How Can Chinese Mobile Payment Service Providers Avoid The Pitfall Of Apple Pay In Their Overseas Expansion?

摘要: What’s status quo of the Chinese mobile payment market? What factors contribute to the prosperity of the Chinese mobile payment market? What attempts have been made by Chinese mobile payment service providers to go abroad? What challenges are they facing right now? How can they avoid the pitfall of Apple Pay and make a role in the overseas mobile payment market?

(Chinese Version)

Has everything been going smoothly for Chinese mobile payment giants eyeing overseas markets?

“For sure, what’s called ‘convenience’ by American users can be revolutionary for people in developing countries,” Eric M. Jackson, former vice president of marketing at PayPal, said in his well-know book The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth.

However, he would never have expected that Chinese tourists would often complain that they couldn’t buy a loaf of bread at American airports without cash, while they could pay bills with their smartphone almost everywhere, even at snack stands on Hangzhou streets.

Indeed, China has led the world in terms of mobile payment penetration rate.

According to Alipay’s national bill survey, mobile payment accounted for 71 per cent of the total in 2016, while this figure reached as high as 92 per cent among people born after the 1990s.

“The American mobile payment market is dwarfed by the giant Chinese one,” Financial Times commented. According to iResearch and ForresterResearch’s estimate, the total volume of the Chinese mobile payment is fifty times bigger than the American one.

At the same time, Chinese mobile payment giants, represented by Alipay, have been actively going abroad and even planning to enter the US market.

False alarm

Acquisition of MoneyGram is a vital step in Alibaba Group Ant Financial’s expansion overseas. This January, Ant Financial was reported to acquire MoneyGram with $880 million ($13.25 per share), which aroused widespread attention and discussion.

MoneyGram is the second largest provider of money transfers in the world, second only to Western Union. The company operates in more than 200 countries with a global network of about 347,000 agent offices

This January, Alibaba founder Jack Ma met with Donald Trump and pledged to help one million American small and mid-sized companies to sell products to Asian consumers through the company's e-commerce platform. By acquiring MoneyGram, Alibaba would have linked one million American small-sized local service stores with Chinese consumers.

However, it was reported on March 15th that American electronic payments provider Euronet Worldwide also intended to acquire MoneyGram with a valuation of $1 billion ($15.20 per share).

Obvisouly, Euronet Worldwide’s offer is more tempting and it would be a lot easier to get permission from American authorities if MoneyGram opts for Euronet Worldwide.

A day later, MoneyGram issued a statement, saying that its contract with Ant Financial remains valid and that MoneyGram’s board of directors will stick to the agreement with Ant Financial.

It turned out to be false alarm.

Ant Financial currently targets mainly Chinese tourists travelling abroad in its overseas expansion plans

Still, MoneyGram is only a tip of iceberg in Ant Financial’s overseas expansion.

From Norwegian city Langyer to Argentina city Ushuaia, Alipay has become available in more than 200 countries and regions around the world. With over 40 million overseas users, Alipay already supports payment in eighteen currencies, including US dollar, Hong Kong dollar, pound, euro, yen, etc. Up till now, Ant Financial has set up branches in six countries, including the U.S., Singapore, South Korea, Britain, Luxembourg and Australia.

Although Ant Financial often have new moves, it has been quite cautious in every step: its output is often technology-centered and light-asset, and it seldom attempted to become the biggest shareholder. After all, government surveillance in the finance industry is strict in any country.

Currently, Ant Financial mainly target Chinese users travelling abroad. Last July, Alipay launched “Alipay+” plan and vowed to recruit global partners and open access to its technology and resources in an attempt to establish a mobile payment ecosystem in major airports, supermarkets and restaurant centers around the world. The project also mainly targeted Chinese tourists travelling abroad.

It is worth noticing that Ant Financial’s cooperation with Paytm is an exception, since Indians consumers are their target. Therefore, can Ant Financial really rise into a super mobile payment platform serving users around the world in the long run?

Chinese mobile payment giants rise by standing on giants’ shoulders

If we look back, we may find that the rapid rise of the Chinese mobile payment market has to do with various factors.

“Above all, there are historical factors. Third-party payment guarantee transaction function played a vital role in the early development of e-commerce business. With the development of e-commerce business, third-party payment is further popularized; secondly, there are social and technological factors. The spread of smartphones and the rapid development of the mobile internet led the transfer of the entire business to the mobile end; thirdly, more importantly, third-party payment platforms, especially the two mobile payment giants Alipay and WeChat Wallet successfully completed the user education based on high-frequency offline consumer scenarios along with the rise of O2O. Supplemented by their existing complete systems in the social and financial areas, they have introduced several popular new functions and services, including red envelopes, Yu’ebao, etc. All these actions help cultivate users’ habits,” Wang Pengbo, a researcher at Analysys International, explained.

Moreover, the prosperity of mobile payment also has to do with the special policy environment and financial system in China. To be more specific:

First of all, "government’s attitude is a very important factor", Dong Ximiao, executive director of Hengfeng Bank Research Institute and a researcher at Chongyang Financial Research Institute of Renmin University of China, explained, "China adopts a loose policy over third party payment. While some countries regulate third - party payment business similar to deposit business and require relevant platforms to pay deposit reserve, China doesn’t impose any such limits. Besides, requirement isn’t particularly high in terms of access policy, which is highly conducive to the development of third party payment.

In addition, mobile payment gets where it is today by standing on giants’ shoulders, or banks’ shoulders.

For example, China’s bank system provides third-party payment with some of the basic functions, including ID identification, transfer and settlement, etc., which enables them to provide further comprehensive financial services.

"The convenience of third-party payment is inseparable from the bank's support at the backend." Zeng Gang, director of Bank Research Center at the Institute of Finance, Chinese Academy of Social Sciences.

On the other hand, banks are also beneficiaries of the highly-developed third-party payment market.

"Although third-party payments dominate in some new trading scenarios and the role of banks is relatively weakened, third-party payment also brings much cash flow and more revenue to banks, something banks aren’t able and motivated enough to achieve by themselves," he added.

How can Chinese mobile payment service providers avoid the pitfall of Apple Pay?

Besides financial policy factor, can mobile payment become as popular overseas as it is back in China? It’s common that mobile payment products, like many other types of products, can’t develop well abroad. A typical example is Apple's Apple Pay.

Based on Boston Retail Partners’s statistics, Apple Pay has replaced PayPal and become the number one mobile payment service provider in the US, covering 36 per cent of businesses. Besides, it has done a great job also in countries such as Canada, Australia, France, etc.

However, the invincible Apple Pay failed in China. According to Time Weekly, Apple Pay accounts for less than 1 per cent in the Chinese mobile payment market, which is almost negligible.

How come?

Similar to Android Pay and Samsung Pay, etc., Apple Pay adopts the NFC (Near Field Communication) model. It is widely agreed that NFC is more secure than QR code. Moreover, user experience of NFC payment is also better. For example, Apple Pay users can complete payment simply by approach the dedicated POS machine with the NFC sensor area, and there’s no need to input password. In fact, the entire payment process can be completed within one to two seconds.

However, NFC payment poses higher demand on POS machines and smartphones. For example, only iPhone users who pay bills through POS machines that support quickpass can successfully use Apple Pay.

In comparison, Chinese mobile payment tools such as Alipay, WeChat Wallet, QQ Wallet, JD Wallet, Baidu Wallet, TenPay all adopt the QR code payment model.

Besides, Alipay and WeChat Wallet will often give subsidies to business owners, making Apple Pay’s advantages less tempting.

More importantly, Apple Pay’s success in the US has to do with the mainstream payment habit.

“Americans are accustomed to credit card payment, so some Americans will stick their credit cards on the back of their smartphones for convenience’s sake,” Wang Pengbo explained.

Credit card service is already quite mature in the US, and all kinds of discounts and subsidies make credit card payment a favorable choice for most consumers. Therefore, mobile payment actually still takes up a small proportion in retailing payment scenarios.

This is also why it is easier to spread Apple Pay in the U.S and also why it is difficult for Chinese mobile payment platforms to go abroad.

“To play a role in overseas mobile payment market, Chinese mobile payment service providers have to find the best user scenarios and get local people into the habit of mobile payment,” he suggested.

To really stand out in this world-wide payment battle, Chinese finance and tech firms such as Ant Financial and WeChat should never be content with simply satisfying the needs of Chinese tourists travelling abroad and users in southeast asian countries. Instead, they should dream bigger and try to fit in more development financial ecosystems in the U.S. and Europe, change local users’ payment habit and play a proper role in their everyday lives.

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[The article is published and edited with authorization from the author @Yema Financial, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.

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