How would you describe apps like WeChat Pay and AliPay? What makes them different from electronic payment apps like Paypal?

There are two big differences. First, these apps are inherently social—similar to Venmo, but with a network effect. Second, they have gone from practically nothing to everything very fast; they became ubiquitous in just a few years. What they represent in terms of lifestyle and liberation cannot be underestimated. They were born secure, in the sense that they were escrow accounts, so it made people feel really comfortable doing virtual transactions. There wasn’t the same fear of virtual transactions.

What kind of effect have these apps had on consumer behavior? What explains their popularity?

Liberation—you can use them whenever, wherever, with whomever. The fact that you do not have to carry cash is one thing. But there is an entire social dimension that doesn’t exist for something like PayPal. It is empowerment, which can be overlooked in the West. It represents progress for Chinese people.

There was a need for that because there were so few payment options before, which is not the case anymore. The ubiquity of mobile payments is something that cannot be understood in the U.S. China has incredible network effect that works very quickly. The speed with which WeChat spread is distinctly Chinese because nobody wants to be missing out. And, as long as there is no political dimension to these apps, then the government is fine with them.

How is domestic banking affected by the prevalence of these apps?

Chinese people have always had relatively few credit cards. They have never trusted credit cards to the same extent as Americans. They have definitely never trusted credit. This reinforces the advantage that with these apps payments are happening now. In one way, there is a way to self-regulate what you pay for, similar to a debit card.

Banks are becoming a much less important institution in terms of how people conduct their finances. Banks have always been extremely user-unfriendly—loaded with restrictions, processes, forms, and now it is simpler ad instantaneous.

The government is saying that banking is used for different purposes, in terms of funding state-owned enterprises. China has never been a consumer-friendly banking environment. These apps are providing a real service that the banks were not able to provide, so long as things remain in control, then the government is does not mind.

What does the dominance of WeChat Pay and AliPay mean for the overall growth of China’s tech sector? How do they affect competition and innovation?

People are now much more willing to pay for things than they were in the past. Several years ago, people were not willing to pay for apps, they were not willing to pay for things that were online. They wanted everything for free. People are now willing to experiment with different online products, but they are still very price sensitive. No one is willing to pay a premium. It is making a lot of the existing platforms much stronger, but it is also giving security to the platforms that are not as strong through the sharing economy. It is creating a much broader marketplace.

Do these apps have inherent limitations because they are developed in China’s unique tech eco system?

They are never going to spread abroad. Our financial structure is very different. There is a bias against Chinese products in most places in the world. As Chinese tourists go out and about, that should slowly make things a little better, but China exists in a parallel digital universe. That digital universe is not trusted, is not known, and is foreign. It is not associated with customer centricity, loyalty, or any of the types of things the credit card companies are doing here. It is very transactional.

Recently, WeChat Pay and AliPay have been trying to expand to new countries like South Africa and Australia. Where can these payment apps be used today?

Any time China expands, it does so intelligently by going into emerging markets. Whether it be India, South America, or South Africa, there is a market for them there because the price value equation of what is being offered is good. It is just not at world-class standards. So, in terms of consumer perceptions and customer engagement, it is still not friendly. But there is definitely a market for it in emerging markets—for TCL, for XiaoMi, for anything.

How will the broader expansion of these apps affect China’s global economic position?

These apps are seen as very innovative—but I question how innovative they really are—but they are doing a lot of good in creating the impression that China can be creative. So, whenever the West talks about innovation in China’s tech sector, they start with the payment system. As a primary effect, it suggests that China can innovate. But, whether this really constitutes innovation remains to be seen because it grew up in a very distinct marketplace with a wall guarding it. It has had a definite positive effect, but not a direct impact.

What are the lessons American tech firms need to learn from the success of WeChat and AliPay?

The financial infrastructures are completely different, and so it is difficult to say that there are any direct lessons. What they can learn is that Chinese people can adapt to new behavior very quickly when they are reassured of its safety. So, the Chinese consumers’ ability to evolve cannot be understated.