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Tencent’s WeChat, China’s most popular social media app, has launched its digital payments platform in Malaysia, its first market in Asia beyond China and Hong Kong.

Malaysia’s WeChat users will be able to transfer money among themselves and make payments to offline merchants in ringgit. This suggests Tencent is building a local payments service, rather than taking the more common route of overseas expansion used by Chinese mobile-app providers that caters to Chinese tourists or nationals living abroad.

Malaysia’s central bank has been implementing policies promoting electronic payments in a bid to boost a network that lags behind other south-east Asian markets. That has triggered the launch of digital wallets by other strong players, including Grab, the south-east Asia ride-hailing company.

“Malaysia is a vibrant market. Technology-savvy Malaysians are embracing a digital lifestyle and to meet this shift, the payment experience has to evolve. Bringing WeChat Pay to Malaysia is our response to this,” said WeChat Pay Malaysia.

SY Lau, senior vice-president at Tencent, told Reuters in November when the company acquired a Malaysian epayment licence, that WeChat had 20m users in the country, equivalent to almost two-thirds of the population.

WeChat declined to provide a more current number.

The potential for mobile payments is vast in Malaysia, where cash is still king but the number of mobile phones, mostly smartphones, outstrips a population of 32.1m by more than 10m, according to the central bank.

But collaborations with local banks, of which WeChat has none, will be just as important for WeChat Pay to flourish there. At home, it took Tencent and Ant Financial, Alibaba’s electronic payments affiliate, years to build the links with hundreds of Chinese banks that make their services possible.

Grab has already partnered with top local bank Maybank to bolster its mobile wallet, GrabPay. Coupled with its strong ride-hailing network in its market of origin, Grab is set to be a tough competitor for WeChat in Malaysia. According to Grab, its app and mobile wallet are already on half of all mobile phones in Malaysia.

The number of emoney licences issued by Bank Negara to non-bank entities has almost doubled to 44 in the past two years as the central bank looks to reduce cash usage to curb tax evasion and corruption, according to Nor Shamsiah Mohd Yunus, Malaysia’s central bank governor.

In Asia more broadly, however, some analysts say WeChat might struggle to expand beyond Malaysia, where the population is more than one-fifth ethnic Chinese.

“How many markets are there in which WeChat can really generate the network effect required for mass adoption?” asked James Lloyd, Asia-Pacific fintech leader at EY, citing fierce competition from Facebook and WhatsApp in the region as well as Line in Thailand and Kakao in South Korea.

While the use of mobile payments is rapidly overtaking cash and cards for daily transactions by China’s smartphone users, WeChat Pay also faces the challenges of different local infrastructure and app-use habits in going abroad.

WeChat Pay’s Malaysia launch comes at a tricky time for Tencent, whose second-quarter earnings were hit by domestic reforms delaying the licensing of new games.

Additional reporting by Yuan Yang in Beijing and Louise Lucas in Hong Kong

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