When I was a small girl in China, I looked forward to Chinese New Year just like the children in the UK look forward to Christmas. One of the highlights for me was receiving red envelopes from my parents, relatives and friends. The giving of red envelopes, Hongbao in Chinese, is a gift giving tradition. Instead of wrapping presents and tying them up with colourful ribbons, Chinese people put a small amount of cash in a red envelope as a gift. The red envelope symbolises good luck and the money comes in handy too!
This year, at the beginning of the year of the Sheep, my “fortune” was boosted not only by a big physical red envelope, but also by many virtual red envelopes.
Today the sellers of physical red envelopes are facing a significant decrease in demand because of the digital competition from WeChat. “WeChat”, a mobile messenger app combining the functionalities of WhatsApp, Skype and Facetime, is enormously popular in China with nearly 468 million Chinese users. At the beginning of 2014, WeChat launched a new product called WeChat Hongbao which allowed the sending of virtual red envelopes between users.
In order to send or receive red envelopes WeChat users must link a bank account to their WeChat Hongbao account. A mobile payment platform called Caifutong supports the money flowing between the bank accounts and WeChat accounts.
Statistics from WeChat owner, Tencent Holding Ltd, suggest that one billion virtual red envelopes were sent on the lunar New Year’s eve, 18th of Feb 2015. This was 4 times the volume of Hongbao transactions of its nearest competitor, Alipay a 3rd party payment platform which supports payments for the China e-commerce giant Alibaba.
I think the success of WeChat Hongbao is down to three differentiators: gaming, ease of use and commerce.
WeChat Hongbao is not simply sending and receiving red envelopes, it is integrated into a game play. For example, one person releases a red envelop with one hundred yuan (equivalent to £10) in a group of friends, the app disburses this into random amounts and puts them into 5 separate red envelopes. People in the group were competing to get the red envelopes as quickly as possible, one person may get a big amount, two may get average and the rest may get nothing. This game creates a gambling-esque thrill that stokes the emotion: I may be lucky next time. Eventually more money will be spent on the game.
Secondly, as it is a Smartphone app, WeChat Hongbao is incredibly easy to use. As long as you know how to use the instant messenger in a Smartphone, you will know how to use WeChat Hongbao. Most people have the similar thought that a computer is a tool for doing business, whereas a Smartphone is a tool for entertainment and communication. If a 70 year old lady is given one hour and has the choice to learn how to use a laptop or how to use an iPhone, which device will she choose and which device can she use in an hour? The answer is very obvious. Social media tools easily attract a variety of user groups because they are easy to carry, easy to learn and easy to use.
Before we look at WeChat Hongbao’s commercial feature, I would like to share with you a little bit of my own experience.
Just for fun, I joined the red envelope game a few times and grabbed a number of red envelopes. However, as Caifutong does not support international money transfers, I cannot link my UK bank account to the WeChat hongbao account. I asked a friend whether I could return the money to the senders. He told me there is no need to return, I can use the WeChat Hongbao to pay for my purchases or a taxi when I am in China next time. This has led to new functionality in WeChat Hongbao.
The new functionality is providing WeChat users with “digital wallets”. In the future, WeChat users may not need to worry about forgetting their wallets at home, as their “iPhone” will pay the bills. This is a coup for Tencent as adding the “digital wallet” capability created an opportunity for WeChat users to leave their money in the WeChat accounts.
WeChat Hongbao has hit two significant milestones since it first rolled out last year: getting WeChat users linked on their payment tool and providing a one-stop mobile payment platform. What is the next step?
I believe Tencent is aiming to attract users to their money market funds. If we look at the statistics: one billion red envelopes were sent on the Chinese New Year’s eve alone, even if only ten yuan in each envelope, the total is ten billion yuan in WeChat’s bank account. In addition, people are now offered an opportunity to use the WeChat accounts for offline spending. They will no longer feel necessary to transfer their money out of their WeChat accounts. With sufficient capital plus the enormous customer base Tencent is building, this could generate a big threat for the traditional retail banks. Tapping into the financial service market would be the third milestone for Tencent.
Given that WeChat Hongbao is only one year old now, it will be very interesting to see whether or not my prediction will come true in the next few years.