires personalization and customization, and the Alipay wallet enables online stores to introduce promotional campaignson the app for free while also engaging users through gamification. For instance, the online game Ant Farm on Alipaylets players keep digital chickens as pets. In the game, users can feed the chickens until they get five eggs, which they can then donate as credits toward different charity projects. The Ant Forest is another online game that works similarly. In a country that reinvented the meaning and purpose of online gaming, personalized marketing helps to increase both loyalty and brand awareness while deepening a brand’s relationship with its customers.

    Increasing brand awareness#

    Each time Alipay users play Ant Forest (or any other online game incorporated into their mobile payment method) or scan a barcode/QR code, they come in contact with the company that facilitates these services. It’s a clever and subtle way for brands to build consistent awareness in a highly competitive marketplace.

    Enabling convenience#

    The modern Chinese lifestyle usually involves a hectic job, stress, and pressure. Therefore, consumers crave convenience and solutions to help ease their frantic lifestyles. Digital banking is far more accommodating than traditional banking services, and it gives consumers 24/7 access to their funds while lessening the burdens of carrying cash, overdraft fees, credit cards, checks, and various banking fees. The system creates a type of convenience that’s especially appealing to younger consumers who have different financial concerns than older demographics who are more often stuck in their old financial habits.

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