ApplePay and AliPay are so close but so far away
ApplePay & AliPay are the big lords of the new age of payments, and so it is worth to take a closer look on the what’s, how’s and why’s.
Through this article we will try to delve into how differently, the two big payment platforms, approach the markets and finally what the outcome is up to now.
For our study we will focus on platform’s origin markets (USA, China) as for those jurisdictions we have more “mature” quantitative and qualitative data.
Mobile payments it’s a really bull market for both Technology and Banking verticals. Fintech and Banking incumbents are battling to take their share of Consumers and Merchants payment transactions.
Smartphones ubiquity, users trust/security/privacy, payment process easiness/convenience and finally adoption from the ecosystem, seem to be the mobile payments ingredients to skyrocket.
Covid-19 outage changed drastically the way people transact and for sure has boosted the payments process evolution.
According to Bain Research (end of 2019) there is a small presentence of 9%, of USA consumers that use thoroughly ApplePay platform, to their day to day payment transactions. On the contrary, Chinese consumers proved an outstanding of 81% adoption rate of AliPay payment platform, for similar transactions.
Of course there is a significant gap between the populations’ size and synthesis of the two countries. But we still believe that this difference cannot defend the enormous variance in adoption rates.
What is the root cause of this behavior? Following, we will try to deep dive on this question looking through the Platform Business Model prism.
Create, Curate & Capture, Value Units for a Platform Ecosystem
From Platform Business Model perspective and considering the value units introduced by ApplePay & AliPay we can see three discrete associated milestones:
Value Creation: Introduce an easy, fast, secure, private, affordable, contactless payment process with access to a huge trusted merchants’ network.
Value Curation: Platforms support an easy and relevant on-boarding process and access to suitable respective markets, for both Consumers and Merchants. Nurturing and support of Ecosystem (i.e. merchants, consumers, third parties) is another important platform commitment. Additional services like consumers’ budget control or wealth management and merchants’ promotional actions and specific purpose loans increase platforms attractiveness.
Value Capture: Consumers pay through the platform and Merchants’ support the payment process through appropriate infrastructure. Usually platforms charge a transaction percentage payed by merchants. Additionally, platforms can create value from merchants’ required infrastructure and other edge services (i.e. buy now pay later for consumers). Successful platforms share captured value to their ecosystem in a “sustainable” and “healthy” course of actions.
ApplePay focus on Consumer
From ApplePay inaugural announcement back in 2014 becomes obvious that Apple curation strategy was strictly focused on consumers’ experience. Apple executives dreamed of a novel customer journey that was seamless, fast and secure.
From the technology perspective, ApplePay uses encrypted, Near Field Communication (NFC)signaling, to communicate with the Merchants POS. From the payment process perspective NFC is fast, secure and because of fingerprint mobile readers or OTPs supported functionalities, can easily resolve authentication issues and reduces fraud. NFC seems to save just a few seconds, from the in-store payment process timeline, comparing to any regular card. So the impact in the convenience and delay of the process is disputable.
Considering the ApplePay value capture, we discover that from the initial stage there was a charge of about 1,5% per transaction for the banking and issuing institutions. That charge was in addition to any existing regular card fees. For the Producers side there is not any factual offset to adopt the ApplePay platform, other than Apple strong brand. This is another proof that ApplePay lean more to Consumers benefit rather than this of Merchants networks and Banking institutions
One more issue is this of NFC POS communication technology compatibility. Back to 2014 there were few POS devices that already supported this type of communication (about 9% for USA market). So Merchants, (or merchant acquirers) were obliged to invest (i.e. H/W, S/W, training) in such technology in order to adjust themselves to the new specs.
From the above, becomes clear that ApplePay, in their first days, put a bet on its famous brand name to attract consumers and consequently to “force” Merchants and Banking to follow.
From a PYMNTS study for USA market, we can see that the share of eligible in-store transactions using ApplePay for 2019 were only 6%. Considering respectively, 6.9% for 2017, 5.1% for 2015, the increase of Apple smartphones in USA market and the maturity of NFC technology, we can securely say that ApplePay adoption seems to have plateaued and possibly has started to decline.
Despite the urgency boost we will see, because of Covid-19, side effects, we still believe that ApplePay growth plan for USA is out of track and for sure far behind AliPay progress in China
AliPay focus on Ecosystem
AliPay launched as an Alibaba group spins of (2011) and finally (2014) became Ant Financial. AliPay was built around the value creation idea of an affordable, trusted, accessible medium to pay for goods or services purchased from any e-commerce site (or any other affiliate e-channel) belong to Alibaba group. AliPay ambitions and value curation, from its early days, were far beyond a simple payment processor/gateway and they were trying to provide diverse solutions to specific jobs to be done, raised by market pain points.
AliPay value capture happens mainly from a 0.6% processing fee for every transaction into the platform. Merchants have to pay this fee, which up to now is about the half comparing the existing regular cards processing fees.
The POS communication technology here is based on Quick Response code (QR). This technology requires just an internet connection and a camera to process the payment and the investment from Merchants to particular S/W and H/W is very small.
After a closer look we see that AliPay platform had an interesting and at that time, fresh and creative, go to market strategy regarding value creation methodologies. Advanced big data, data analytics, AI techniques help them to better match consumers’ demands and producer’s supplied product or services. Suitable product offerings and more accurate promotional campaigns helped both Producers and Consumers increase successful on- platform transactions and therefore boost ecosystem profitability and healthy growth. Necessity next to convenience, privacy, security, multi-access, financial assistance (small & short term loans), help the ecosystem to minimize transaction risk and increase remarkably platform trust.
It’s worth mentioning to AliPay’s platform financial edge services. Small & short term loans for merchants and wealth management services and branded credit card for consumers are some of them. The key words here are financial inclusion. Traditionally, many Consumers or SMEs were excluded from regular financial products and therefore were unable to transact with the newly evolved digital markets. With those services AliPay platform managed to create new markets at the edge of the existing. AliPay managed to succeed an extraordinary organic growth, by creating proprietary financial products and giving access to previous un/under banked people and corporations
Finally, many new businesses were developed around the AliPay operations and the ecosystem had an impressive boost from the suppliers ‘side of platform as well. From AliPay published reports, we observe a 70% increase (2014 1M merchants-2018 30M merchants) in the number of active merchants which have adopted the payment platform in China.
This novelty curation approach gave AliPay a transaction value of trillions dollars, which is significantly bigger, comparing to the ApplePay billion one, even taking into account the USA & China populations differences. Even the last problems with Ant Financial IPO their $200B estimated value is strong evidence of its successful and compelling design.
It’s important to realize that USA and China Payments markets have some structural differences which are of vital importance for our analysis.
China’s economy has been transformed from cash transactions community directly to a digital one. The huge and fast expansion of digital infrastructure (i.e. mobile internet) side by side the regulation and governmental support boost this dominant shift.
At the other side, the more mature USA Payments market, transitioned from a card transactions economy, to a mobile/contactless one. Because of the market maturity level we see a more “skeptical” and less “open” approach from USA regulation and governmental authorities.
If we center our attention to consumers’ behavior for both USA & China, we will also see some important changes. In the preCovid-19 era, the gravitas around payments was on easiness, quickness and security/privacy. But in the new normal era, focal points are the necessity, contactless/social distancing of the payment process, while the rest are of less importance. This is a problem for ApplePay approach, as focusing on easiness and quickness seems to be a solution to an obsolete problem.
From payment market observations we see that what initially attracts the consumer side of the platforms, like a mobile app to easy pay in-store, easy reload and obtain relevant rewards, seems to be slightly shifted. It is crucial to understand, that when the consumers use their smartphone to pay, it is mostly because they want to skip the in-store experience completely. Consumers wandering around shelves corridors does not care so much to save time in cashier. Flexible orders ahead, with no checkout lines obligations, seem to be next big think of payment process. In any case, captivating reward schemes will remain important. Alternative payment business models, such as person to person (P2P), point of sale finance (POS/F, buy now pay later), subscription services and enriched interfaces (i.e. viewing product catalogs, place directly the order) may be worthy of our attention.
Clearly from the Platform Business Model perspective we can conclude with three predominant observations:
A. Value creation of the platforms may need to be shifted. Platforms must be ready to support such processes (i.e. from quickness to contactless and from convenience to necessity).
B. Focusing on one side of the Platform (i.e. consumers) and capture the value (monetize) from just the core value (product) is not efficient for platform growth. Edge services are equally important for platform healthy evolution
C. Ecosystem is the most valuable asset of any Platform. Focusing on Ecosystems and capture/share the platform value in a “proof of stake” manner (most partners “commitment” result in most partners’ benefits) is the most efficient method to healthy growth. A really fantastic payment platform is based on great usability, with specific jobs to be done being supported, enclosed in a healthy digital ecosystem.
Jack Ma’s speech to the Bund Summit, 24th of last October was the last time anyone saw in public, Ants Financials-AliPay boss and one of China’s most influencer businessman. This fact together with the news feeds reporting that China government is looking to take over Alibaba and Ant Financial Group and nationalize them, can securely fall apart all the previous sayings for the unconventional and finally successful strategy of the Chinese e-Commerce and Finance giant.
Fortunately the platforms are internet structures, with open architectures and global footprint. Based on our knowledge, since someone tries to internally control or enclose their transactions in specific jurisdictions, the platform becomes a traditional and less efficient pipeline supply chain. But at the end of the day, how efficient is to try to ban a global platform that everybody enjoy to use.
In our contemporary and digital connected world it’s almost impossible to own an economy. We can only govern it efficiently, always looking to maximize the social impact and benefit.
Digital Strategy & Technology Executive
Platforms Designer / Ecosystems Nurturing