Face Recognition Payments in China Are Burgeoning
Face recognition payments are burgeoning in China, as recently reported by the WSJ. The shift from QR codes to face scanners is evolving rapidly but is unlikely to harm Alipay’s and WeChat Pay’s quasi-duopoly over China’s digital payments.
Alipay has been pushing face recognition payments for some time, showcasing its “Smile to Pay” facial payment application as far back as in 2015. In 2017, Alipay rolled out facial payments at Chinese KFC restaurants.
During the past few years, QR codes have catapulted China into cashless payments thanks to the low adoption costs for merchants. As shown in the chart below, printed or static QR codes cost merchants virtually nothing other than the paper to print them, though customers need to scan the codes. Dynamic QR codes - those displayed on customers’ smartphones and then scanned by merchants with POS devices – cost only $10 and $57, as shown above.
That said, QR codes probably are on their way out. Last year, apparently for security reasons, the Chinese government capped the maximum spending with static QR codes to 500RMB ($78) per payment app and user per day.
The cost of face recognition payment devices is declining rapidly. In April, Alipay announced a $448 million campaign offering merchants Alipay’s Dragonfly 2 face scanners for free given minimum transaction volumes, all the more attractive because they automate the checkout process and replace cashiers with self-service systems. Alipay’s Dragonfly 1, released in December 2018, was 80% cheaper than other self-service systems. One supermarket chain said that Dragonfly 1 increased the efficiency of its checkouts by 50% because one cashier was able to handle up to three facial recognition point of sale (POS) machines, saving it $2 million per year.
Given its nation-wide video surveillance and social-credit system, China should be supportive of Alipay’s push into facial recognition payments. Alipay’s parent company, Ant Financial, invested in SenseTime, one of eight companies involved in a pilot of the social-credit system.
The push toward facial recognition payments is unlikely to end the dominance of Alipay and WeChat Pay in China. All virtual transactions still happen inside the Alipay and WeChat Pay wallets, including face-based scanning transactions. Alipay and WeChat Pay could benefit from biometrics if the Chinese government requires more transactions to be completed with face scanners.