THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW The information and statistics set forth in this section and elsewhere in this Document have been derived from the industry report commissioned by us and independently prepared by Oliver Wyman, in connection with the [REDACTED]. In addition, certain information is based on, or derived or extracted from, among other sources, publications of government authorities and internal organizations, market statistics providers, communications with various PRC government agencies or other independent third party sources unless otherwise indicated. We believe that the sources of such information and statistics are appropriate and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information and statistics are false or misleading in any material respect or that any material fact has been omitted that would render such information and statistics false or misleading. None of our Company, the Joint Sponsors, the [REDACTED], the [REDACTED], the [REDACTED] or their respective directors, advisors and affiliates have independently verified such information and statistics and no representation has been given as to their accuracy. Accordingly, such information should not be unduly relied upon. REPORT COMMISSIONED FROM OLIVER WYMAN We have commissioned Oliver Wyman, a third-party global management consulting firm, to conduct analysis and prepare a report (the “Oliver Wyman Report”) on the PRC payment industry and market. Oliver Wyman is a wholly-owned subsidiary of Marsh & McLennan Companies, a global management consulting firm with 50 offices in 26 countries. It has industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. We agreed to pay Oliver Wyman a fee of RMB1.28 million for the preparation and use of the Oliver Wyman Report. We have extracted certain information from the Oliver Wyman Report in this section and elsewhere in this document to provide our potential investors with a comprehensive presentation of the industries in which we operate. Unless otherwise indicated, market estimates or forecasts in this section represent Oliver Wyman’s view on the future development of the PRC payment industry. In preparing the report, Oliver Wyman has relied on statistics and information obtained through both primary and secondary research. Primary research includes interviewing industry insiders and recognized third-party industry associations, while secondary research includes reviewing corporate annual reports, databases of relevant official authorities and professional agencies, independent reports and publications, as well as the proprietary database established by Oliver Wyman during the past decades. Oliver Wyman has also cross-checked the data obtained from different sources to ensure such data is in line with the practice of the industry. During the forecast period from 2020 to 2023, the forecasts were made by Oliver Wyman on the basis of the following assumptions: • The social, economic and political conditions in China are expected to remain stable during the forecast period; • China’s economy is expected to continue to grow steadily during the forecast period; • The key drivers of China’s third-party payment industry are expected to continue to drive the development of the third-party payment market during the forecast period; and • The third-party payment market in China is not expected to be materially and adversely affected by any extreme circumstances during the forecast period. –82– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW Our Directors confirm that, after taking reasonable care, they are not aware of any adverse change in market information since the date of the Oliver Wyman Report which may qualify, contradict or adversely impact the quality of the information in this section. OVERVIEW OF CHINA’S THIRD-PARTY PAYMENT INDUSTRY Third-party payment industry refers to non-bank payment service providers acting as the intermediary to provide payment processing and settlement services between merchants and customers. Macro drivers behind China’s payment market There are multiple macro factors that drive the rapid growth of the payment service industry in China. Shift in Chinese economic structure The continuous fast growth of China’s economy has presented immense opportunities for market participants in the payment service industry. From 2013 to 2019, China’s real GDP has increased from RMB52 trillion to RMB77 trillion, representing a CAGR of 6.8%, and it is expected to remain relatively strong at around 5.6% per year in the next five years. China’s growth model is shifting from an investment-driven model towards a consumption-driven model. Consumption has played an increasingly important role in China’s economy with its contribution to real GDP increased from 37% in 2013 to 41% in 2019, and it is expected to reach 43% in 2023. The increase in consumption will drive the growth of the payment service industry. Regarding the Chinese enterprise development, small and medium enterprises, which have contributed over 60% of China’s GDP, 50% of tax income and 80% of urban employment in 2019, are taking up increasing importance for the Chinese economy. The increasing importance and growing number of small and medium enterprises will continue to drive the growth of the payment service industry. Changing consumer behavior and retail landscape Chinese consumers are becoming more sophisticated and are increasingly accustomed to technologies being applied in consumption. In a survey conducted in 2018, over 53% of Chinese consumers interviewed would purchase a new product of innovative technology introduced to the market, compared with the global average of 29%. 59% of Chinese consumers interviewed would shop online, compared with the global average of 37%. The rise of “new retail” model is also stimulating the development of China’s payment market as retailers will apply innovative technologies, from big data analytics in customer acquisition to the payment method at point-of-sale, to improve customer’s experience. Electronic payment service, especially QR code payment, is highly demanded by merchants. –83– THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW Increasing smartphone penetration and impact of 5G rollout The Internet penetration in China is expected to grow continuously driven by the development of mobile network. Upon the coming national rollout of 5G network in China in the next few years, smartphone penetration rate is expected to further increase, driven by the critical improvement in mobile Internet speed and the drop in price of smartphones. Rapid growth is expected for China’s mobile Internet users, which is forecasted to grow from 857 million in 2019 to 1,029 million by 2023 and mobile population is expected to account for almost 100% of the Internet population. Regulatory and policy support to facilitate a more healthily developed payment industry In recent years, PBOC has issued various laws and regulations to crack down unauthorized payment related activities. The regulations significantly reduced the amount of unlicensed payment service providers. As of December 31, 2019, only 16 players were granted both national bank card acquiring license and mobile phone payment license in China, and there has been no new third-party payment license issued since 2016. The value of having payment licenses increases as the supply of license tightens and barriers of entry become higher. Further, the implementation of the Notice on Migrating the Online Payment Business of Non-Bank Payment Institutions from Direct Connection Mode to Network Platform Processing (中國 人民銀行支付結算司關於將非銀行支付機構網絡支付業務由直連模式遷移至網聯平台處理的通 知) in August 2017 breaks the direct connection between third-party payment service providers and banks. Third-party payment service providers are required to use authorized clearing houses for clearing services. The competition between clearing houses could potentially drive down the settlement and clearing fees and lead to a less intense price competition among third-party payment service providers. As such, third-party payment service providers will focus more on non-price competition such as enhancing service capabilities, users’ experience of merchants and product innovations. Such regulation also saves the time and costs of third-party payment service providers as they no longer need to deal with different banks one by one for clearing or settlement agreements. Rapid growth of China’s third-party payment market The global payment industry is transitioning towards non-cash payment.As a result of the macro drivers mentioned above, China and other emerging Asian countries have shown fastest growth in the world as the number of non-cash transaction has increased from 29 billion to 116 billion, at a CAGR of 32.0% from 2013 to 2018. Looking forward, it is expected that China will be the fastest growing region in non-cash transactions, outperforming any other regions. On one hand, consumers are more readily adapted to the use of online channels