Wapi Pay, Huawei, and the Digital Yuan
They're all literally (and figuratively) connected
On my way to Nairobi, I made a stop at my favorite place in the world. A multi-story beauty product complex in Guangzhou. I went to visit my favorite stall for wigs and manned by a no-nonsense woman who was always up-to-date on the latest trends in fake hair.
When I told her that I was moving to Nairobi, she was immediately filled with ideas about how I could grow my very own wig empire. She told me that if I ever wanted to get into the wig selling business all I had to do was hit her up on WeChat, make an order and send her money via Wechat Pay or Alipay, China’s two biggest digital payments methods.
“What about delivery?” I asked. Not a problem. She was connected to the most reliable freight forwarders in Guangzhou who’d get my shipment to me in no time. No muss no fuss. In fact, she said, she did it all the time with other African merchants. After her pitch, she quickly moved on to the next customer, a West African man that was making a far bigger purchase than me and was in a rush to catch his flight.
I arrived in Nairobi after what felt like the longest journey ever and was thrilled to find Chinese restaurants abound. The best part was that they all accepted Wechat Pay and Alipay. I later found out that they were preferred methods of payment for Chinese people on business in Nairobi. As one businessman told me, they made reimbursements far easier than if they’d paid in Kenyan shillings (KSH). He also let me know that, if I needed to use Wechat and Alipay to exchange RMB for KSH at an amazing, rate he knew just the place.
After a few months in Nairobi, I decided that I was here to stay. But, I’d quickly come to the conclusion that the city was much more expensive than Beijing and I really wanted to go on a beach vacation. So, I pulled out Alipay and transferred a bit of money from my bank account to an in-app savings account that promised a good return if I kept it there for 6-months.
Somehow, China’s digital payments methods managed to follow me across the world. And, it hasn’t stopped.
Over the past few months, the internet has been filled with juicy China-Africa digital payments news that I’ve been eager to dive into. My first (and hopefully very exciting) newsletter will cover all of these moments and tie them together. Here’s what you’ll find:
Personal observations gained from watching Alipay and Wechat Pay mature in China
A brief discussion of the digital yuan (e-CNY) and how it came to fruition
Thoughts about how the digital yuan will be rolled out in Africa (hint: Huawei is involved)
How companies like Wapi Pay are already working to fill the digital yuan’s place in Africa ( hint: Huawei is also super involved)
Let’s get started…
Fun-tech, not Fintech: How Alipay and Wechat Pay took off in China
Prior to the rollout of digital yuan in China, Wechat Pay and Alipay were the two hottest digital payment methods around.
WeChat Pay was introduced in 2013 and is a feature built on top of the social media/messaging app Wechat (something like China’s WhatsApp). Alipay, on the other hand, is owned by Alibaba. It was developed as an escrow payments system for Taobao, one of China’s most popular online shopping platforms. Using the Alipay app requires a separate app download for its use. But in addition to being a stand-alone payments app, it also includes a number of smaller built-in applications that make financial management quick and easy.
I went to China for the first time in 2012 and people were still using cash. When I returned a few years later, Wechat Pay and Alipay were present, but cash was still king and neither app was widely accepted as a form of payment. Then, as if overnight, I watched as the two companies captured the digital payments space and changed the pace of life for billions.
I was hesitant at first, but it really didn’t take much to reel me in. Alipay got me through Taobao, one of China’s biggest eCommerce apps. At the time, the only way to link your bank card to Taobao was to register for a Taobao account with your national ID number. I am not a Chinese national, so I was restricted from using Taobao on my own. But then, Alibaba linked the Alipay app to Taobao. All of the sudden, as long as you had a bank account in China and an Alipay account, you could now use Taobao to your heart’s content.
I promised myself I’d stop at Alipay. The worst thing for a graduate student on a budget is being able to spend money with ease. But, it proved easier said than done. When the Lunar New Year rolled around, my Wechat group chats were filled with digital ‘hongbao’ or red envelopes. In Chinese culture, hongbao are given out during New Year celebrations from parents to children, employers to employees, etc. But, that year, Wechat turned the red envelope into a playful thing done between friends. My Wechat groups were filled with digital hongbao. And, as a graduate student on a budget, I couldn’t resist the urge to open a few. From that point forward my Wechat wallet had a little bit of cash in it. Naturally, it made sense to link my bank card to WeChat pay so that I too could send a few red envelopes too. It was the holidays after all!. And, once my card was linked it was nothing to pay for items with WeChat Pay every once in a while.
WeChat Pay managed to gain a large userbase through a captive audience of more than 900 million active users on its chat app. Alipay had managed to do the same through Taobao. But, they were still to battle it out to capture the last few holdouts. What emerged from this effort were a series of in-app programs that basically gave loyal customers free money. Wechat used my favorite method.
If you paid for a product at a store using Wechat, you’d get a digital red envelope with a prompt asking you to shake your phone. After a few seconds of vigorous shaking (and looking like a fool), you’d receive a red envelope with some random amount. As a graduate student on a budget, I took pleasure in convincing myself that I was making back the money I spent, as long as I used WeChat Pay. Alipay implemented a similar program reportedly spending a total of 500 million yuan ($73.6 million) in free cash.
As WeChat Pay and Alipay developed, I began to segment my use of each app. Alipay was important financial transactions like topping up my student card, paying bills, and making small investments (and Taobao). WeChat Pay became my go-to for paying friends back for group dinners and sending gifts.
After widescale digital payments uptake came the bike-share apps, phone charging stations, and smart lockers. Paying bills and tracking finances became simple and a dead cell phone left you more disconnected than ever.
Africa and the Digital Yuan
Now, everyone is raving about the digital yuan. As of July, digital yuan trials in China reached 34.5 billion RMB ($5.3 billion) in transaction value. This was no small feat. A reported 279 million RMB (USD 43.2 million) was given away to consumers or banks to gather data about how it was being used. It seems like e-CNY is here to stay.
To learn more about how one user spent their digital currency read here.
The digital yuan predates the wide-scale uptake of WeChat Pay and Alipay. The People’s Bank of China (PBOC) quietly started studying digital fiat currency back in 2014. By 2016, they’d established the ‘ Digital Fiat Currency Insitute’ and then developed the first-gen prototype of the e-CNY. By 2017, the PBOC had received approval from the State Council and began to work with commercial institutions to develop and test the digital currency for its rollout.
There have been questions about what the digital yuan means for Africa and speculations as to how it might impact trade, debt repayments, and the tech industry. According to a progress report issued by the Working Group on e-CNY Research and Development of the People’s Bank of China, in July 2021, the digital yuan is technically ready to be used in cross-border payments, but China’s authorities are currently focused on monitoring its use in China. At present, the e-CNY is largely being used in retail purchases. Its arrival to Africa may be far off. And, I believe that before we speculate about what function it will serve when it arrives, we should first figure out how it will arrive.
Huawei & Africa’s ‘Authorized Operators’
The digital yuan is issued by the People’s Bank of China (PBOC). The PBOC is also responsible for connecting the e-CNY to institutions, and managing the digital wallet ecosystem. Commercial banks in China are authorized to participate in e-CNY exchange services as long as they demonstrate ‘certain strengths in capital and technology as authorized operators’.
If the digital yuan goes international, China’s authorities will certainly use similar criteria to select authorized operators. It just so happens that, Huawei signed a partnership agreement with the Digital Currency Research Institute of the People’s Bank of China (PBOC) at the end of 2019. According to TechNode, Huawei was not forthcoming about whether the agreement was related to the digital yuan. But, a day later Huawei signed another agreement with a PBOC subsidiary called the China National Clearing Center. In January 2021, the China National Clearing Center he Cross-Border Interbank Payment System (“CIPS”), the Digital Currency Research Institute of the People’s Bank of China (“DCRI”), and the Payment & Clearing Association of China (“PCAC”) set up a joint venture with the Society for Worldwide Interbank Financial Telecommunication S.C. (“SWIFT”) and formed the Financial Gateway Information Services Co., Ltd.
Within Africa, Huawei is also heavily involved in the banking sector.
...How, you ask?
Well…Huawei has this nifty digital banking system that is already being used by a few banks.
For example, in November 2020, Huawei and MuRong Technology (Huawei’s digital banking technology partner), implemented a next-generation core banking system for NCBA Bank. Huawei is also responsible for developing NCBA’s and Safaricom’s M-Shawri platform, a rapid loan service that allows customers to apply for and receive loan funds straight to their phones. Safaricom acts as the mobile operator and NCBA acts as the intermediary bank. Also, let’s not forget that Huawei is in some part responsible for the tech behind M-Pesa, Safaricom’s proprietary digital payments method.
In the event that the digital yuan does come to Africa, it is probable that Africa’s chosen ‘authorized partners’ will be banks that have already worked with Huawei to upgrade their core banking systems. This may be an incentive for banks to work with Huawei in the years to come. In fact, Huawei is already facilitating tech for startups looking to ease Africa-Asia cross-border payments.
Wapi Pay and Huawei
Wapi Pay is a Kenyan fintech startup that was founded in 2009 by Paul and Eddie Nidichu. Last week it was announced that the company had raised $2.2 million pre-seed for cross-border payments between Africa and Asia. Some of the company’s investors include Transsion Holding, the mother company of TECNO, Infinix and iTel, Future Hub, and Gobi Ventures. In the not too far off future, the company hopes to bypass traditional payment methods and facilitate seamless low transaction cost payments between the two continents.
We shouldn’t be surprising at this point, but the tech behind Wapi Pay was developed by Huawei. In an interview, Wapi Pay’s Eddie Nidichu revealed that the company is actively using Huawei’s container engine, elastic volume service, and elastic cloud services. Nidichu also stated that Wapi Pay’s data will be stored in Huawei’s South Africa-based data centers.
Wapi Pay also has a stated goal of expanding ‘services beyond payments’. What I imagine for the fintech company’s future is its very own eCommerce app that allows customers and merchants in Africa to order products directly from manufacturers in China and pay for them through the use of a single app. The missing piece here is a fast, reliable delivery method. This is something that China-made e-Commerce companies in Africa like Killimall have even struggled with.
(more on this from an interview I facilitated with Killimall in a future newsletter)
If Wapi Pay is successful, the company’s presence has huge implications for merchants, shoppers, and students moving between Africa and Asia on a similar scale to that of the digital yuan. The running trend throughout this entire China Africa digital payments ecosystem and its future are Huawei. It’s uncertain what the digital yuan will look like when its internationalization finally happens. But, what we can expect, is that Huawei will be and already is at its heart operating at the very core of Africa’s digital banking system and cross-border financial flows.
Hope you all enjoyed this. Please feel free to reach out to me with any questions or comments. See you next Monday!
Very well articulated and informative article. Thank you.
Brilliant!