Real Money Deep Dive: U.S. Firms Playing Catch-Up With China on Mobile Payments

 | May 15, 2018 | 12:38 PM EDT
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In an interview with Jim Cramer earlier this month, PayPal (PYPL) CEO Dan Schulman suggested China was leading the global race in mobile-payments evolution, and the United States was lagging.

"Go to China and see what's happening in the retail environment over there and you will see what the future looks like. It's eye-opening," Shulman said at a one-day teach-in event in New York. "They are really quite advanced, maybe the most advanced country in the world, in terms of digital payments."

With U.S. reliance on and proliferation of credit cards, many of the emerging markets have been able to adapt mobile-payments technology faster.

"As a result of poor infrastructure for financial services in Asia, what you're seeing are digital wallets popping up," said Vansa Chatikavanij, managing director of OmiseGO, in a presentation at the Ethereal Summit on Friday. "In Asia, the (digital) wallets are very different from the United States and European Union: you have the whole lifestyle in one app. You can book taxis, hair salons, you can pay for them, you can pay utility bills and you can chat with your friends."

China is undoubtedly the global leader when it comes to mobile payments, with 61% of the user base. In 2017 the number of monthly users of Alipay, China's leading third-party payment platform, surpassed EU population.

Apps like WeChat Pay from Tencent (TCEHY) and Alipay from Alibaba (BABA) have enabled consumers in rural China to leapfrog from using cash directly to using mobile-payment systems, skipping checks and credit cards altogether. According to the Payment and Clearing Association of China, the number of Chinese consumer transactions made through non-banking mobile apps soared from 3.8 billion in 2013 to more than 97 billion as of 2016.

"China has a big population that is spread out, it's one of the reasons [for mobile growth]," Chatikavanij says in an interview with Real Money. "Alipay didn't start as a mobile payment, they were an e-commerce platform first. They didn't want to transfer money directly, but wanted to put money in an account first until the good were delivered."

Having two clear market leaders and conducive regulations are other drivers of the mobile-payments growth in China.

Why Is America Falling Behind?

When it comes to U.S. consumers, cash and debit cards are still king. U.S. Internet users about their primary payment methods and found that 47% mostly use debit cards, while 26% prefer cash and 23% favor credit cards, according to figures cited by Only 1% used mobile payments.

The second major factor restraining greater U.S. mobile-payment adoption is the consumers' security fears, and the U.S. companies' inability to address these.

As reported, found that security fears represent the biggest factor keeping 47% of Americans from using mobile-payment apps. By contrast, only 15% of poll respondents cited worried about personal privacy, and only 8% referred to a "fear of not understanding the technology.:

U.S. Mobile-Payments Race

The shift to mobile payments away from traditional methods is inevitable, with global mobile payments revenue poised to surpass $1 trillion in 2019. A United Nations study projects mobile and digital-currency payment systems will also overtake debit and credit cards as the world's most popular e-commerce payment systems next year.

Despite this already crowded space, WeChat Pay and Alipay have been making inroads into the United States as a part to expand their global footprint. With more than 170,000 locations in North America already accepting Alipay transactions, the Chinese giant is looking to increase its U.S. footprint through partnerships with retail, hospitality and transportation industries catering to Chinese tourists.

In terms of domestically listed companies in the mobile payment space, there are a number of players to watch, but few of them are focused primarily on mobile payments. The vast majority of these companies have their core business models focused elsewhere.

Starbucks, Walmart

Starbucks (SBUX) has been an early adopter of mobile payments and mobile ordering via its app, following a "walled-garden" approach that centers on payments made at Starbucks online or in a retail location. This approach to mobile payments is the same at Walmart (WMT) and its Walmart Pay app, which allows people to use saved credit or debit cards in their Walmart account and pay with them through the app at checkout.

The mobile-payment offering from Starbucks and Walmart are ones of convenience. In the vein of not turning down a sale, Starbucks will allow customers to pay in store with Apple Pay or Android Pay from Alphabet (GOOG) , (GOOGL) as well as cash, debit or credit cards.

Customers can download their Starbucks app from all of those as well as PayPal. By comparison, Walmart does not accept Apple Pay or Android Pay at this time, but will allow consumer to shop with PayPal at The issue with these two companies is mobile payments are not generating profits, but rather a means to drive their core businesses. This means their shares will see little value attributed to these payment solutions.

Facebook, Alphabet, Apple

There are other companies that have moved past the closed-system approach to payments. Consider Facebook (FB) , with its core business tied to the advertising revenue generated across its social-media platforms. Enabling payments is one potential avenue for Facebook to help drive user engagement. But with the recent questions over use data and trust, it's likely to be some time until payments are a meaningful generator of profits for Facebook.

That lack of meaningful profit generation today holds true with Alphabet/Google as well. But in January, the company rebranded its various payment programs under Google Pay, which will allow users to check out in Google apps, online and in stores.

We will need to watch the adoption metrics of this rebranded offering to determine if it is able to jumpstart Google's mobile payment position. Similar to Facebook, there is little value to be had from mobile payments in the Alphabet share price.

By comparison, Apple Pay is available at "millions" of stores according to Apple (AAPL) , including e-tailers, restaurants, gas stations, entertainment locations, and apps that accept Apple Pay. Last year, Apple debuted its Apple Pay Cash card that allows person to person payments through iMessage that link to bank accounts, debit or credit cards.

There's no fee to use Apple Pay Cash with a debit card, but if you send money using a credit card, there's a standard 3% credit-card fee on the amount funded with a credit card. Today, that amounts to very small potatoes relative to Apple's overall operating profit, but certainly something to watch in the coming years as Apple looks to grow its services revenue and the mobile-payments industry matures.

Given the install base of both the Android operating system as well as iPhones and iPads, both Apple and Google are ones to watch over the longer-term, as is Amazon and its 100 million Prime users as it too moves into the payments space with Amazon Pay. Compared to Apple Pay, Amazon Pay is offered by thousands of merchants. However, as we've seen with its other businesses, Amazon is skilled at removing friction from the transaction process. Amazon Pay could help remove even more, as it ties to one's Amazon account, including any credit card on file.

This bodes well for Amazon Pay, a service that seems very similar to Amazon Web Services in that both started as internal Amazon products and eventually migrated outside of the company. But we need to see greater merchant adoption of Amazon Pay before we declare Amazon a mobile-payments contender.


Arguably the purest play when it comes to mobile payments and U.S. market is PayPal and its 237 million active accounts exiting the March 2018 quarter. That account base, which grew 15% year over year during the first quarter, generated total payment volume of $132 billion during the quarter, up 27% year over year on a currency-neutral basis. Of that total transaction volume, 37% was generated by one of the company's fastest growing solutions -- mobile payment (up 57% year over year in the first quarter). Those metrics have fueled expectations calling for revenue and earnings-per-share to grow 17% and 23%, respectively, this year. Many also expect PayPal to see continued top- and bottom-line growth in 2019 as mobile payments continue to gain traction.

For investors looking for a U.S. company that will clearly ride the tailwind of mobile payments, PayPal is the top choice today. However, they must keep an eye on Alipay and WeChat Pay's efforts to further penetrate the U.S. market, which accounted for 53% of PayPal's revenue in 2017.

In March, leveraging its relationship with First Data (FDC) , Alipay became available a payment option at 35,000 North American merchants. It's expected that over time, First Data will make Alipay available to roughly 4 million merchants.

Meanwhile, through a partnership with Silicon Valley start-up Citcon, Tencent Holdings, the parent of WeChat Pay, has expanded its U.S. services footprint, primarily to serve traveling Chinese tourists. According to Wang Xiaofeng, a senior analyst with Forrester Research: "Certain market-entry obstacles, such as differences in business culture, consumer behavior and regulations, make it unlikely the two companies will operate beyond their target of Chinese travelers in overseas markets."

The Bottom Line

To use the baseball analogy, in many ways, we are still in the early to mid-innings of the mobile payment game, and several players have deep pockets. Like most industries that are in the early to mid-innings, odds are we will see new entrants and new solutions lead to market shares shifts that will change the mobile-payments landscape compared to today.

But if the mobile-payments industry follows the same pattern we have seen in other industries, it likely means that as it matures, we will see market share consolidation around a handful of key players.

We've seen this evolution occur across several industries in the past, including mobile phones and smart phones as well as payment processing networks and internet browsers, where that handful controls the majority of the market share as well as profits. As the mobile-payments industry consolidates in the coming years, it would make strategic sense for one of these deep-pocketed players to scoop up PayPal, which would give it instant size and scope as well as shore up its competitive position.

Alphabet, Amazon, Apple, Facebook and others are also offering souped-up payment platforms designed to make their devices and services even more sticky with consumers. There are also strategic developments to watch for, like the recent news that Apple is teaming up with Goldman Sachs (GS) for a new Apple Pay-branded credit card.

Ultimately the U.S. market leader in mobile payments will have to offer a universe of products and services, easily accessible in a single platform.

-- Daria Solovieva contributed to this report.

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