Why Hasn’t Apple Pay Replicated AliPay’s Success?September 14, 2020
As of late 2019, only 9% of American consumers had adopted Apple Pay while 81% of Chinese consumers used AliPay. What explains the huge gap between adoption of these mobile payment services in the two countries? The authors argue that it’s largely a question of approach. Based on our their experience in the financial services industry and work with platform companies, the authors identified two key strategic drivers for successful platform adoption: 1) Create value for all parties, not just the consumer, and 2) Monetize the ecosystem, not just the product.
Even before Covid-19, mobile payment platforms were experiencing a boom in the U.S. and China. Apple Pay (U.S.) and AliPay (China) have radically changed the way people transact, offering secure, contactless payment options through mobile phones. Though both platforms are growing, AliPay is outperforming its U.S. peer: As of late 2019, Bain & Company found that only 9% of American consumers had adopted Apple Pay while 81% of Chinese consumers used AliPay. Given the size difference between the two countries, the difference between the number of AliPay users in China and Apple Pay users in the U.S. is staggeringly large. What are some of the factors driving this stark contrast?
Based on our extensive financial services industry experience and work with platform companies, we found two key strategic drivers for successful platform adoption: 1) Create value for all parties and 2) Monetize the ecosystem, not just the product. So far, Apple Pay has only marginally accomplished the first while AliPay has mastered both. Other platform leaders can learn from their examples.
Apple Pay focused on the consumer.
The Steve Jobs-driven culture of focusing relentlessly on customer experience was core to Apple’s development of Apple Pay, which launched in 2014. The premise was simple: Apple Pay relied on encrypted near-field communication (NFC) signals from point of sale devices that would allow users to pay with their iPhones instead of a credit card. Apple Pay seemed to offer a genuinely futuristic consumer experience that was secure, seamless, and fast: NFC technology is extremely quick, and consumers can use their fingerprint to authenticate the transaction, significantly reducing fraud. But for the average U.S. consumer, paying with Apple Pay only saved a few seconds during in-store transactions and thus was only marginally more convenient than paying with a debit or credit card.
Apple was less focused on mutually beneficial partnerships with banks and merchants. Assuming customers would adopt their platform quickly, Apple attempted to monetize it from the very beginning and charged banks and issuers around 0.15% per transaction for Apple Pay — on top of regular credit card processing fees, which range from 1.15% + $0.05 to 3.15% + $0.10 per transaction. This meant that there was little incentive to adopt the new…