The Cardless and Cashless Future: The Rise of Mobile Payment

Abstract

Mobile Payment, fast becoming a competitive alternative to existing payment channels, raises opportunities and challenges for public policies and corporate strategies. Our research aims to identify the distinct impact of Mobile Payment on the payment market by studying consumers' adoption decisions and migration from incumbent channels. The core of our research is 2.6 billion records of an entire city's five-year transactions in public transportation across five different payment channels. With this multi-channel setting, we can distinguish the impact of Mobile Payment from an arbitrary new channel's distortion in the payment market. Starting with a causal inference design -- DID, we confirm that the introduction of Mobile Payment draws consumers away from incumbent channels and that promotion magnifies this migration flow. To estimate the unique impact of Mobile Payment, we turn to aggregate demand estimation models that estimate within-channel and cross-channel price elasticity. Compared to a regular card-based channel, we find that consumers are more responsive to Mobile Payment promotion and are less likely to leave after the promotion ends. Hence with each round of promotion, Mobile Payment can steadily increase its market share by attracting customers from incumbent channels. Tracing the transactions with unique consumer IDs, we further explore how the distinct impacts of Mobile Payment vary with consumption purposes and consumer characteristics. To apply our findings practically, we use counterfactual analysis to explore regulators' and merchants' channel portfolio management and optimal promotion strategies for the Mobile Payment channel.