GROUP - 4

FEBRUARY 20, 2023

China’s New
Innovation
Advantage

Pu Yafan 22220146
McCrann Patrick 22209071
Qi Ronghao 22207066
Na Risong 2225745

MIS40760-Digital Innovation Strategy

 Since the contemporary age, payment systems have seen a signi icant transformation.
They started by paying in cash. Then the bank card emerged as a brand-new method of
payment. Thanks to new technolo y, we now have the ability to make payments by
integrating our bank cards with our mobile phones.
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 Origins of Mobile Payment

What is Mobile Payment?

Mobile payment is the transfer of funds through electronic or digital medium via the internet. There are different forms of online payments, including mobile pay, digital
wallets, e-banking, bank transfers, and many more.
Why is There a Surge in the Use of Mobile Payments?
Not only is there a decline in cash payments and increasing demands for more contactless payment options, the widespread use of mobile devices has aided this
demand in particular. According to Statista, there's around 6.4 billion smartphone users worldwide in 2021, and that number is expected to still grow.

• Information and communication technologies (ICT) have been much more widely available and used in the ten years following the Global Summit on the Information
Society, especially internet and mobile phone services (Liébana-Cabanillas et al.,2020,p.1).
• According to the International Telecommunication Union's most recent report, 97% of the world's population now lives within reach of a mobile cellular signal, and 93%
or more of that population lives within reach of a 3G network. Additionally, the number of mobile phone subscribers has increased from 2.2 billion in 2005 to
approximately 8.16 billion in 2018 ((Liébana-Cabanillas et al., 2020,p.1).
• The majority of technology companies are focusing on enhancing the services that can be accessed through these devices in light of this data and in an effort to prosper
in the age of disruption. Numerous BigTech and FinTech businesses are introducing payment services, such as mobile wallets and payment applications. (Liébana-
Cabanillas et al., 2020,p.1)

 Mobile Payment in China

Between 2010 and 2020, the number of mobile internet user in China grow from 265 million to 835 million
Escrow-based System

2000 2010 2015 2020

2003 Alipay 2011 Ant Financial 2013 WeChat Pay Alipay: 1.3 Billion user ,
2008 Baidu Pay 2014 Alipay was 2014 Red Pocket Grow into other areas.
Rebranded as WeChat Pay: 900
2014 JD Pay
Ant Group Services Million Monthly users.

• Alipay is a leading payment platform in China with

54.5% of market share. Alipay Financial Products:
• There are a total of 94,261 websites that support • Yu’e Bao money market fund - Alipay user can quickly
Alipay as an online payment platform.. and easily invest in the app they use to pay.
• The total number of merchants which supports • Anti Micro Loan - Loan for mall business.
payments by Alipay is around 80 million. • JieBei Loans - Loan for individual consumers with high
• Institutions with nancial sectors which have credit score.
partnerships with Alipay are 200. • HuaBei - Allow user to buy item on credit without paying
• Alipay accepts around 27 currencies with 300 million interest.
users residing out of China.

WeChat Ecosystem:
• WeChat is newer in the market than Alipay, A total share
• Instant messaging, Social networking, Gaming, Payment,
of the market is 39.5%.
Shopping, Third-party services, Government services,
• WeChat Pay is accessed by 93% of people engaged in
Smart home services.
of ine purchases in tier 1 and 2 cities in China.
• QR Codes play an important role in system, all the
• WeChat Pay has a daily transaction over 1 billion.
functions can be accessed by scanning QR Codes. Users
• Over 10 million merchants that can process
can generate a QR code for free.
transactions through WeChat Pay.
• WeChat has agreements with numerous partners to
• WeChat pay support 17 currencies and is prevalent in
provide payment services, shopping, third-party services
60 markets around the world.
and home services.

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 China's Mobile Payment Adoption

Mobile Payment Users by App

China’s two mobile payments services are the most popular, despite only being
popular in the home country. Apple Pay is broadly popular in all countries where
the iPhone is, but has not seen much success in China.

• More than half a billion people in China will be paying with phones applications at a point-of-sale in 2022, The number
equals a penetration rate of 40.4 percent.
• The overall annual transaction value per customer is higher in the U.S and several European countries.
• Developing countries in Asia like India and Vietnam, typically have payment app penetration levels above the world
average, but the average spent per customer is extremely low.
• Tencent’s WeChat Pay and Alibaba’s Alipay account for 90% of the mobile payment industry in China, it also makes
them the most popular mobile payments in the world.

 Why Mobile Payment is successful in

China?

1. Internet. The leading driving force of mobile payment is mainly due to the rapid development of Internet economy and huge payment demand.
2. Financial infrastructure. The lack of personal check as a payment tool development link, so that the establishment of China's personal credit investigation
system is relatively backward, there is a lack of personal credit evaluation. In China has directly transferred from cash payment to bank card payment, and
personal checks have not been widely used in the meantime..
3. Technology. Technological innovation has promoted the development of mobile payment.
4. Network Effect. The advantage of mobile payment is the network effect brought by the large user speci cations.
5. The Policy. The regulatory policy of encouraging innovation and preventing risks also provides a relatively loose regulatory environment.  In 2010, the People's
Bank of China began to issue "payment business licences" to quali ed third-party payment institutions. As a banking business, payment and settlement can
bring considerable pro ts.
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 Mobile Payment in U.S

43.2% of US smartphone owners use mobile payments.
• In 2021, this amounted to 101.2 million Americans — up by 9.64% from 92.3 million in 2020. Recent projections show that the number of mobile wallet users in the United
States will keep growing in the coming years, although at a gradually declining rate. By 2025, experts predict that 125 million Americans, or just over half (50.1%) of all
smartphone owners, will be using mobile payments.
43.9 million Americans use Apple Pay for mobile payments.
• The most popular mobile payment app among Americans is Apple Pay, statistics reveal. It is projected to add another 14.4 million users by 2025, further strengthening its
lead. Meanwhile, Starbucks is the second most popular app with 31.2 million users — but as the name suggests, this app only works at Starbucks restaurants. The other two
apps with a sizable market share are Google Pay (25.2 million users) and Samsung Pay (16.3 million users).
Younger consumers are driving the growth in mobile payments.
• A 2021 survey found that 84.6% of Gen-Zers and 81.3% of millennials had used a mobile wallet for payments at least once in the previous year. That puts these two age
groups well ahead of Gen-Xers (65.4%) and baby boomers (33.3%). Interestingly, 16.9% of Americans from the so-called “silent generation” — the youngest of whom were
75 at the time of the survey — also said they used mobile payments.
Most Americans use their mobile wallets to buy groceries.
• In an August 2022 survey of mobile payments trends, 53.3% of respondents said they last used their mobile wallets to pay for groceries. Other common expenses included
fast food (20.6%), gas (19.6%), clothing and accessories (17.5%), and medications and health products (12%).

• NFC - based.
• Supported by 6 U.S banks and accepts American Express, Mastercard and Visa.
• Allows iPhone users to make payments at over 220,000 retail locations.
• Apple collects a fee from participating banks for each transaction.
• Apple doesn’t charge users, merchants or developers for the service.

• NFC - based.
• Supported by major credit cards.
• Allows Android user to make payments with their cellphone or tablets at retail locations.
• Google charge 2.9% when adding money to Google Wallet from a credit or debit card.
• There is no fee to receive money from Google Wallet.

 Apple Pay vs Alipay

• Acceptable Equipment .

The fact that Apple Pay is exclusively compatible with Apple devices, as opposed
to Alipay, which works with all smartphones, tablets, and desktop PCs, creates a
barrier for consumers since anyone with a device can use Alipay, but one needs an
Apple-supported device to use Apple Pay (Pang, 2020).

Although Alipay requires a third-party payment request, registration and the entry
of personal data are still required, once a consumer owns an Apple device, there
is no need for extra software since Apple Pay is already a part of the iOS operating
system.As a result, consumers will have to exert more effort to use Alipay mobile
payment than those who use Apple Pay because they are required to provide
additional personal information.

• Payment Process 

Placing an iPhone or Apple Watch next to a contactless sensor and pressing the
Home button with one user's nger is all that is necessary to utilize Apple Pay to
take the checkout of ine. Users do not have to open any apps or unlock their
phones or screens. Despite this, China uses QR codes extensively. 

Businesses can scan QR codes while completing transactions thanks to the fast
payment feature that Alipay and WeChat both provide. The user's QR code is
frequently scanned by a larger retailer or merchant using a scanner connected to
its POS system. Users scanning a retailer's QR code presents a unique situation for
tiny enterprises. (Pang, 2020 )

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 Issues in the US That Influence Consumer Choices

Regarding the Usage of Mobile Payments
• Economical Factors

1. Bank Card dominating the Payment market. One reason phones are the go-to payment method in some countries abroad is because cash was the only other, and far
less attractive, option. China’s mobile-payment Renaissance was less a result of government intervention. Instead, tech giants Alibaba and Tencent began battling for
customers’ wallets and eclipsed banks in the process. Because they deal with both merchants and consumers, there’s less of a need for credit cards to act as the
middlemenBut in the U.S., the credit and debit card system is well-established and works just ne for most people.The legacy players include Visa and Mastercard and
the banks. Those players have a lot to lose if the status quo changes, including revenue they get when customers swipe credit cards.
2. Marchant Acceptance. U.S. consumers aren’t lacking options when it comes to paying on their phones. There’s Apple Pay, Google Pay, Samsung Pay, PayPal, Venmo,
Square Cash, Zelle and newcomers looking to disrupt that entire list. But in order to use these apps, merchants such as coffee shops and retail stores need the proper
hardware.
3. Conventional methods are still winning in the U.S. Last year, 80% of consumers used credit cards for purchases, according to Bain. PayPal was the most popular
nonbank option at 40% adoption but is largely used for online payments. Apple Pay had 9% adoption.
4. Rewards. Credit cards compete for customers with cash back and travel rewards — something people won’t readily give up. Consumers can use one credit card for gas,
one for groceries and another for travel based on the rewards and cash they might get in the process.

• Political Factors 
 
1. Mobile signal wide coverage is mandated by the Chinese government. Even if there are mobile signals in some tiny areas, much of China supports
network signals that can be paid for. The foundation for China's widely used mobile payments is the country's nearly completely developed mobile
communications data network. Without it, even public support for policies is impossible. China Telecom, China Unicom, and China Mobile, three major
operators, are required to meet the need for coverage network construction under the rules of the Ministry of Industry and Information Technology,
even if the area is sparsely populated and unable to recoup construction or even maintenance costs.

2. Yet, private businesses run the mobile signal distribution system in the United States. Yet, signal-delivery operators in the US are essentially private
businesses. These businesses exist to generate revenue. Only in heavily populated locations where there is a high potential for pro t do they construct
base stations. And after a car leaves the road outside of the city, there is no longer a signal. As a result, the US network is not suf ciently developed. In
particular, the absence of sophisticated mobile communication networks is one of the reasons why mobile payments have not gained widespread
acceptance.

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 What can U. S
company’s learn
from China?

1. Integration of multiple payment methods: Chinese mobile payment platforms

like Alipay and WeChat Pay have integrated multiple payment methods, including
bank transfers, credit cards, and prepaid accounts. This makes it easier for users to
pay for goods and services, and offers a more convenient experience.
2. Incentivising use: Chinese mobile payment platforms offer incentives to users for
using their services. For example, Alipay offers cashback rewards and discounts for
using the platform to pay for goods and services.
3. Embracing technology: Chinese mobile payment platforms have embraced new
technologies, such as QR codes and facial recognition, to make payments faster
and more convenient.
4. Collaboration with merchants: Chinese mobile payment platforms have
collaborated with merchants to offer discounts and promotions to users. This has
helped to increase adoption of mobile payments and drive usage
Overall, the U.S. mobile payment industry can learn from China's success by
focusing on convenience, integration, incentiviation, and collaboration with
merchants.

 Reference

Dychtwald, Z., 2021. China's new innovation advantage. Harvard Business Review, 99(3), pp.55-60.
 
Liébana-Cabanillas, F., García-Maroto, I., Muñoz-Leiva, F. and Ramos-de-Luna, I., 2020. Mobile payment adoption in the age of digital transformation: The case of Apple Pay.
Sustainability, 12(13), p.5443.
 
Liu, W., Wang, X. and Peng, W., 2020. State of the art: secure mobile payment. IEEE Access, 8, pp.13898-13914.

Pang, R., 2020. The growth of payment apps like Alipay, Apple Pay, and WeChat Pay in two major markets, the risks and the bene ts, and the relations with traditional nance
(Doctoral dissertation).
 
 

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