Discussion Document | September 07, 2021 Mobile Wallets: Driving “at scale” adoption - Lessons from China and Sweden NATIONAL CONSULTATION ON “FRONTIER TECHNOLOGY POLICY EXPERIMENTATION AND REGULATORY SANDBOXES FOR SUSTAINABLE DEVELOPMENT” FOR THE MALDIVES CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
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Discussion Document | September 07, 2021
Mobile Wallets: Driving “at scale” adoption -
Lessons from China and Sweden
NATIONAL CONSULTATION ON “FRONTIER TECHNOLOGY POLICY EXPERIMENTATION AND
REGULATORY SANDBOXES FOR SUSTAINABLE DEVELOPMENT” FOR THE MALDIVES
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
2McKinsey & Company
Context and objectives of the document
▪ This document briefly describes and contrasts how mobile
wallet adoption has rapidly accelerated in two different
markets – China and Sweden
▪ Initial growth in China occurred largely in the absence of
regulations with the regulator putting guidelines in place in
2017 well after the market had already taken off
– Growth led by 3rd party ecosystem players, with banks
taking a back seat
– QR the preferred form factor
– Digital payments stand alone remains loss making even
for very large players
– Monetization is done through a combination of financial
services and analytics services
▪ In contrast, in Sweden, the growth was led by a bank led
consortium Swish with a limited role played by Fintech’s
▪ As Maldives looks to accelerate adoption of mobile payments
and reduce cash usage, it will need to consider the
appropriate regulatory framework and potential
economics for key stakeholders
3McKinsey & Company
Contents
The China experience
The Sweden experience
Key considerations for Maldives
4McKinsey & Company
The China experience – Key Messages
▪ China third party payment players account for nearly half of the total retail payment volume – the
market is a clear duopoly between Alipay and WeChat Pay. Limited number of small players do
exist, which differentiate by building their niche in product offerings
▪ Both players adopted a largely similar journey to growth
– Leveraged large customer base and built capabilities outside of their core business – turning
into ecosystem players
– Entered payments business to make payments easy for their existing customers – a critical
success factor for their business model
– Followed up by rapid expansion through inclusion of multiple use cases e.g. mobility, red
envelope, telephone top ups, QR code payments etc.
– Used payments as a loss leader and offered additional services to further monetize the large
customer base, e.g. unsecured loan by Webank, consumer credit bureaus e.g. Zhima credit by Ali
▪ Achieved rapid growth owing to 5 factors – some of which are unique to China
▪ With the increasing penetration by third party players, regulators now casting more and more control
over the third-party payments market
– Payments regulation getting tighter and weeding out non-compliant small players
– Ensuring visibility of online transactions e.g. establishment of Nets Union as a central clearing
house for online payments
– Scope of payments regulation also becoming wider, expanding from license compliance to multiple
fields
1
2
3
4
5McKinsey & Company
Growth of third party players was driven by 5 reasons, some of which are unique to China3
Late mover
advantage
▪ China was overwhelmingly cash- based until the early 2000’s and
e-payments only took off with increasing penetration of the internet on mobile – leading
to leap frog from cash to digital
Platform play – building
a one stop shop
and its existing
high penetration
▪ Alibaba & Tencent ecosystems play offers a one stop shop and is critically enabled by
payments, also allowing cross-subsidizing (e.g. simultaneous scale-up of mobile payments
and the taxi-app wars)
▪ Alipay and Wechatpay leveraged their existing large customer base on their ecosystems
to scale up
Reason Details
Unique
infrastructure
▪ Quick onboarding of customers by linking of bank accounts and easy pull out of money
into the wallet enabled by -
– High penetration of debit cards (3.6 per person)
– Strict ID, phone number verification performed by banks and not the payment players
Adoption of
technology
advancements
▪ Adoption of technologies e.g. QR code and multiple innovations helped the Chinese players
to offer very high convenience compared to bank cards and cash
▪ QR codes also superior to NFC enabled payment methods
▪ Fee structure in China is low and closer to cash, hence enabling high adoption with
increase in convenience through mobile walletsFee structure
6McKinsey & Company
Adoption of QR code technology greatly increased the ease of transactions over traditional cards3
Prior to the rise of third-
party payment, online
payment with bank cards
was cumbersome consumers
usually need to go through
multiple steps of verification,
either by text messages. USB
dongles or other physical
token generating devices
Online shopping
Pay specific amount in online ecommerce website or
public area shopping
Quick Pay – scanned
by merchant
Pay offline merchants by provide user’s QR code for
them to scan
Quick Pay – scanning merchant
Pay offline merchant by scanning their QR code and
input the amount
P2P Payment
Using QR code for P2P payment e.g. paying a friend the
lunch money
Various Payment methods
7McKinsey & Company
QR codes pose multiple benefits compared to traditional cards or NFC enabled payment
methods
3
QR code Traditional card NFC
Consumer
Convenience –
widespread usage of
smartphone
Security – two-factor
authentication
Convenience
Internet connection
required
Inconvenience – need for
PIN input and physical
card
Metal materials may
trigger disturbance
Merchant
Cheap and easy to set up Requires POS terminals /
merchant bank set up
Cheaper than debit card
but higher than QR code
3rd party
Rich amount of user data
being collected
Data limited to card
transaction details
Substantial amount of
data collected
Ease of usage – quick
scan functionality
Fast process
Able to integrate with
wearables
Adoption driven by
consumer use
Credit option
Rewards program
8McKinsey & Company
Contents
The China experience
The Sweden experience
Key considerations for Maldives
9
Case study: In Sweden, the creation of Swish accelerated the adoption of mobile payments
using A2A
Source: Press search; Company website; Riksbank
0
20
40
100
80
60
SwishDebit cardCash
2014 2016 2018
Which means of payment have you used in the past month? Percent of Swedish population
Swish user flow:
1. Open app and enter recipient’s phone number and
account number
2. Authenticate payment once redirected to mobile banking
app (using electronic ID issued by consortium of banks
that links to national ID system)
3. Swish confirms and sends the money in real time via text
to the recipient
ImpactTrend
of Swedish
population uses
Swish
>77%
users as of July
20208.0M
has been
exchanged on the
platform in
December 2019
SEK
30.5B
Transactions in
December 201958M
Swish facilitates free, real-time direct-to-
account payments by linking bank accounts
to mobile phones
Swish was started in 2012 by a consortium
of banks (SEB, Danske Bank, Handelsbanken,
Norea, Swedbank, Sparbankerna, and
Länsförsäkringar Bank) in collaboration with the
Riksbank
It began as a P2P platform, but expanded to
B2C in 2014, eCommerce in 2016, in-store
payments with the launch of QR codes in
2017
Consumers can quickly, securely, and easily
send money to mobile numbers
Merchants are charged a yearly fee and 2
SEK per payment which can vary depending
on company size and requirements.
Swish has grown rapidly (in 2010, 10% of the
population had used Swish in the past month;
by 2016, this had growth to 60%); however,
debit cards remain the most popular
payment method
In 2018, 7 out of 10 Swedes uses Swish
Deep-dive > Full merchant channel focus
2nd most positively viewed brand in Sweden
behind Volvo but ahead of Ikea
10McKinsey & Company
Ownership structure for SWISH – a consortium of banks that deal with merchants and customers –
SWISH merely provides the technology
SOURCE: Expert interviews; company information
1 Listed banks are the owners, additional banks are connected to Swish
▪ Each bank1 responsible for issuing Swish to its customers, enabling
them to send and receive Swish payments
▪ Each bank1 responsible for acquiring online and offline merchants to
Swish, enabling them to receive Swish payments from consumers
(i.e. one bank may act as both issuer and acquirer with respect to the
same transaction)
▪ SEB, Nordea, Handelsbanken and Swedbank each own 20% and
Danske Bank and Länsförsäkringar each own 10% of Swish. Owners
provide capital, know-how, distribution, etc. and receive part of the
revenue generated by Swish. May also receive dividend from Swish
(has never happened yet)
▪ Each Swish payment is initiated by a consumer, connected to Swish
through the issuing bank, and processed by Swish and will either be
forwarded by Swish to another consumer or to an online or offline
merchant
▪ If the payment is forwarded to a merchant, the merchant will send
goods / services in the other direction (and issue a repayment of the
funds through Swish if goods / services are returned by the
consumer)
1
2
3
4
5
Consumer Merchant
1 2
5
Issuing Acquiring
3
Ownership
Payment
Payment
Payment
4
4A
4B
Goods / services
Transactions
11McKinsey & Company
Contents
The China experience
The Sweden experience
Key considerations for Maldives
12McKinsey & Company
Key considerations for Maldives
1
What is the expectation around the dominant payment form
factor – QR or NFC? If QR, will you have one standard QR or
multiple closed loop QRs?
2
Should mobile payment growth be left to market forces or
actively triggered by the government? If so to what extent
should the government be involved e.g. setting up a national
QR (Codi Mexico), or facilitating a utility creation?
3
How will customers be persuaded to rapidly adopt digital
payment solution and move away from cash? Are there
transactions that can be mandated to be electronic only?
4 How will MDRs be priced compared to card schemes? Will
this be left to market forces or prescribed?
5 Who will onboard merchants to mobile payments? How will
you address small merchant concerns around taxes?
6 What is the potential role for foreign players to accelerate