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Digital payments in China: adoption and interactions among applications

Author

Listed:
  • Dominique Torre
  • Qing Xu

Abstract

Starting in the early 2010s, use of Alipay and WeChat Pay, the mobile payment services of Alibaba and Tencent, has increased significantly in China. This success raises three questions: (i) why did the service providers not decide to compete to achieve client exclusivity? (ii) Why was the installed base of the incumbent, Alipay, not a barrier to the entrant’s success? (iii) Why did the entry of WeChat Pay accelerate diffusion of the incumbent’s solution? This paper proposes a model of adoption which encapsulates the distinctive features of the two service providers. It suggests that the complementarities between the two solutions (differentiated services offered to clients, decreasing adoption costs, and contrasting business models) may explain the interests of the service providers in avoiding strong competition. During the adoption phase, it was in the interests of both Alipay and WeChat to develop their different products, as any technological improvements introduced by these operators increased the benefits of both. However, this strategic complementarity effect now risks decreasing their incentives to innovate. JEL classification: E42, G23, O33.

Suggested Citation

  • Dominique Torre & Qing Xu, 2020. "Digital payments in China: adoption and interactions among applications," Revue d'économie industrielle, De Boeck Université, vol. 0(4), pages 55-82.
    • Handle: RePEc:cai:reidbu:rei_172_0055
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    Cited by:

    1. Qing Xu, 2021. "East Asia and East Africa: Different Ways to Digitalize Payments," GREDEG Working Papers 2021-26, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    2. Nieves del Pilar Pizzan-Tomanguillo & Tony Venancio Pereyra-Gonzales & Segundo Victor León-Ramírez & Jhon Bautista-Fasabi & Carlos Daniel Rosales-Bardalez & Roel Dante Gómez-Apaza & Sandra Lucero Pizz, 2024. "Evolution and Trends in Digital Wallet Research: A Bibliometric Analysis in Scopus and Web of Science," Publications, MDPI, vol. 12(4), pages 1-14, October.

    More about this item

    Keywords

    mobile-payment; payments in China; electronic wallets; online payment; strategic complementarities;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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