Starbucks China Finally Agrees to Accept WeChat as Payment - The War is Over!

Great news for lovers of coffee and lovers of convenience here in China. Starting December 8th, Starbucks branches across the country will accept payments made by WeChat Wallet. In an announcement made on their website, Starbucks caught us all by surprise with this huge news, and went on to hint at some kind of gift-giving functionality through WeChat Wallet coming soon.

Starbucks had always been an outlier amongst city retailers in China in that it didn't accept any mobile payments except for Apple Pay. WeChat Wallet and their rival, AliPay, control almost all of the mobile payments market in China between them , and the fact that Starbucks ignored them in favor of Apple Pay, a relatively minor player, led many to speculate that the two companies might have an exclusivity agreement. Indeed, Apple Pay was seamlessly integrated into Starbucks branches overseas where available and this would seem to make sense.

Apple Pay in China piggy-backed off UnionPay QuickPass

Unfortunately, this backfired somewhat in the end because of a double-whammy of inconvenience. Firstly, both Chinese customers and locally-based expatriates are huge users of the big two local mobile payment providers, and while registering for Apple Pay in China is not extremely difficult, a great many people said that they didn't see the point of doing so, just to be able to avoid using a cash or card at just one retailer - network effects indeed. Secondly, Apple Pay in China piggy-backs on UnionPay QuickPass - the near-field based payments system from China's largest credit and debit card provider. However, using Apple Pay through QuickPass was not a perfect solution, and in experiments I ran myself, I reached an average of 60% functionality - simply put, two times out of five, it didn't work. Since I would then have to reach for my card, it began to make me wonder what the point of even trying Apple Pay was. Far from saving me time, it was costing me time, and I quickly abandoned it. A personal tale, to be sure, but one that had a similar ending with a great many of my friends and colleagues.

While users struggled to pay for their coffee with WeChat Wallet or Alipay, many street vendors selling items such as hot sweet potatoes were already accepting both.

Winners and Losers

The clear winners in this development are Tencent, the owners of WeChat. Despite Tencent and Alibaba working closely together in the fields of ride-sharing with their jointly-owned company Didi Chuxing, and in couponing through the merger of their respective services, Dazhong Dianping and Meituan, they are engaged in a fierce war over mobile payments. Alibaba's offering, Alipay, still accounts for about 80% of the market share, but WeChat Wallet is rising fast, thanks to successful promotion campaigns like 'red envelopes' and celebrity endorsements. However, since most retailers accept Alipay AND WeChat Wallet (not to mention QQ Wallet, Baidu Wallet and a handful of others), customers need to be given a reason to use one over the other. Exclusive agreements such as the one WeChat Wallet seems to have signed with Starbucks remove the need to dangle incentives, by cutting their rivals out of the equation completely.

Incorporating Starbucks loyalty points into WeChat Wallet alongside payments could go a long way to locking in a group of customers with a large amount of disposable income

The next big step will be to see whether or not WeChat Wallet will also incorporate Starbucks China's wildly successful Starbucks Card into their system. Currently the Starbucks Card, which permits customers to save points every time they make purchases and trade them in for free gifts, is issued in physical form and through a complementary app (not connected to the international Starbucks card app, by the way). However, earlier this year Starbucks ran a promotion through its WeChat Official Account which also allowed customers to save up points and trade in for free beverages. Incorporating the points system into the Wallet itself would be a major step towards creating real brand loyalty amongst Starbucks visitors towards WeChat Wallet as a payment method.

Just like Uber, I need two Starbucks apps on my phone: one for China and one for everywhere else.

The losers are clearly Apple Pay. I would go as far to say as they are done. While I wouldn't expect them to back down or pull out of China, the network effects of mobile payments are so large, that I can't see a way back from this defeat. With customers almost certainly moving immediately to using WeChat Wallet as their preferred payment method at Starbucks, Apple Pay's last bastion of hope has been crushed. Clearly, if anyone is going to take on Alipay and their gigantic market share in China, it will be WeChat Wallet, not Apple Pay. Perhaps these two companies should also consider cooperating in the future.

Right, I'm off for a mobile-payed Caramel Frappuccino. Enjoy the peace, for the war for is over!

Update

I visited Starbucks in north Shanghai on the first day and can confirm that WeChat Wallet works like a charm (I also snapped the pic below)! They have installed the same QR code readers most people will be familiar with from just about every other shop in China. It's the same QR reader you will need to scan your Starbucks Card (if you use the app instead of the physical card), so two scans are necessary. Meanwhile Apple Pay still needs the separate UnionPay QuickPass machine located in most branches on the counter surface.

Spotted in Starbucks on the morning of December 8th - literally snuck in overnight.