Beyond Payment — The Unlimited Future of Alipay
by Yanting Qian
Alipay was founded by Alibaba Group in 2004, originally launched to tackle the trust problem between sellers and buyers in anonymous online retail. Its parent company, Ant Financial, recently spin off from Alibaba Group in 2014 in preparation for an IPO.
Alipay is the biggest online payment platform/ mobile wallet in China today with approximately 75 billion valuation (Uber’s newest valuation at 66 billion) and 300 million active users (PayPal has 197 million active users worldwide) in 2016.
China had 1550 billion annual online payment volume in 2015, of which 73%, or say 1131.5 billion was the annual volume for Alipay (Source: China Finance Net), comparing to PayPal’s 354 billion annual volume in 2016 (Source: PayPal official website).
It’s biggest rival, Tenpay, owned by Tencent Holdings, which has won its popularity by serving as an embedded payment method in Wechat, however, only accounted for 17.4% of 2015 China online payment volume comparing to Alipay’s 73%.
Although the user number doesn’t differ significantly between PayPal and Alipay. Alipay has much more frequency in transaction than PayPal. PayPal had 38.9 million transactions per day on Cyber Monday in 2015 while Alipay had 1.5 billion transactions on 11.11.2016. The payment amount per each transaction is a lot more fragmented for Alipay.
These “fragmental trades” are critical. By critical, I do not mean the ability to hold fragmental trades, which I believe any payment company do have today, but the idea behind those billions of small transactions.
The critical idea is in fact embedded in the company name: Ant Financial. We all know that ants are small. Because they are small, they can reach anywhere. If billions of ants get together, they break walls. This happens everywhere in nature: ocean is made of drops of water; any living or nonliving thing is made of atoms.
Today we talk about the undeserved population in FinTech. We see great potential on exploring the market of the undeserved and the fragment market of the unbanked. It is true that payment technology can help solve the social problems and make profits. However, I think that the focus is misplaced today. The wrong focus today focuses on lowering cost in payment process, but the correct focus is outside payment. Only big banks or large institutions with a lot of cash to handle would worry about lowering digits of transaction costs, small institutions like FinTech startups doesn’t really have to worry about a few cents of transaction cost since that would not even have a noticeable impact on their income statement. Thus, it’s inevitable that all those payment startups who try to lower transaction cost or enhance transaction security will ultimately yield to banks.
Alipay is different. It was born out of a retail industry. It knows that every transaction ties to some physical goods, either product or service, so it starts from linking those physical goods to people. This is the practice which really creates value. Alibaba’s Taobao has advanced logistics that efficiently distributes goods worldwide with low cost thanks to the cheap labor market and industrial development in China. When Alipay entered U.S. market, it first cooperated with retailers like Macy’s, Saks Fifth Avenue, Bloomingdale’s. Beside those, it also had cooperation with tourist attractions such as Napa Valley. Chinese tourists can now use Alipay in Napa Valley and have their wines ship back to China.
Alipay starts from the right place by focusing on the real value outside payment itself. It was a brilliant movement but would take a long time to have a large system set up. Nevertheless, climbing a tough mountain trail is better than a bunch of empty talk.
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