At the beginning of November, Ma Yun, the founder and Executive Chairman of Alibaba Group, and Tim Cook, CEO of Apple Inc, have both teased a possible “marriage” between AliPay and Apple Pay in 2 separate talks at the Wall Street Journal Digital conference. Since then, speculation went that Apple Pay would open the Chinese market by cooperating with AliPay. A few days later, on November 11, Cai Chongxin, CFO of Alibaba Group, announced that negotiation between Apple Pay and AliPay is going on smoothly, and it’s very likely that Apple Pay will be introduced to China soon, with integration with AliPay.[1]

But why does Apple Pay partner with AliPay? What are the benefits of their partnership, and what are the problems they might have to face? This article will first explain what Apple Pay and AliPay are, and how they function. Then it’ll take a look at the current payment system in China, and Apple Pay and AliPay’s positions in it, to give a general idea about what’s every party’s job in the payment system. Finally, the article will dissect the competing forces within the system, in order to analyze what benefits and setbacks the “battle” will bring to Apple Pay and AliPay’s cooperation.

• What Are Apple Pay and AliPay?

When I first heard the news about the possible cooperation between Apple Pay and AliPay, the questions that popped up in my mind immediately were: What are they? What are the differences between them? Shouldn’t they be competing with each other if they function similarly?

Snapshots of AliPay’s user interface.

AliPay is a third-party online finance platform, which is available in almost all smartphones. Users can link their cards to their personal accounts and make purchases online. However, instead of being merely an online payment platform like PayPal, AliPay offers financing services as well. Users can transfer money, pay their fees, ask for a small loan, process investments, or even make a donation on it. In other word, AliPay is similar to an online banking system – even more than that.

Apple Pay in iPhones.

Resource: http://cdn.macrumors.com/article-new/2014/09/applepaytouchid.jpg

Apple Pay is more like a digital wallet. It provides a mobile payment service which employs Near Field Communication (“NFC”), a set of standards that allow smartphones and similar devices to realize radio communication when touched or brought into proximity, typically 10 cm or less[2]. Users only need to input their card numbers into their iPhone 6/6+ to put the cards into their “wallet.” Before using Apple Pay, they will have to identify themselves by Touch ID, a fingerprint identification system. Then, users just need to get their phones closer to the payment terminals to finish a transaction, and they can finish this step without Internet. Apple Pay now generates 0.15% transaction fees from banks, but the rate is still being negotiated. Apple won’t remember any card information, and it won’t give away any statistics about the transaction to merchants either. In other word, Apple Pay is completely a third party. It only provides the technology to integrate payment methods, and it’s not involved in settlement process between consumers, banks, and merchants. It functions like Outlook: Users can link different email accounts to it, and Microsoft doesn’t care if they’re using gmail or hotmail.

Therefore, if Apple Pay cooperated with AliPay, the way they worked together would be that users could add an AliPay account into Apple Pay, and they’d be able to use the money in their AliPay account via Apple Pay,

• The Chinese Payment Eco-System

Payment system can be divided into two parts: online and offline. Offline payment system in China is a closed loop consists of consumers, merchants (including retailors, which will be talked about at the end of the article), and banks, and no other party has been able to successfully intervene the process or take another place in it so far.

The structure of the online payment environment is more complicated. In order to understand how it works, it’s important to understand the functions of the government-backed group – UnionPay.

China UnionPay is an industry association founded in Shanghai in 2002, and was sanctioned by People’s Bank of China – the Chinese Federal Reserve. It has brought 18 Card Information Exchange Centers – which used to be non-profit organizations located in 18 different cities all over China – together, and is originally mainly  responsible for establishing and operating a national inter-bank information exchange network. For example, people could only make a withdrawal from an ATM machine from Bank of China if they were using a card issued by Bank of China. But now, they can withdraw money from any ATM machine with a UnionPay sign on it, since Bank of China is a member of UnionPay. In other word, UnionPay is a platform closely related to the government, and it holds banks together and thus can represent most of them.

Resource: http://pic.iresearch.cn/zt/201306/0066@67468.gif

After understanding what UnionPay is, let’s go back and take a look at the online payment system. Online payment service is mainly provided by three types of platforms. The first is online money management platforms, which are led by AliPay. The second is UnionPay, which stands for most banks. Finally, social media based online payment service is now growing by utilizing its huge user base to earn a piece of the pie. However, the most important two are still the third party payment platforms and the bank system. Statistics show that in the first quarter of 2013, more than 87.7% of online transactions were done on the third party payment platform, more than half of which was contributed by AliPay. UnionPay took up 10.5% of the market, and the rest only 1.9%.

AliPay is definitely the bellwether of the whole online payment system. UnionPay is basically monopolizing offline payment, and is trying to gradually take a place in the online payment environment. These two are the most major forces in the current payment system in China. If Apple Pay steps in in the future, it’ll be a third party which not only is able to integrate all payment methods together, but also it’ll help online payment service providers open the door of offline payment system. Obviously, this will bring huge impact to the existing payment eco-system in China.

• The Bright Side of Apple Pay’s to Cooperate with AliPay

Numbers about AliPay that are good for Apple Pay.

In order to understand why Apple Pay and AliPay intends to work together, let’s first take a look at what benefits their cooperation may bring to both parties. The first benefit for Apple is that if it can successfully partner with AliPay, it’ll be a great opportunity for it to open the Chinese market and make a huge profit. Up to the Chinese New Year in 2014 (at the beginning of February this year), the number of AliPay users had reached nearly 300 million[3]. In 2013, there were more than 2.78 billion transactions happened on AliPay. Its annual transaction volume last year broke 900 billion RMB (around $150 billion), and has become the biggest mobile payment platform in the world. To be more specific, as is shown above, the second biggest mobile payment company – PayPal’s transaction volume in 2013 was about $20 billion[4]. If Apple Pay partners with AliPay, ideally, it may attain more than 1/5 of all Chinese to become its users, and according to its current transaction rate, which is 0.15%, generates millions annual revenue.

Resource: http://www.guopu.cc/hysd/2014/08/29/8b436ecb-54fa-4808-8001-7451678dace1.htm

AliPay users can pay taxi fees by simply launching the AliPay app and using the camera to scan the QR (Quick Response) code, the square matrix barcode in the picture.

Resource: http://www.hb.xinhuanet.com/2014-03/16/c_119787896.htm

As for AliPay, its biggest win in the cooperation will be that Apple Pay can bring its business to the offline environment. According to the Chinese E-Commerce Research Center, in the first half-year of 2014, total sales online has reached 185.6 billion RMB (about $30.5 billion), but it’s only 8.7% of total retails sales of consumer goods[5]. The offline market is way bigger than the online one, and that’s why AliPay has been trying to penetrate this market, though it’s already the big shot in the online environment. AliPay’s current major attempt to go offline is “pay by QR code,” which means that users can simply pay by scanning a code using the AliPay app in their cell phones. However, this is not helping AliPay to go completely offline. One of the most obvious reasons is that users still need Internet environment to finish the transaction. For example, in the basement in a department store, where the service signal can be terrible, consumers might fail to pay by scanning the code, because their cell phones can’t connect to the Internet to transfer information. But if there’s Apple Pay, and AliPay becomes a “card” in the digital wallet, users will be able to pay offline, because Apple Pay employs NFC, which utilizes radio to complete transaction instead of the Internet. Therefore, cooperating with Apple Pay can definitely push AliPay further in the offline payment system.

• Potential Problems Apple Pay and AliPay might face in the Cooperation

Resource: http://www.dailytech.com/iPhone+6+Helps+Apple+Regain+Market+Share+But+iPhone+6+Sales+are+Weak/article36954.htm

As mentioned, Apple Pay is only available in iPhone 6 and 6 Plus, and this is a critical problem awaiting Apple to solve. According to Kantar Group, a top mobile market research firm, iPhone market share “hit a low in June, 2014 of 12.8%,” but rebounded to 15.7% in October due to the launch of the iPhone 6/6+[6]. That is to say, even if every Chinese has a mobile phone, only less than 3% of them has can have access to Apple Pay. Even if all iPhone6/6+ users have installed AliPay on their phones, Apple Pay would only be able to utilize around 15% of AliPay’s user base. Of course, AliPay’s user base is still meaningful to Apple Pay even so, but low market penetration of iPhone 6/6+, and the fact that Apple Pay is now only available in the latest issued devices, can’t be ignored if Apple Pay really wants to stand firmly in the Chinese market.

How Apple Pay and AliPay will split interest is another problem. As mentioned, Apple Pay now profits mainly by charging banks for a 0.15% transaction fee. AliPay charges transaction fees from its partners to generate profit as well. For example, JD.com is the second biggest B2C e-commerce online platform in China[7]. AliPay used to be one of its possible payment methods, and JD.com paid 0.5% fees out of every transaction that happened on AliPay[8]. According to the two companies’ profit pattern, Apple Pay and AliPay will make money from every transaction that uses their services. However, if a Chinese consumer buys a $50 product, and he chooses to use AliPay via Apple Pay, the two companies will have to decide how much they will take respectively from the deal.

Speaking of splitting interest, UnionPay can’t be ignored, and conflicts do exist in the two companies – Apple Pay and AliPay – and UnionPay’s interest. As is mentioned, UnionPay is originally meant to be an information exchange hub for member banks. However, now it has become not only an integration platform, but also a supervisor of the bank system. According to the fifth clause of China UnionPay’s business scope, UnionPay can “set the regulations and standards for inter-bank transactions, and negotiate and arbitrate disputes in inter-bank business[9].”

Even more than that, UnionPay has been called a “monopoly empire” by some mainstream media in China[10], because it has become an organization that is not only pursuing profit, but is utilizing its relationship with the government to reinforce its hegemony in the offline payment system. For instance, banks usually charge restaurants 1.25% transaction fee when they use POS (point of sale) machine, and banks know it is a restaurant that is using the POS machine by MCC – Merchant Category Code. For example, “5812” represents restaurants, “5511” automobiles, and “5311” department stores. Since restaurants belong to entertainment category, its transaction fee is relatively high, and thus many restaurants don’t accept cards – this goes against UnionPay’s interest. Hence, in order to gain more market and ensure self-profit, UnionPay allocates MCC that belongs to other categories to restaurants. If UnionPay allocates “5311” – MCC for department stores – to restaurants, then the restaurants will need to pay only 0.78% transaction fee, which is 0.47% less than what it should be. In other word, UnionPay is no longer a neutral third party which is helping communication between banks, but it has already become a supervisor, even a tyrant who is making self-profit even at the costs of its citizens.

Third party payment platforms dominate most of the online payment market. Offline payment system has been shrinking[11], but it still accounts for significant share of total retail sales. Thus the current situation for UnionPay is that, it’s hard for it to expand its service online since competitors are too powerful, and so it’s endeavoring to protect its leading status in the offline payment market. Therefore, it’s easy to imagine that if Apple Pay and AliPay’s cooperation is going to introduce AliPay into the offline payment environment, UnionPay might utilize administrative measures to impede the process. Actually, UnionPay has already stopped AliPay’s first attempt to step in the offline payment market once. In 2012, AliPay announced that they were going to march into the cash on delivery (“COD”) market, and had worked with Shanghai Commercial Bank to produce 30 thousand POS machines to help the business. Traditionally, handling fees generated by transactions that go through on a POS machine will be divided into 3 parts: merchants take 70%, issuing banks 20%, and UnionPay 10%. However, AliPay’s working with the bank directly had bypassed UnionPay, and had denied it of the transaction fees it could originally make. So in July 2013, UnionPay’s board enacted a regulation that at the end of the year, all UionPay-cards-related offline transactions had to be transferred to UnionPay, and third party offline payment systems had to be incorporated into UnionPay’s clearing system. It meant AliPay would have to not only split up its profit from 10% transaction fee to UnionPay, but also publicize information about offline transactions to it. At the end, AliPay stopped its COD service. The reasons behind AliPay’s move were complicated, but as Xing Li, a reporter at Monkey Weekly said, “On one hand, it was a signal of anti-trust against UnionPay; on the other hand, AliPay was avoiding conflicts with UnionPay, because the offline payment service it had at that time wasn’t that big after all.[12]” AliPay didn’t want to front UnionPay, because UnionPay was politically powerful, and this is why it’s important for Apple Pay and AliPay to figure out if UnionPay is a friend or an enemy.

CurrentC is an MCX’s alternative to Apple Pay, which is employed by many huge retailors. Consumers need to launch the CurrentC app in their cell phones, and then use the camera to scan a QR code to pay, or the user can open the app and let the cashier scan the QR code that belongs to him/her to charge money. CurrentC doesn’t take transaction fees from retailors, and that’s why it’s considered one of the retailors’ attempts to kill Apple Pay and credit cards by building their own payment system[13].

Resource: http://venturebeat.com/2014/10/31/why-currentc-is-rightly-demanding-exclusivity-from-merchants/

Last but not least, except for competing forces within different payment service providers, a closely related “outsider” should be taken into consideration as well – the retailors. On one hand, retailors have been trying to get rid of transaction fees from consumers’ using credit cards, and thus they surely don’t want to be haunted by Apple Pay. Now, some leading retail merchants in the U.S., such as Wal-Mart, Rite Aid and CVS, adopt CurrentC, a mobile payment solution provided by MCX instead of Apple Pay, for the reason that they want to eliminate the 2% fee comes with purchases by credit card[14]. If Apple Pay wants to enter the Chinese market, it might have to face the same problem, no matter it’s going to cooperate with AliPay or not.

On the other hand, as mentioned, Apple Pay keeps payments anonymous, which means that retailors can lose valuable information about consumers: what they’re buying, returning, and what might interest them next – data-driven retail marketers won’t be able to stand this. We all know that Starbucks is an Apple-friendly brand[15], but still it shows hesitance in fully embracing Apple Pay. iPhone users are now bale to buy credits via the Starbucks mobile app by using Apple Pay, but there’s no exact timeline for when Apple Pay will be available at the cashier. As Joshua Brustein said in Apple Pay Is Too Anonymous for Some Retailers, “…Starbucks mostly see mobile payments as a way to insinuate itself deeper into its customers’ lives through loyalty programs.” It’s obvious that consumption statistics mean a lot to retailors, and so Apple Pay’s anonymity, which is why some people love it, can actually turn into an obstacle that Apple Pay has to overcome if it’s really going to partner with AliPay and enter the Chinese market.

 

Personally, I’m looking forward to Apple Pay’s partnering with AliPay. However, in order to ensure that the cooperation will work, both of the companies will need to think about potential problems within themselves, and possible conflicts between every party in the payment eco-system in China. But again, as a consumer and frequent AliPay user, I’m looking forward to the day when I can make a purchase offline by simply a touch of my mobile phone and the payment terminal, no matter using a card or my AliPay account, no matter there’s internet or not.

 

 

 

[1] http://wap.25pp.com/view/67286/

[2] http://en.wikipedia.org/wiki/Near_field_communication

[3] http://ab.AliPay.com/i/dashiji.htm

[4] http://www.guancha.cn/economy/2014_02_17_206550.shtml

[5] http://www.guopu.cc/hysd/2014/08/29/8b436ecb-54fa-4808-8001-7451678dace1.htm

[6] http://www.dailytech.com/iPhone+6+Helps+Apple+Regain+Market+Share+But+iPhone+6+Sales+are+Weak/article36954.htm

[7] http://data.eguan.cn/dianzishangwu_172432.html

[8] http://m.zhihujingxuan.com/17325.html

[9] http://cn.unionpay.com/xiamen/col_84284/file_570818.html

[10] http://view.163.com/special/reviews/unionpay0317.html

[11] http://xqimg.imedao.com/149659cfe1df63fe16d2cf95.png

[12] http://business.sohu.com/20130909/n386188299.shtml

[13] http://techcrunch.com/2014/10/25/currentc/

[14] http://www.businessinsider.com/wal-mart-heres-why-we-dont-support-apple-pay-2014-10

[15] https://www.apple.com/pr/library/2007/09/05Apple-and-Starbucks-Announce-Music-Partnership.html

The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, was the legislative response to the Great Recession. Although it imposed the most significant changes to our financial regulation system since the Great Depression, this 2,300-page piece of legislation will do precious little to fix the problems that caused our financial collapse, or to prevent the next economic crisis. Some provisions of the law contradict other laws, and many of the reforms that seemed necessary and sensible have been gutted because they either were impossibly strict or unwelcome by bankers and regulators. America simply is not ready to reconcile the “dream” of owning a home with the realities that reform necessitates.

The Good

In its infancy, Dodd-Frank had the potential to effect some much-needed change. The act was designed in part to incentivize banks to make less risky loans to homebuyers. The first way it did this was by incentivizing lenders to originate Qualified Mortgages (QM) and Qualified Residential Mortgages (QRM).

To qualify as a QM, the borrower must have a debt-to-income ratio below 43%; this means that the monthly mortgage payment cannot exceed 43% of the borrower’s monthly income. QMs don’t require a down payment, and prohibit many predatory lending practices we discussed, such as balloon payments and interest-only loans. Lenders must also verify the income and financial resources of the borrower.

A QRM is very similar to a QM, but involves stricter underwriting requirements. Originally borrowers were required to pay a 20% down payment and their monthly mortgage could not exceed 36% of their monthly income. These are the “safest” mortgages, because the borrower is much less likely to default if he meets those standards.

Dodd-Frank incentivizes lenders to make these “safer” loans primarily through the Risk Retention Rule, and the Ability to Repay Rule. The Risk Retention Rule does what you might expect it to do: it requires banks to retain 5% of the risk for any asset-backed security, say a mortgage-backed security. This forces lenders to retain some “skin in the game,” fixing some of the misaligned incentive structures. The rule also prohibits lenders from hedging this risk. Lenders want to avoid having risk on their books because the more risk they retain, the more reserve capital they must keep on hand that they can’t use to make more money. QRMs are exempted from this rule, however, making them a more appealing option for banks.

The Ability to Repay Rule requires that lenders make a “reasonable and good faith determination based on verified and documented information” that the borrower can repay the loan. A borrower’s credit history, current income, expected income, and debt-to-income ratio can all contribute to his ability to repay. While it’s baffling that Congress passed this requirement in 2010, it is nonetheless a step in the right direction. Lenders who fail to verify a borrower’s ability to repay can be held liable for damages if the mortgage forecloses. This significant change will force lenders to weigh the potential costs of multi-million or multi-billion dollar legal settlements against expected returns on a very risky mortgage. Both QMs and QRMs are exempted from this rule. Banks can thus avoid the liability if a borrower defaults by issuing sounder mortgages.

The Bad

For starters, legislators drafted Dodd-Frank in very broad terms, instead creating agencies, like the CFPB and others, to hash out the specifics of how the reforms should work. These details are probably important considering they pertain to an industry that deals with numbers and affects people around the globe. Better leave it to the experts then, right? Well, the U.S. had many “experts” and regulatory agencies in place in the build-up to the Great Recession too, but they didn’t do much to prevent the housing bubble, even when explicitly warned.

Further, key provisions in the Dodd-Frank bill that passed in 2010 were drastically changed or removed by the time parts of the law were finalized in 2014. Regulators have finalized and implemented a little more than 50% of the reforms proposed by Dodd-Frank four years after the act passed. They loosened QRM requirements, which originally required a 20% down payment and 36% debt-to-income ratio, to require no down payment and a 43% debt-to-income ratio because the lending industry argued the original requirement would make these loans impossible for most Americans to obtain. With a few exceptions, a QRM is functionally the same as QRM; yet QRMs remain exempt from the Risk Retention Rule while QMs do not.

Further, lenders of all home mortgages issued by the government are exempt from this rule. This includes mortgages originated by the FHA and those sold to Fannie and Freddie; this accounts for 85% of all home mortgages. Thus, banks in practice don’t retain any “skin in the game” for a majority of the mortgages in the market, but taxpayers do (again). Most of these mortgages do not qualify as QMs or QRMs either.

Here’s where things get ugly

With Dodd-Frank also cam a new interpretation of the 1968 Fair Housing Act. The law says lenders must show they make a good faith effort to serve borrowers outside of QM territory. They can be sued if their lending practices promote disparities or unequal treatment based on race, ethnicity gender or age, but previously we interpreted the law to imply lenders must intend to discriminate against borrowers. Dodd-Frank indicates that a potential litigant does not need to prove intent to hold a lender liable for creating a “disparate impact.” Lenders are unsure of how to reconcile QMs and showing ability to repay while avoiding any detectable disparate impact among borrowers. So while the law strongly incentivzes(ed) lenders to make safer loans, in a way it also punishes them for doing so. Industry officials asked HUD to clarify the law and its intent, and HUD politely declined. Apparently HUD officials felt the courts would be better equipped to do their job.

 Concluding thoughts

Americans might be doomed to housing crises for a long time to come as long as we hold on to the dream of owning a home. The reality is that not all people are qualified to get a mortgage. If questionable financials are not a good indicator, perhaps the fact that many borrowers didn’t bother to read the mortgage contract they signed is more telling. Homeownership certainly provides widespread economic benefits for our country. As long as our government plans to make homeownership a reality though, it must acknowledge the inherent risk of this policy and find a more practical way of protecting the public from it.

The world looks to Asia as a massive workforce that produces a lot of the products the world enjoys today. iPhone are created in China, Samsung phones and television are created in Korea, Japan has been known to be at the forefront of technology, the world has become a smaller place. However a rising issue among the younger generation is entry into the work force.

Japan has struggles with the younger generations introduction into the work force. The issue in Japan stemmed from Japan’s desire to protect their older workers. As a result, many younger workers who are extremely qualified often times are more skilled than the older workers. Younger more educated workers were then kept on a temporary staff that yielded no stability that caused several young workers to move to other Asian countries like Taiwan.

In China, parents reported that their children do nothing but sit at home and play video games. The world of online gaming has grown so big all over Asia that many parents are unable to motivate their children to pursue a life outside their online avatar. The Japanese even have a word for this, an Otaku. The word Otaku in Japanese means, a young person who is obsessed with computers or particular aspects of popular culture to the detriment of their social skills. This past summer while traveling in Shanghai my father and I had a conversation with the taxi driver discussing how his son was in his 30’s unemployed and constantly playing video games at home. He did not work, he did not leave the house and only socialized with his friends online. We were shocked to hear this story as a common thread among many parents in China. The taxi driver explained that his son did not feel motivated to leave the house and search for a job as time passed, his son became less qualified and the barrier of entry began to rise rapidly. At this point in his thirties he sees no point in trying to enter the work force because the advance of his career seems handicapped.

China’s economy has resulted in fierce competition for limited labor positions. However as time goes on and the generations grow older and the current workers are unable to work, the generation to replace them will not have skills that the previous generation had. The opposite is true in Japan but the result is the same. In Japan, younger workers are leaving Japan to work elsewhere and over time once the current workers retire, the scarce amount of skilled workers will have extreme detrimental effects on the economies in Asia specifically China and Japan. This could lead to a massive problem for many Asian countries that deal with the older workforce issue. Currently, the younger generations have been so discouraged for work that the issue has already started to unravel, there are jobs, but no job applicants because either no one is qualified or the super qualified has left the country already.

About a month ago, I walked back from school to my apartment and on that walk back home I always pass a line of food trucks. These food trucks ranges from selling anything from Acai bowls to grill cheeses, I have seen food trucks for lobster rolls and even traditional Taiwanese snacks. These food trucks aid in the diet of college students, instead of eating top ramen, we get to enjoy Gyros, Tacos and the USC based Craft truck. Why have so many started to pop up LA?

Several food truck owners express their reason for entering the food truck business simply by saying that it takes a little less capital starting a food truck than starting a restaurant. The owner of the grill cheese truck express his happiness when he has customers that wait over an hour just to try his grill cheese and when they do the smile that emerges on their face is priceless. He also explained in a quick interview with The Thrash Lab that LA has been dying to experience street food for awhile, if you look around the world to Asia, Europe, and Latin America, street food is very prevalent, night markets flourish and LA’s answer to that culture is food trucks. Okay so we have seen food trucks everywhere, how much does it cost to start one?

Many individuals think that starting a food truck does not actually cost that much and is cheaper because you don’t have to pay for leasing but instead maybe just parking. This is true but starting a food truck ranges from costing $50,000 to $200,000 dollars according to Forbes. The ones spending money closer to $200,000 are usually high end restaurants that are using the food truck as a catering service. Any food truck that is spending less that $50,000 to start may raise concerns about transportation or quality of food preparation. A reasonable amount for starting a reliable food truck ranges from $70,000 to $80,000 dollars. The biggest issue for food trucks is stability. Customers do not know 100% if a food truck is going to be at a specific spot every time. For example, at USC food trucks are constantly fighting over parking spots. Many food trucks will park their own car overnight to save the spot for their food truck in the morning. A couple of weeks ago, an argument between two managers of food trucks sparked because they were fighting over the parking spot; one of the owners laid in the path of the other food truck challenging the driver to run him over. This business if very intense, because not getting that spot could mean the difference of making $500+ dollars that day. This business is extremely competitive especially because the number of new food trucks that are emerging are growing by the month. One of the most popular food trucks at USC is the Kogi truck that comes every Tuesday night at 10pm on Hoover close to campus. The wait can usually take up to 30 minutes to an hour, but it is completely worth the wait. Food truck festivals are also now a reoccurring event.

Google has become one of the world’s largest M&A powerhouse. Ever since its co-founder Larry Page took the position as its CEO, Google has overseen more than 120 deals, doubling M&A activity in the past three years. The breadth of acquisitions and mergers is grandeur–from Robotics to cloud services, biotechnology to the Internet of Things, Google has been taking an extremely progressive move by expanding its portfolio in all areas. It almost seems as if Google is expecting its search engine service to collapse for sure in the future.

What this tells is is that Google ultimately aspires to go beyond making money through online advertising and get into leading the next wave technology.

In 2005, Google bought “Android” for 50 million dollars, a company which by then have only existed for two years. It is told that Android proposed a deal to Samsung first, however they turned down the offer and as a result Android became a part of Google. Although Android was only a small company by then, Google was smart enough to make a bet by foreseeing the future of mobile phone market. Consequently, Google is now taking up 80 percent of the entire OS system.

From then on, Google has continued to make unprecedented M&As. For instance, Google bought a company called Lift Labs, a San Francisco company that makes a high-tech spoon designed to make it easier for people with neurodegerative tremors to eat. The numbers have not been disclosed so we cannot know for sure how much Google had to pay for this company. How much they paid for this acquisition is not all that important; what we want to know is why a search engine company is all of a sudden jumping into the spoon business.

Most of us take eating for granted. However, there are about 11 million people in the U.S. with either essential tremor or Parkinson’s disease who find even the simple act of lifting a spoon to be very difficult and disturbing. For these people, eating can be an embarrassing nightmare since the tremor makes eating very messy. So, Lift Lab’s Liftware device is basically a specially designed spoon and fork that makes eating easier by counteracting the tremors with a bunch of little swivels.

 

Lift Lab’s spoon

Did Google buy Lift Labs just to sell spoons for the disabled? The answer is probably no. For Google, buying this company is not just about making utensils but it’s rather more about finding out ways to improve the understanding and management of neurodegerative diseases such as Parkinson’s disease or essential tremor.

Google has many more projects that are going on inside. They have recently announced in October that it is currently designing tiny magnetic particles to patrol the human body for signs of cancer and other diseases. In addition, Google is also currently developing a contact lens that monitors glucose levels and is also running a so-called baseline study that is an attempt to figure out what makes healthy people healthy.

Some other seemingly unconventional projects they are working on right now include self-driving cars, delivery drone system that fly your packages to your door, and Project Loon, providing internet services to poor and rural areas through flying balloons into the stratosphere.

Google’s first self-driving car

 

No one can predict the future–we don’t know if Google is making a smart choice until we see what happens in the future. Google may collapse or may create an empire in which people cannot imagine their lives without Google. I can’t wait to find out where Google will stand in 30 years.

The online monetary transfer business is one that is growing rapidly as users continue to adopt sending their friends cash through their smart phones. There are two key players are in the market space currently, Venmo and Google Wallet. The peer-to-peer payment space however is not dominated by a single company yet and has a lot of room for growth. These companies allow users to easily transfer cash through mobile apps from friend to friend. This online cash transfer happens quickly and easily allowing people to easily split bills or pay someone back without taking out cash. Users simply enter the payment amount and the friends name and the money is simply deposited in the selected friends bank account. These applications are newly popular and their popularity has led to interest from other parties trying to gain access to the space.

Snapchat recently launched “Snapcash” and integrated cash transaction feature using Square Cash. By going through an outside party for the cash transactions Snapchat puts users at ease knowing they can trust their debit card information is safe. The new payment option is already apart of users existing Snapchat account giving millions of people the access without them even having to download a new app.   Users simply have to enter their debit card information into the application and with the click of a button can send payments to anyone on their friend’s lists. Just like sending a photo user now can send cash.

Payment exchange apps overall have had wide acceptance and praise with many people finding them extremely helpful.  Though there is an overall positive surrounding the applications none individually have gained widespread adoption. The previously existing applications, Venmo and Google Wallet have struggled to gain adoption as they are marketed as new business models and require users to both download and trust these new companies. When entering this space Snapchat has an advantage, as it is a consumer app that people already have friends list created on and would give the technology to people who may never consider downloading it.

While Snapchat has just launched the friend-to-friend payment system the idea behind the system could open many doors for the application. Snapchat along has recently launched advertisements on the application. The advertisements range from a number of products and they allow users to watch short commercials about the product on the application. With Snapcash now integrated into the app, users could potentially have the ability to instantly purchase a product they see in an ad. If Snapchat were to go this route not only would they have great appeal to advertisers but would also generate another efficient service to their customers.   Further than the instant payments, Snapcash could also potentially reference debit card information to better target users with advertisements.

Snapcash is still in its beginning phases but with its current user base and potential for growth it could quickly become the leader in this new monetary exchange space.

I woke up Monday morning (after Halloween weekend), waking up to check social media and experience just for a brief moment, through the small window held in the palm of your hand, the events that took place this past weekend. In previous years, this Monday social media feed had been filled with pictures and videos of friends in their Halloween costumes and the various parties they went to. However, this Monday morning was filled with pictures of all my friends at music festivals. The two major music festivals that occurred this past weekend were Escape All Hallows Eve hosted by Insomniac and HARD Day of the Dead hosted by Hard. The presence of music festivals has been felt since the days of Woodstock, however the frequency of music festivals has risen dramatically in the past few years and its economic effects have not gone unnoticed.

The biggest Electronic Dance Music Festival on the west coast takes place in the middle of June in the infamous city of Las Vegas. This event that attracts over 345,000 festival goers for 3 days is called Electric Daisy Carnival or EDC. Mixjunkies.com reports that “since moving to Las Vegas in 2011, Insomniac has helped generate more than $621 million for the Las Vegas economy. Tickets sales report that festival goers come from all 50 states as well as 48 international countries.

How does EDC create so much revenue? Well people need places to stay, food to eat, gambling to be done, and day clubbing before the event actually happens. EDC actually creates $20.2 million dollars in tax revenue for Clark County. This graphic puts all the expenses into perspective.

EDC is not the only major music festival that generates this much revenue. The four biggest music festivals in the world include EDC, Ultra in Miami, Tomorrow Land in Belgium, and Tomorrow World in Atlanta. Insomniac has also seen how successful EDC is and has hosted EDC is several different locations such as EDC Puerto Rico, EDC Orlando, EDC UK, and EDC Mexico.

With the rise of the internet, the amount of DJ’s that have entered the scene has exponentially grown. As DJ Shadow stated in 2012, “we are living in a musical renaissance.” Baby boomers grew up with rock and roll, Gen X’ers had hip hop and punk rock, the millennials have EDM or electric dance music. Calvin Harris, the highest paid DJ names by Forbes, racked in a whopping 66 million over that past 12 months. The age od EDM has taken over radio stations like KissFM and countless music festivals will continue to emerge in the coming years.

Recently, I have been reading plenty of Facebook and Twitter posts from my friends in Korea talking about the upcoming Black Friday sales. This is an entirely new phenomenon; I have not seen such posts until very recently. As far as I remember, Koreans don’t celebrate American Thanksgiving and there is no such thing as ‘Black Friday’ in Korea. I was introduced to the concept only after I came to the United States. So I wondered how and where the excitement for Black Friday shopping was coming from and began to do my research.

 

Foreign imported goods are very common in South Korea. You can basically get anything you want as long as you’ve got cash in your hands. However, due to exclusive distribution rights held by only a limited number of retailers, many imported goods are often quite expensive comparing to its original price. In other words, many retail stores are able to charge rip-off costs to domestic consumers due to lack of competition.

As the world is getting smarter, so are the consumers. Now that consumers in Korea know how much the original price is for imported goods through searches online, overseas direct purchasing has become a new shopping trend. The word ‘블프’ pronounced as ‘Beulfe’, a contraction of two words Black Friday, is therefore a trending keyword among South Koreans as U.S.’ biggest retail sales action is coming up.

 

The Friday after Thanksgiving is no longer a holiday just for U.S. consumers since Koreans will be taking advantage of Black Friday deals by purchasing goods online through websites like Amazon and Best Buy.

  “Guide” to purchasing goods on Amazon made by a Korean blogger. 

Direct purchasing through online shopping has been trending since last year. Increasing number of cost-conscious consumers are turning their backs from domestic retailers that charge rip-off prices. Individual South Koreans last year spent more than $1 billion on goods from online retailers based outside Korea, a 47% increase from 2012. Among the direct purchases, three fourths of all shipments were good from the U.S.

To look for what Koreans are interested in the most for the coming Black Friday, I have been looking into several Korean blogs, websites and social media to look for trending deals. One interesting finding was that the most-discussed deal was in fact on sales on home appliances made by Samsung and LG Electronics.

Thus this coming Black Friday is not just about foreign goods but is also about getting good deals on Korean products as well. It looks like there will be a lot of reverse purchasing action taking place this time. It has been announced that Sears will be selling Samsung’s 55-inch full-HD TV for $599.9 while the exact same product gets sold for about $1,300 in the Korean market. Korean consumers who are angry at Samsung and LG for their notorious act of dumping have finally found a way to purchase good quality appliances at a much cheaper rate.

For retail business, overseas direct purchases is a nightmare. They have seen a steep decrease in their sales ever since Korean consumers have found smarter ways to get better deals through overseas purchases through the Internet.

On the other hand, shipping business is at its height. In order to process the increasing number of overseas direct purchases, delivery services in Korea have been making adjustments. Hyundai Logistics, one of Korea’s biggest shipping companies expects a 60% year-on-year increase in the number of overseas shipments during this holiday season. The company recently added new processing facilities in the U.S. just to process extra demands.

According to Bank of Korea, overseas direct purchasing so far only takes about 0.2~0.3% in the domestic market. Nonetheless, the current phenomenon would not stop and will be taking up more and more part unless domestic retail price goes down. As a consumer myself, I am more than happy to see the current phenomenon happening in South Korea. I cannot wait to see how the retail business in Korea will change to adapt to the current situation.

 

App Spring. The name comes from a shopping destination in New York City’s SoHo – “Spring Street.” Similar as most of the stores on Spring Street, the app “is meant for the modern high/low shopper, who buys key luxury pieces and mixes them with fast-fashion[1].”

Source: http://www.wtoutiao.com/a/412770.html

In the middle of August, a new mobile shopping app was launched – Spring, and even the media called it “revolutionary[2].” Two months before its debut, Spring has already gained $7.5 million in its series A financing. According to WWD, a website aims at providing news about fashion, beauty and retail industry, investors includes Groupe Arnault, which is under the charge of Bernard Arnault, the president of LVMH Group; Theory’s former CEO and renowned fashion investor Andrew Rosen; Coach’s former CEO Lew Frankfort; and Rachel Zoe, who is recently a heated spot in the fashion industry.

 

Consumers can make a purchase buy only one click, except for the first time when they’ll need to input their credit card information and shipping address.

Source: http://www.wtoutiao.com/a/412770.html

Spring is a mobile shopping app which adopts marketplace pattern and combines photo sharing app Instagram’s visual elements, dating app Tinder’s compulsive swipe-down design, and Twitter’s “favorite” and “follow” functions. Here’s how Spring works. Brands release selective products on the app, and they are in charge of pricing and display of products. Consumers can make a purchase buy only one click, except for the first time when they’ll need to input their credit card information and shipping address. Spring will collect orders made on the app, and then send back to the order managements systems of each brand to let them process the orders and take care of delivery.

Spring is different because it provides a platform for brands to communicate with consumers directly. There used to be mainly 2 ways for brands to connect with consumers via mobile apps. The first is some popular social networking apps such as Instagram and Pinterest. However, consumers can’t buy directly from these apps. In addition, as David Tisch, one of the co-founders of Spring said, it can get awkward when brands come in social media. The second is social networking e-commerce apps, such as DongXi. Usually, at first, the apps will allow consumers to upload and share photos of the products they like. But later, the “buy” function will be introduced. But still, as Tisch mentioned, “the best shopping experience is not user-generated content and brands then jumping in, but how to capture that feeling of walking 5th Avenue or your favorite mall.”

That’s how Spring is unique. It’s a pure e-commerce app which fills the gap between brands and consumers, but at the mean time, it saves their time to download independent apps from retailors or brands. Instead of pushing all their products to users, brands only release products “with souls[3],” which means products that these brands believe can represent and show their image. It leads brands to focusing more on their products, because products are their advertisements on Spring – this is how Spring enables brands to talk to consumers directly.

Traditional e-commerce platforms, such as Zappos, usually act like an agent between brands and consumers. They carry the brands which grant them rights to sell their products, and these platforms need to take care of the whole purchase process from stocking, displaying, to shipping. Thus, the cost of traditional e-commerce platforms includes inventory and shipping expenses, and they mainly profit from sale.

Brands manage their own accounts, and Spring doesn’t participate in their selling process – it’s only a platform for brands to communicate with their consumers directly.

Source: http://www.wtoutiao.com/a/412770.html

Different from traditional e-commerce platforms, Spring isn’t involved in any purchase process except for collecting orders made on the app and sending them back to every brand’s independent order management system. In other words, it doesn’t have inventory and shipping cost at all – its major expense is the app’s operating cost.

Spring profits from commission from every purchase, which according to Tisch, is less than 8%, and even lower when the product is exclusive on Spring. This measure strengthens the reciprocal relationship between brands and the app. On one hand, exclusive products can help Spring attract more users; on the other hand, brands will be more able to speak their “souls.”

However, another co-founder, who is also the CEO of Spring, Alan Tisch said that the app is able to gather information about consumers’ browsing and purchasing habits. Not only can brands better control their inventory by analyzing the statistics which show the sizes and colors that are the best sellers, but also they can know how to draw consumers’ attention by interpreting the data collected by Spring – this is no doubt a tempting asset. However, Alan Tisch didn’t mention how much they’ll charge for the service.

Spring indeed provides something new to its consumers, but whether it is revolutionary is still, in my opinion, open to discussion. I have to say that, I felt the impulse to make a purchase when using the app, because all the products on it were so selective and the visuals were great. However, if Spring wants to stay in advantage, it has to find out a way to utilize statistics collected from users’ browsing habits and purchasing patterns, because this is something only Spring can do but nothing else can. Spring is the only one pure e-commerce app which has perfectly incorporated beneficial features of social media while avoided its shortcoming – in this case, Spring is indeed revolutionary.

 

 

 

[1] http://www.vogue.com/972293/spring-app-changes-mobile-shopping/

[2] http://www.prnewswire.com/news-releases/introducing-spring-a-revolutionary-mobile-shopping-experience-271227781.html

[3] http://www.forbes.com/sites/alexkonrad/2014/08/14/how-david-tischs-new-app-spring-looks-to-crack-mobile-shopping/

One of the victim babies who had used poisoned domestic infant milk powder.

In 2008, baby formula milk powder scandal broke out in China. Several domestic Chinese milk powder brands used melamine as protein adulteration, and thus affected more than 53,000 babies. Nearly 14,000 kids were severely sick. Many of them became permanently disabled, and four of them even died. Since then, Chinese consumers began to turn to foreign infant milk powder. They don’t even want to buy it in Chinese retail stores, because they’ve lost faith in made-in-China.

Source: World Bank

Source: General Administration of Customs of the People’s Republic of China

Infant milk powder resell industry was thus born. This secondary market has fully utilized Chinese market’s massive demand for infant milk powder to profit. As shown above, according to a report conducted by World Bank, China consumes nearly 1/3 of baby formula milk powder around the world each year. General Administration of Customs of the People’s Republic of China further pointed out that two out of three families in China will choose import milk powder, and 14% of all foreign milk powder comes from informal channel, which means from individual resellers. Fourteen percent might sound like a small number, but it actually accounts more than 60 million cans every year, which means nearly 170 thousand per day – and it finally leads to a business valued more than $3 billion.

A photo taken in a Germany retail store. Many products were sold out on the infant milk powder isle.

As a consequence of Chinese excessive demand, infant milk powder is consistently out of stock in some areas in foreign countries. However, the phenomenon isn’t caused only by Chinese consumers.

The first reason that needs to be taken into consideration is the supply chain of milk powder industry is a typical model of low-elasticity. This means that even if manufacturers want to respond to the massive demand, they can’t. First, it takes at least three years to raise cow from its birth to the day it can produce. In other words, it will take at least three years for manufacturers to increase supply. Besides, manufacturers just won’t take the risk to increase the supply of cows to cope with the unknown market after 3 years. Imagine that if demand dropped after 3 years, it would cost them even more to take care of the surpluses.

The second reason that also leads to insufficient demand is the marketing strategy of milk powder manufacturers themselves. Aptamil and Milumil are 2 sub-brands under Milupa, the best milk powder brand in Germany. These two brands use the same milk resources. Chinese consumers love Aptamil, but they don’t buy Milumil. Usually, milk powder brands distribute their products both online and offline. They’re free to adjust prices online, but not offline, because they’ve signed contracts with retail stores.

Aptamil had been out of stock in retail stores since the beginning of January. However, Aptamil were off-shelf not only because it was sold out. Milupa said that there were problems with Aptamil’s milk resources, and they decided to stop producing Aptamil temporarily.

But interestingly, at the mean time, Milumil, which uses the same milk resources, was still on shelf. Even more interestingly, Milupa was still selling Aptamil online, with an increased price. Around the middle of April, after 3 months, Milupa reproduced its new Aptamil as a new product with a higher price in retail stores. The infant 1 milk powder used to be 15 euro, now it is 23.

It’s obvious that this has increased resellers’ cost dramatically. However, except for strategic price change from foreign milk powder manufacturers, new policy implemented by China Customs has also brought pressure to the secondary market. In order to protect domestic brands and control informal milk powder import, China Customs decided to tax packages that values more than $150 – the number used to be $1,350. To be more specific, in the past, reseller could send 26 cans in one package each time. But now, they can send only 2.

The new policy has further squeezed profit, because shipping companies charge much less for additional pounds. For example, here in Los Angels, the first pound costs $11, and only $4 for each additional pound. How does shipping price affect infant milk powder resellers’ profit? Resellers in the U.S. used to be able to earn more than $13 a can; now the number is around $9.

The existence of infant milk powder second market is no doubts an interesting phenomenon, which reflects many problems in Chinese market. The government’s move to protect domestic market is understandable. However, if it doesn’t reinforce food administration in China to gain back consumers’ trust, its attempt to solve the problem merely by isolating external forces will be eventually in vain.