Why did Apple pay fail in China? Detailed report

After a visit to Zhongguancun and exploring 18 stores, we found the reasons for the failure of Apple Pay in China during last year.

Apple Pay entered China on February 18 last year and it has now been a little more than a full year. But its situation in China is very different from what is going on in the United States, where it is invincible and got to take a leading position very quickly. A survey from Boston Retail Partners shows that in the US, Apple Pay has just surpassed PayPal as the new leader in mobile payment market.

Data indicate that 36% of all businesses have begun to support Apple Pay in the US, while during the same period, the ratio for PayPal was 34%. A year ago, this ratio for Apple Pay was less than 20%.

In China, however, the situation is clear: in the last year, the richest corporation which seized 90% of all the profits in mobile industry, did poorly in popularizing its payment tool.

The current market share of WeChat and Alipay, from the perspective of deposits, are very close to each other: about 160 billion yuan and 150 billion yuan respectively, accounting for the total amount of industrial deposits - about 70% if they are combined, 90% of total amount of the top ten in the market. Apple Pay, if the statistic caliber is included in CUP (China Union Pay) system, is not even close to these results. So what happened ?

Inactive Apple Pay, and aggressive WeChat & Alipay

Imagine this. When you request to use Apple Pay, the cashier either refuses straightforwardly, or simply asks "what is that?". If this scenario keeps occurring repeatedly, it will end up being a psychological burden; if your payment request is denied by the equipment, will you keep trying to "Apple Pay" your bill?

The difficulty for payment is that, both ends must be active simultaneously. On the one hand, more payment environments must be discovered, so that it would be possible for more businesses to support it; on the other hand, it must be convenient for its users, and a little bit of subsidies would be better. In other words, this is a " chicken or the egg first " dilemma. Also, the "second cosmic speed" situation - the object will be able to leave the earth only when the speed exceeds a critical point, applies to payment business. If the amount of users and businesses does not exceed a critical point, everything is in vain.

In China, Apple Pay is almost inactive other than relying on CUP.

Of course, CUP (China Union Pay) is supposed to be a very powerful cooperator. According to a Caixin report, the Disneyland tickets sales in 2016 were estimated at 4 billion yuan, and a total consumption of 20 billion yuan. CUP can lock down a huge environment of at least 24 billion yuan with an exclusive payment agreement.

But none has ever imagined that, during the CUP promotion period in December 2016, when people entered Disneyland, they discovered that there was an Alipay employee standing in front of every door, waving QR codes, trying to attract visitors. And salesclerks were also helping to promote. "We are helpless. The store is not allowed to use any Alipay logo, so Alipay uses people.”

Such an important move in Disneyland is not the only thing that was lost by CUP and Apple Pay. In February 2016, Apple Pay accessed Starbucks and its off-line stores, this event was once considered as a turn for CUP’s NFC payment. Starbucks had nearly 2,500 stores to support Apple Pay and "Yun Shan Pay", as back then, third parties were still not involved. However, in less than a year, this exclusive position was breached by WeChat Pay.

Faced with such striving competitors, how striving is Apple?

We decided to go visit Zhongguancun - the place Mobike chose to put their motorcycles first, and the best site area for Zhaochen Chao’s convenience stores. It is crowded with IT practitioners, people who are willing to accept new things, a perfect new business testing ground. The general conclusion of our survey is that, the usage of Apple Pay is at a low frequency, merchants basically don’t know about it. No Apple marketing people has been spotted.

During our whole visit, cashiers’ dazed faces only made us feel frustrated. Relying on users only to promote their payment tool? Apple should wake up.

In contrast, Alipay and WeChat show quite a strategy from the start. First of all, they won all businesses in key areas like Wudaokou, Sanlitun, then they spread a lot of QR codes through a massive money-burning deployment, with subsidies for all users, and made it a habit for them. Once the potential energy was formed, with these users going to other places, it quickly forced other businesses to follow up. But, apparently, Apple Pay hasn't such an effect.

WeChat and Alipay went directly to do business with large malls and small shops. Apple Pay’s cooperators are mostly CUP and banks. They never pay full attention to the long tail of the payment environment.

The power of habit is horrifying. In short, to make sure that customers want to use your payment tool repeatedly, even make this kind of habit deeply rooted, you must take the initiative to lobby stores with an army, remind them to set up advertising materials, and also you’ll have to repeatedly occupy the users’ minds, in order to maintain a high frequency - this is why WeChat and Alipay never wanted to miss the Spring Festival ‘red envelopes’ campaign.

"Its security level is much higher than QR codes and Apple Pay is able to deal with large payments which Alipay and Wechat can not support. But, no one has ever noticed these highlights."

Apart from the business-expanding work, Apple Pay failed to do a good job on a fundamental level, too. Only insiders are aware that in addition to paying for your bills off screen without loading the software, Apple Pay is mainly based on NFC’s near field payment and uses fingerprints as signature. Its security level is much higher than QR codes. And, Apple Pay is able to deal with large payments which Alipay and Wechat can not support. But, no one has ever noticed these highlights.

Ordinary users usually do not know that either, but even if the shop did not paste any Apple Pay sign on the cashier, as long as the POS machine has been installed with "YunShan Pay", it will be able to support Apple Pay.

In appearance, the size of Apple Pay’s Chinese team is not very large. On Apple’s official website, we found that in the newly recruited 228 positions, only seven are related to Apple Pay, and their requirements are entirely in English. It seems that this team shows no efforts in studying localization strategy. Not only the pushing materials are rare, the public relations are also silent.

One detail is that, when we hope to access to payment business support as a merchant on Apple’s Chinese official website, if we click on the query page link, from time to time, it will jump to an English web-page. The learning threshold for an ordinary Chinese businessman is incredibly high.

In short, few seconds quicker is not enough of an advantage to twist users’ habits. It has no subsidies, no coupons, no use of the direct environments, and even on the most fundamental level, merchants have a lot of trouble just trying to comprehend it.

More than a habit

There is still another variable that affects users' behavior, that is, the remaining balance in their payment tool.

WeChat has a great advantage because, based on a large number of red-envelope sending activities among its users, their virtual wallet retains a lot of deposit money. They will want to spend it at some point, which is an important reason why WeChat’s market share is now close to Alipay - at the beginning of 2017, Tencent CEO, Ma Huateng announced that WeChat payment has completely exceeded Alipay. An insider said, "WeChat now has the highest opening frequency. Alipay's market share will continue to decline." Apple Pay has no such remaining balance, which makes it even more difficult to succeed.

Alipay actually has a long chain of values. Collecting transaction data through the entry of payment, providing marketing, membership management and other value-added services, including industry solutions and other enterprise-level services, even crediting insurance and other financial services. In contrast, Apple Pay simply solved a very small part of the problem.

Therefore, the 'school of software' like Alipay, believes that ?the school of hardware' has certain limitations. A leader of Alipay, Miao Renfeng, once said : "Payment is not just a one moment experience, but a very long payment system, NFC only has a relatively large value in the last phase, such as bus cards. But its near-field payment can not respond to the long-term payment needs, its coverage is still relatively narrow. And, NFC still needs a larger investment, the threshold is too high to those street vendors. It does not fit with the spirit of common benefits."

Be careful Apple, Ant Financial Services Group is expanding rapidly overseas.

According to the Wall Street Journal, on February 21, Ant paid $ 200 million for the payment business unit of Korea's largest social networking company, Kakao Corp., which will set up Kakao Pay, a mobile finance subsidiary.

On February 17th, Ant Financial announced their injection to the Philippine version of Alipay, Mynt. Mynt owns the largest e-wallet in Philippine, GCash, which can be used to recharge mobile phones, transfer, online shopping and payment, and currently has more than 3 million users. And Mynt owns a platform, Fuse Lending, for individuals and small micro-enterprise loans.

On January 26, Ant Financial announced its acquisition of the US money service company MoneyGram for about $ 880 million. MoneyGram has offices in more than 30 countries, and 350,000 outlets in more than 200 countries and regions, connecting 2.4 billion global accounts. Ant Financial is now starting to show interest in cross-border shopping, remittances, and cross-border funds.

In fact, Alipay and WeChat payment have already made plans for the US market in the dark.

Citcon is a company in the United States helping WeChat and Alipay to receive orders. It signed with Alipay and WeChat in May and December 2016, as their helper in expanding the United States market share. The founder of Citcon, Huang Chunbo told 36KR that, the value of WeChat and Alipay has been recognized by common merchants. They know about the brands, but they are still alien to the "sweeping " payment technology, because they are accustomed to credit cards. Especially small and medium-sized businesses.

However, Huang Chunbo believes that it is a perfect time to promote sweeping payment, because it is the dawn of diverse payments. It was a bit immature in earlier times. Two years ago, Huang Chunbo worked for Visa and participated in the Apple Pay business, he says "Several mobile payment programs have failed." Well, now comes Apple Pay. A very good market education course has been completed for the merchants, and, it gave WeChat and Alipay a free ride.

Organizations like Alipay are eroding Apple Pay’s territory all over the world step by step. Apple needs to be more cautious.

Original article